Organizational Culture, Business-To-Business Relationships, and Interfirm Networks [1 ed.] 9780857243065, 9780857243058

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ORGANIZATIONAL CULTURE, BUSINESS-TO-BUSINESS RELATIONSHIPS, AND INTERFIRM NETWORKS

ADVANCES IN BUSINESS MARKETING AND PURCHASING Series Editor: Arch G. Woodside Recent Volumes: Volume 7:

Advances in Business Marketing and Purchasing

Volume 8:

Training Exercises for Improving Sensemaking Skills

Volume 9:

Getting Better at Sensemaking

Volume 10:

Designing Winning Products

Volume 11:

Essays by Distinguished Marketing Scholars of the Society for Marketing Advances

Volume 12:

Evaluating Marketing Actions and Outcomes

Volume 13:

Managing Product Innovation

Volume 14:

Creating and Managing Superior Customer Value

Volume 15:

Business-to-Business Brand Management: Theory, Research and Executive Case Study Exercises

ADVANCES IN BUSINESS MARKETING AND PURCHASING VOLUME 16

ORGANIZATIONAL CULTURE, BUSINESS-TO-BUSINESS RELATIONSHIPS, AND INTERFIRM NETWORKS EDITED BY

ARCH G. WOODSIDE Boston College

United Kingdom – North America – Japan India – Malaysia – China

Emerald Group Publishing Limited Howard House, Wagon Lane, Bingley BD16 1WA, UK First edition 2010 Copyright r 2010 Emerald Group Publishing Limited Reprints and permission service Contact: [email protected] No part of this book may be reproduced, stored in a retrieval system, transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without either the prior written permission of the publisher or a licence permitting restricted copying issued in the UK by The Copyright Licensing Agency and in the USA by The Copyright Clearance Center. No responsibility is accepted for the accuracy of information contained in the text, illustrations or advertisements. The opinions expressed in these chapters are not necessarily those of the Editor or the publisher. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: 978-0-85724-305-8 ISSN: 1069-0964 (Series)

Emerald Group Publishing Limited, Howard House, Environmental Management System has been certified by ISOQAR to ISO 14001:2004 standards Awarded in recognition of Emerald’s production department’s adherence to quality systems and processes when preparing scholarly journals for print

CONTENTS LIST OF CONTRIBUTORS

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EDITORIAL REVIEW BOARD

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CHAPTER 1 INTRODUCTION: THEORY AND PRACTICE OF ORGANIZATIONAL CULTURE, B2B RELATIONSHIPS, AND INTERFIRM NETWORKS Arch G. Woodside

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CHAPTER 2 DISCOURSES IN ORGANIZATIONAL CULTURE: BANK MANAGERS AND EMPLOYEES PERCEIVED RELATIONSHIPS AND PERFORMANCE Farah Asif

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CHAPTER 3 MODELING THE STRUCTURE OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann

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CHAPTER 4 UNDERSTANDING AND MODELING THE DYNAMICS OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann

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CHAPTER 5 STRUCTURE AND DYNAMICS OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann

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CHAPTER 6 ORGANIZATIONAL INNOVATION AND OUTCOMES IN SMES Sylvie Laforet

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CHAPTER 7 ANATOMY OF RELATIONSHIP SIGNIFICANCE: A CRITICAL REALIST EXPLORATION Filipe J. Sousa and Luis M. de Castro

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CHAPTER 8 MARKETS-AS-NETWORKS THEORY: A REVIEW Filipe J. Sousa

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CHAPTER 9 METATHEORIES IN RESEARCH: POSITIVISM, POSTMODERNISM, AND CRITICAL REALISM Filipe J. Sousa

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LIST OF CONTRIBUTORS Farah Asif

Auckland University of Technology, Auckland, New Zealand

Sergio Biggemann

University of Otago, Dunedin, New Zealand

Luis M. de Castro

University of Porto, Porto, Portugal

Sylvie Laforet

University of Sheffield, Sheffield, UK

Filipe J. Sousa

University of Madeira, Funchal, Portugal

Arch G. Woodside

Boston College, Chestnut Hill, MA, USA

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EDITORIAL REVIEW BOARD Fabio Ancarani University of Bologna, Bolgana

Mette Praest Knudsen University of Southern Denmark, Odense

Stefania Borghini Bocconi University, Milan

J. David Lichtenthal Baruch College, City University of New York

Michele Costabile University of Calabria, Arcavacata

Hans Mu¨hlbacher University of Innsbruck, Austria

Michael Gibbert Bocconi University, Milan

Chezy Ofir Hebrew University, Jerusalem

Francesca Golfetto Bocconi University, Milan

Diego Rinallo Bocconi University, Milan

Stephan Henneberg Manchester Business School, Manchester

Gu¨nter Specht Technical University Darmstadt, Germany

Andreas Hinterhuber Hinterhuber and Partners and Bocconi University, Milan

Arch G. Woodside Boston College, Chestnut Hill

Wesley J. Johnston Georgia State University, Atlanta

Fabrizio Zerbini Bocconi University, Milan

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CHAPTER 1 INTRODUCTION: THEORY AND PRACTICE OF ORGANIZATIONAL CULTURE, B2B RELATIONSHIPS, AND INTERFIRM NETWORKS Arch G. Woodside ABSTRACT This paper offers a set of introductory propositions of associations among organizational culture, firm actions and outcomes, business-to-business (B2B) relationships, and interfirm networks. This paper briefly introduces the eight main papers in this volume and describes the unique and valuable contribution each makes to the business marketing and purchasing literature. Hopefully your reading of this volume will provide the same take-away conclusion as my own: the papers come together to provide rich and provocative propositions and findings about how participants in B2B relationships interact and make sense of worlds.

INTRODUCTION This volume focuses on the perceptions of executives on their organizational cultures (OCs) and their explanations of their relationships with supplier Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 1–9 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016004

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and customer firms and interfirm network relationships. This introduction describes how developing a gestalt of perspectives of OC, firm actions and outcomes, business-to-business (B2B) relationships, and interfirm networks informs understanding on how actions occur and why firms perform well or poorly.

A GESTALT VIEW OF CULTURE, FIRM ACTIONS AND OUTCOMES, RELATIONSHIPS, AND NETWORKS Fig. 1 is a visualization of many of the key concepts in the papers of this volume. The dotted rectangle for OC is to indicate both the static and the dynamic nature of a firm’s culture. Schein (2005) emphasizes that OC (i.e., the collective understanding of ‘‘the way we think and do things around here’’) is the most difficult organizational attribute to change, outlasting organizational products, services, founders and leadership, and all other physical attributes of the organization. General Motors several decades attempt to change its OC to avoid death and to prosper bear witness to Shein’s observation. Organizations are unique in their configurations of the following attributes: strategic typology, share meanings, internal marketing, strategic vision, sensemaking views and skills, and operational performance metrics (Woodside, Sullivan, & Trappey, 1999). Although all these concepts do not receive coverage in the papers in this volume, their presence here is to emphasize that OC is a gestalt (i.e. configuration or causal recipe) of how an organization’s beliefs, attitudes, and actions.

ORGANIZATIONAL CULTURE AND FIRMS’ ACTIONS AND OUTCOMES Double-headed arrow number 1 in Fig. 1 represents the proposition that OC and organizational actions and outcomes are mutually dependent. Dramatic changes in actions and outcomes serve to change OC, and OC’s systematic influence tends to resist such attempts at change and to maintain the status quo in ‘‘how things get done here and how we make sense of reality.’’ This systematic battle between the forces of changes and the forces of inertia to maintain OC inertia receives support in the organizational and management literatures (e.g., Christensen, 1997; Huff & Huff, 2000).

Focal Firm X’s Actions and Outcomes 2

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•X

• Supplier 1 ↔ X

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Consultant 1

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Ct1

S21 ↔ S1 ↔ X ↔ C1 ↔ C21

S12 ↔ Y

Interfirm Network

Ct21

Organizational Culture, B2B Relationships, Interfirm Network, Firm Actions and Outcomes.

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• X ↔ Customer 1

B2B Relationships

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↔

Fig. 1.

• Strategic type •Share meanings • Internal marketing • Strategic vision • Sensemaking views and skills • Performance metrics

Organizational Culture in Focal Firm X

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FIRMS’ ACTIONS AND OUTCOMES AND B2B RELATIONSHIPS Arrow 2 in Fig. 1 represents the proposition that B2B relationships and the firms’ actions and outcomes are mutually independent. Each firm displays distinctive marketing competencies (DMCs) and sometimes the firm is inept in their interactions with customers, suppliers, and facilitators (e.g., consultants). Skills and inabilities in performing interactions in these three categories of relationships have profound impacts on the survival and success of the firm (Woodside et al., 1999).

FIRMS’ ACTIONS AND OUTCOMES AND INTERFIRM NETWORKS Firms operate within interfirm networks such that the success and failure of a firm’s customers with their customers affect the focal firm’s well-being. Managing immediate-only relationships well is not sufficient to insure survival for the focal firm. Arrow 3 in Fig. 1 visualizes this proposition: effectiveness of firm’s actions and outcomes is mutually dependent on effective operations of interfirm relationships. This view receives substantial support in the supply-chain management literature (Cooper, Lambert, & Pagh, 1997).

ORGANIZATIONAL CULTURE AND B2B RELATIONSHIPS Because of powerful forces nurturing inertia, firms sometimes reject superior new technologies partly due to their failure to embrace new B2B relationships that embed in the adoption process of the new technologies (Woodside, 1996). Executives frequently become comfortable with the status quo and existing B2B relationships. Arrow 4 in Fig. 1 is a visual of the proposition that OC tends to nurture existing relationships and reject new relationships that are necessary potentially for the firm’s survival. Christensen’s (1997) research makes clear the extreme importance of the issue of how a firm nurtures the maintenance of existing B2B relationships and nurture the development of new relationships. Building unique organizations units within the same firm that interact almost exclusively from each other appears to be the only effective solution to this issue.

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ORGANIZATIONAL CULTURE AND INTERFIRM NETWORKS Arrow 5 in Fig. 1 is to illustrate the mutual dependence of OC and interfirm networks. Just as OCs tend to resist change in a firm’s actions and outcomes, OCs tend to resist new configurations in interfirm networks. Organization cultures seek to maintain existing interfirm network configurations until dramatic changes occur in the levels of interactions and sales and profits pass through tipping points. Consequently, changes in OC and interfirm networks tend to be seen by executives as radical shifts rather than gradual developments, but field documentation of such changes indicates that passing through the tipping points follows a few years of trial and error with new interfirm relationships (Woodside, 2003).

B2B RELATIONSHIPS AND INTERFIRM NETWORKS The work by Gupta, Woodside, Dubelaar, and Bradmore (2009) support the proposition that arrow 6 in Fig. 1 illustrates. The success of B2B relationships and interfirm networks are mutually dependent. Research on interfirm networks stretches the advances in theory and practice of supply chain management. Gupta et al. (2009) describe how network champions serve to orchestrate and coach networks of firms, not only B2B relationships; these champions represent greater clarity and deeper sense-making views about how industries achieve synergies that go beyond one-industry borders. Fig. 1 is a snapshot of the theory and practice that unit the following eight papers in this volume. The organization of the papers follows the framework.

DISCOURSES IN ORGANIZATIONAL CULTURE: BANK MANAGERS AND EMPLOYEES PERCEIVED RELATIONSHIPS AND PERFORMANCE Following this introduction to the volume, Asif Farah describes socially embedded discourse within OC within and between managers and employees. He applies the long interview method in a global Dutch bank and

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completes. Twenty-five interviews with managers and employees in the bank’s Service Business Unit. Key findings in the analysis include two results:  Managers perceive discourses of OC negatively in relationship to performance.  Employees perceive discourses of OC positively in relationship performance.

MODELING THE STRUCTURE OF B2B RELATIONSHIPS In the third paper, Sergio Beggemann describes both the structure and processes of B2B relationships relating to four focal companies operating in Australia. The industry settings are as follows: steel construction, vegetable oils trading, aluminium and steel can manufacture, and imaging solutions. The criticality of product quality’s influence on B2B relationships is a take-away principle in this study. May seem obvious but its force is profound in context. For example, Beggemann reports, ‘‘Within case study C problems in product quality are mentioned as the kind of episode that produces interaction. If there is a problem of quality, the customer reacts and makes claims.’’

UNDERSTANDING AND MODELING THE DYNAMICS OF B2B RELATIONSHIPS In the fourth paper, Sergio Beggemann explains the dynamic character of B2B relationships with the aid of rules theory, a theory borrowed from the communications field. He identifies two forms of rules: constitutive rules guide the interpretation of the other’s acts, and regulative rules guide the appropriate response to the interpreted act. He finds that the rules participants apply in B2B interactions are not explicit; they are, instead, the observer’s construction on the basis of his/her observation of the actions and episodes. Rules are context dependent and based on previous episodes as well as on expected future outcomes of the relationship. This paper is an important contribution to both theory and understanding the practice of B2B relationships.

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STRUCTURE AND DYNAMICS OF B2B RELATIONSHIPS In the fifth paper, Serio Beggemann offers a tool chest of templates of figures and tables, as well as instructions on how to use them to facilitate describing structure of relationships. He shows that relationship structure is based on five multidimensional constructs composed of trust, commitment, bonds, information sharing, and distance and dynamics of relationships based on rules of meaning and action, which are called constitutive and regulative rules. This paper is particularly useful for scholars seeking methods to decipher meaning in B2B relationships.

ORGANIZATIONAL INNOVATION AND OUTCOMES IN SMES The sixth paper focuses on the second and fourth rectangle in Fig. 1. Sylvie Laforet offers a conceptual framework for organizational innovation that focuses on three aspects: (1) innovation drivers; (2) positive and negative outcomes of product, process, and ways of working and innovation at the firm level or overall; (3) impact of innovation on the business financial performance. The nine propositions in this paper provide principles for becoming an effective firm that focuses on achieving productive organizational innovations.

ANATOMY OF RELATIONSHIP SIGNIFICANCE: CRITICAL REALIST EXPLORATION In the seventh paper, Filipe J. Sousa and Luis M. de Castro apply marketsas-networks theory (‘‘MAN theory’’) to describe and explain the vertical interactions and relationships established and maintained between firms, in the role of buyers and sellers. This study offers some unique and highly insightful conclusions. For example, One is certain to find among the multiple entities of the business world, interorganizational relationships that the firm develops and maintains for the most part with competitors. Interfirm horizontal cooperation differs from vertical cooperative relationships in structure, powers, and liabilities respects. Inter-organizational relationships are

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ARCH G. WOODSIDE often ruled by explicit contracts, short-lived, and aiming at clear objectives (e.g., new product co-development).

MARKETS-AS-NETWORKS THEORY: A REVIEW Paper 8 may be the single best literature review of MAN theory. The coverage includes more than 300 years of literature and the insights that Filipe J. Sousa offer are brilliant. He clarifies an opaque process extremely well. Sousa’s views lead to the following conclusions. Largely descriptive, MAN theory posits the focal firm as an interdependent entity with blurred and changeable vertical boundaries, heavily embedded in intricate networks of connected business relationships. These vertical cooperative relationships exhibit in general a set of distinctive features (e.g., informality, continuity, symmetry, complexity, adaptations, coopetition, social interaction, and routinization). Owing to this elaborate substance, business relationships are capable to perform a diversity of functions (e.g., access, control, efficiency, innovation, stability, and networking), thus allowing the firm to obtain benefits in excess of sacrifices (i.e., relationship value). Business networks are self-organizing and evolving aggregates of (diversely connected) business relationships and firms and are unbounded, centerless, and somewhat opaque.

META-THEORIES IN RESEARCH: POSITIVISM, POSTMODERNISM, AND CRITICAL REALISM The ninth and final paper is a joy for scholars. With great clarity Filipe J. Sousa describes the contributions of positivism, postmodernism, and critical realism to building theory relevant to B2B contexts. Given the critical importance of contributing to theory when preparing research reports for academic audiences, this paper is must reading for B2B scholars. Sousa offers very helpful advice relevant for relating theory, research, and practice in B2B contexts. His observations include the following points. Each and every scholar and researchers should be made aware of and reflect on the appropriateness of own meta-theoretical commitments, primarily by bearing in mind the object of study. For these (usually taken-for-granted) commitments have a huge impact on the research process and outcomes

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(e.g., theories or frameworks developed or empirical data collected). Consideration of underlying meta-theories reduces greatly the possibility of being at cross-purposes (e.g., when criticizing an opposite theory or challenging contradictory data). Understanding of why substantive theories are adopted, refined, extended, or instead opposed to by scholars and researchers is thus easier to attain.

CONCLUSION This volume fulfills its promise in building a broad and deep gestalt view of the relationships among organizational climate, B2B relationships, a focal firm’s actions and outcomes, and interfirm networks. Although its papers are relevant in particular for B2B scholars, reading this volume offers B2B executives exceptional insights into how their firm’s actions and outcomes are mutually dependent with other firms in its interfirm network.

REFERENCES Christensen, C. J. (1997). The innovator’s dilemma: When new technologies cause great firms to fail. Cambridge, MA: Harvard Business School Press. Cooper, M. C., Lambert, D. M., & Pagh, J. (1997). Supply chain management: More than a new name for logistics. The International Journal of Logistics Management, 8, 1–14. Gupta, S., Woodside, A. G., Dubelaar, C., & Bradmore, D. (2009). Diffusing knowledge-based core competencies for leveraging innovation strategies. Industrial Marketing Management, 38, 219–227. Huff, A. S., & Huff, J. O. (2000). When firms change direction. Oxford: Oxford University Press. Schein, E. H. (2005). Organizational culture and leadership. New York: Jossey-Bass. Woodside, A. G. (1996). Theory of rejecting superior, new technologies. Journal of Business and Industrial Marketing, 11, 25–43. Woodside, A. G. (2003). Middle-range theory construction of the dynamics of organizational marketing-buying behavior. Journal of Business and Industrial Marketing, 18(4/5), 309–335. Woodside, A. G., Sullivan, D. P., & Trappey, R. J. (1999). Assessing relationships among strategic types, distinctive marketing competencies, and organizational performance. Journal of Business Research, 45, 135–146.

CHAPTER 2 DISCOURSES IN ORGANIZATIONAL CULTURE: BANK MANAGERS AND EMPLOYEES PERCEIVED RELATIONSHIPS AND PERFORMANCE Farah Asif ABSTRACT On the basis of research from Dutch bank an empirical framework, this report describes how discourses of organizational culture imply a perceived relationship to performance. The study includes an ethnomethodology of 25 in-depth interviews with two groups includes managers and employees from the Services Business Unit of a global Dutch bank. Results from managers reveal discourses of organizational culture provide a negative perceived relationship to performance. Results from employees show discourses of organizational culture provide a positive perceived relationship to performance.

Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 11–26 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016005

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INTRODUCTION From the 1970s the concept of organizational culture gained proliferated interest on performance (Brinkman, 1999; Brubakk & Wilkinson, 1996) and continues to be an area of research, which contributes to notions of performance (Besanko, Dranove, & Shanley, 2000; Cremer, 1993; Gordan & DiTomaso, 1992; Sorensen, 2002). Alvesson (2004) suggests organizational culture, also understood as organizational discourse, is associated with performance. Managers identify organizational success and growth through discourses of culture. Companies survive or perish depending on discourses of organizational culture. A number of scholars, for example, Kanter (1983), Powers and Hahn (2004), Rashid, Zabid, Sambasivan, and Johari (2003), Sadri and Lee (2001), Smith (2004), and Tichy (1987), say organizational culture is an essential factor for driving the performance of an organization. Alvesson (2004) advocates organizational culture must be understood through interpretation of language, which leads to understand discourses of organizational culture. It is complex to find an analysis that provides account of discourses of organizational culture and performance despite the interest in the field. This paper analyzes how discourses of organizational culture imply a perceived relationship to performance by looking at a global Dutch bank.

ORGANIZATIONAL CULTURE Organizational culture is ‘‘the sharing of certain important beliefs’’ (Tichy, 1982, p. 63), ‘‘shared perceptions’’ (Pfeffer, 1981, p. 12), and ‘‘thick and shared social knowledge’’ (Wilkins & Ouchi, 1983, p. 469). Culture is shared in an organization and relates to symbolic values and social ideals (Louis, 1983). Organizations share a common theme underlying symbolic values of culture, which reconciles the definition of culture as symbolic values of shared beliefs, rituals, practice, and language (Swidler, 1986). Organizational culture, epitomized as a shared understanding and meaning relates to Ogbor’s (2001, p. 592) definition of organizational culture as ‘‘systematic norms, beliefs and attitudes.’’ Gagliardi (1986, p. 621) defines organizational culture as ‘‘a coherent system of assumptions and basic values.’’ Schein (1993, pp. 373–374) refers to organizational culture as ‘‘a pattern of shared basic assumptions.’’

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Conceptualizing organizational culture through shared meanings and understandings (Joanne, 2001) is not enough to understand it. How shared meanings and understandings are conveyed matters. Schneider (1986, p. 353) defines ‘‘The meaning incumbents share about what the norms and values of the organization are.’’ Organizational culture consists of a shared mindset, defining the individual organization’s culture. Organizational culture has no universal definition, because every organization influences how symbolic values are transmitted in their organization. Denison (1996, p. 624) defines organizational culture to include: The deep structure of an organization, which is rooted in the values, beliefs, and assumptions held by organizational members. y Interaction produces a symbolic world that gives culture both a great stability and a certain precarious and fragile nature rooted in the dependence of the system on individual cognition and action.

ORGANIZATIONAL CULTURE AND PERFORMANCE The idea of organizational culture is to develop a shared mindset about how to perform. Alvesson and Wilmot (2002, p. 2) states ‘‘a strong case can be made for taking an interest in corporate culture in relationship to performance. Managers frequently ascribe success such as rapid growth of their culture. Companies win or lose based in the cultures they create.’’ Organizational culture is considered a practice, which cultivates awareness, individual development, employee influence, and diversity in a work environment (Deal & Kennedy, 1988; Goffee & Jones, 1998; Gregory, 1983; Kilmann, Saxton, & Serpa, 1986; Peters & Waterman, 1982; Trice & Beyer, 1993; Rusaw, 2000). Organizational culture is a set of values, beliefs, and behavior shaping and driving the employees’ performance (Deshpande & Farley, 1999; Jones, 1983; Pheysey, 1993; Yavas, 2001). A characteristic of all organizations, through which at the same time, their individuality and uniqueness is expressed. The culture of an organization refers to the unique configuration of norms, values, beliefs, ways of behaving and so on that characterize the manner in which groups and individuals combine to get things done. (Burnes & James, 1995, p. 15)

According to Rotacher (2004), organizational culture matters for an organization’s rise and fall, change, and processes that creates the organization and its brand and therefore is considered an asset for longterm performance. Organizational culture is an amalgam consisting of values, morals, and codes, both written and unwritten and influence organizations in

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terms of performance, modernization, customer service, change, and knowledge (American Management Association, 2008). According to experts, organizational culture is the defining factor in areas of engaging the employees (Browaeys & Price, 2008; Cao, Clarke, & Lehaney, 2000; Collins & Porras, 1994; Davis, 1984; Smith, 2005). Organizational culture is a considerable component in the field of organizational management, and when seen in context of individual organizations and its employees, it implies a constructive balance for achieving the organizational goals and objectives (Rashid et al., 2003). Chapman, Murray, and Mellor (1997) argue organizational culture is commonly adopted as an important strategic management tool, because it relates to an organization’s performance. The interest of an organization is to create sustainable and competitive performance by having the right organizational culture (Hofstede, Neuijen, Ohayv, & Sanders, 1990). Aryee (1991) discusses it is necessary to create a committed workforce within organizations to balance positive performance and to gain and sustain competitiveness. Commitment is an underlying aspect of strategic management approach that motivates employees and their performance evolving from organizational culture. Denison (1984, 1990) conducted research at 34 large American companies showing that organizational culture is related to long-term and short-term company performance. Pfeffer’s (1996) research gives great importance to employees performing in accordance to a company’s organizational culture. Wilson’s (1997) study of corporate success is related to organizational culture with focus on a service delivery environment. Lim (1995) outlines a more critical approach to link organizational culture and performance, whereas Irani, Sharpe, and Kagioglou, (1997) raise the profile of business performance, introducing organizational culture with positive effects on performance. Van der Post, De Coning, and Smit (1998) researched certain culture types that increase organizational performance. Lankford and MintuWimsatt (1999) discuss large American companies such as IBM, Harley, Procter and Gamble, Johnson and Johnson, who believe their success and performance is grounded in a strong organizational culture.

ORGANIZATIONAL DISCOURSE Scholars Boden (1994), Firth (1995), Grimshaw (1990), Gunnarsson, Linell, and Nordberg (1997), Mumby and Clair (1997), Wodak (1996a, 1996b),

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and Van Dijk (1997) introduce new perspectives of organizational culture through organizational discourse. The concept and phenomenon of organizational discourse connects to culture by concentrating on meaning and language. Language expresses meaning, as these are conveyed simultaneously (Alvesson, 2004). Organizational discourse is how certain shared meanings and perceptions (discourses) are constructed to define organizational culture. Organizational culture constructs a shared mindset, whereas organizational discourse sustains it. Organizational discourses reveal expressed symbolic values of an organization and determine the performance of organizations. Organizational discourse also elucidates the notion of shared symbolic values through which humans express meaning. Meaning found identity, and identity is how we see ourselves in relation to others, in a social construct of organizations, forming behavior and determining performance (Fairclough, 2003). Chia (2000, p. 181) argues: Organizational discourse shapes our habits of thought, by legitimizing particular objects of knowledge and influencing our epistemological preferences, is crucial for a deeper appreciation of the underlying motivational forces shaping the decisional priorities y by organizing our preferred modes of thought, organizational discourse works as a relatively unconscious force to restrict vision and to thereby inhibit the exploration of genuinely alternative modes of conception and action.

Organizational discourse is a social structure that consists of expressional modes organizational members espouse, when identifying themselves in frame of the organization. Mumby and Clair (1997, p. 181) say ‘‘discourse is the principle means by which organization members create a coherent social reality that frames their sense of who they are.’’ For a discourse-analytical study, an approach lends itself best which conceptualizes organizations as cultures in order to examine the ways in which organization members engage in the creation of institutional reality. Such research generally takes organizational symbolism, myths, stories, legends, jokes, rites, logos as the most clearly visible articulation of organizational reality. (Mumby, 1988, p. 3)

DISCOURSE ANALYSIS AS METHOD Conducted in-depth interviews at Dutch Bank present a contextual frame, which makes it possible to comprehend how discourses of organizational culture imply a perceived relationship to performance. The analysis highlights how language forms an objective purpose or substance and presumes language does not reflect reality, but represents it. Words only

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matter through discourses, and the meaning can differ according to the choice of discourse they are related to. In contradiction to objective views that are based on ontological questions about reality, discourse analysis is concerned with epistemological questions and with desire to understand social and cultural processes that constructs self-perceptions and images of reality. The social construction of reality matters in relation to the consequences discourses generates (Mumby, 2004). The interest of discourse analysis sediments social constructions, the construction of perceptions uncovers possibilities, which in this case relates to how discourses of organizational culture imply a perceived relationship to performance. Discourse analysis is applied to explore and interpret how perceptions of organizational culture are constructed and how these discourses construct the possibilities for implying a perceived relationship to performance. Illustrating the subsequent and rational blueprint of sedimentation of perceptions, a discourse is defined as ‘‘a relational totality of signifying sequences that determine the identity of the social elements, but never succeed in totalizing and exhausting the play of meaning’’ (Torfing, 1999, p. 87). On the basis of everything is placed in a discourse, the analytical field focuses on articulations in all social constructions. In relation to the collective construction of organizational culture, it is necessary to set focus on the articulations that constructs perceptions of organizational culture and signifies it through representations. Discourse analysis has the methodological advantage to be limited concerning pronouncement of intentions and motives behind the participant’s actions. Appliance of discourse analysis in a sociological paradigm outlines how discursive structures create a presumption for cultural preferences. The perceived discourses of organizational culture from managers and employees are reflected through quotes in the analysis and also state a perceived relationship to performance. Explanations are given during the analysis for the discursive structures stipulating perceptions of organizational culture in relationship to performance (Tayler & Van Every, 1993).

THE STUDY From the 1990s, the financial markets were transformed and increased competition in the banking sector, bringing importance to higher performance (Mullineux, 2007).

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Akamavi (2005) discusses how the financial sector offers more products and services, with focus on customer tailored services. Ennew and Wright (1990) explore how organisations structure and integrate their culture for developing strong corporate performance strategy. Jayawardhena and Foly (2000) say the banking sector in particular faces great internal and external developments, and new services and competition mean stronger focus on performance. This research analyzes how discourses of organizational culture imply a perceived relationship to performance at a global Dutch bank. Twenty-five interviews are conducted with managers and employees from the Service Business Unit. Thirteen of the interviews were with managers. Among interviewees were executive director of group-shared services and the head of Services Business Management (Services Business Control). Twelve in-depth interviews were conducted with employees from the same division.

BACKGROUND TO THE RESEARCH AND FINDINGS This research evaluates organizational culture from a perceptual perspective and as a socially embedded discourse. The findings emphasize on discursive constructions of organizational culture to understand how these imply a perceived relationship to performance. Before discussing key findings it is necessary to look at what discursive types of organizational culture imply a perceived relationship to performance at the bank. One aspect to examine is managers’ perceptions of how discourses of organizational culture imply a perceived relationship to performance. Analysis of Manager’s Statements The work culture is friendly and it is a nice place to work [y] Work colleagues are willing to help one another. The work environment is not competitive [y] Very relaxed and laid back [y] The organizational culture of the bank hurts when looking at how we perform. Other banks are acting more aggressively where we don’t [y] The organizational culture is conservative, Dutch and hurts the performance of the bank. The work culture is friendly and it is a nice place to work – work colleagues are willing to help one another, and it is not competitive environment. The organizational culture is very consensus based, and certainly does not have a positive impact on performance.

Discursive perceptions of organizational culture among managers imply a negative perceived relationship to performance. This is reflected by other

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managers who commented on the perceived relationship between organizational culture and performance of the bank. I don’t know, some people say, it is rooted in the Dutch culture- everything is based on equality in Holland, which potentially hinders the company to be more progressive. The risk reward is also there. Dutch culture is more natural. Our bank’s culture is not go get it, and aggressive compared to other banks. The large part of the bank is still Dutch. The organizational culture has a negative impact on our performance. The culture should focus more on delivery and higher performance and should be more autocratic [y] The goals have not been achieved enough and there is less focus on delivery. We should focus on being a bank. Good idea, however, the delivery is not being aimed at. The diagnosis, a change in culture will help. Necessity and survival- banking is becoming more global, with more pressure on 24 hour banking. Now days we are going to low margin, cut throat. There is a need for a more aggressive approach. We are not good at closing the deals. Not like Goldman Sachs. The organizational culture has hurt our performance- we are not focused enough. It has not performed well in comparison to its competitors- A bit laissez faire here. The organizational culture has a particular flavour and maybe there is too much loose ends and self motivation is missing [y] Not enough focus on delivery and accountability- people seems to get away with stuff. It has to do with the company structure. Accountability is missing.

The responses from managers show that discourses of organizational culture imply a negative perceived relationship to performance. The bank also has a strong influence from Dutch culture and discourses as consensus, less delivery, accountability, and laissez-faire among employees are argued to contribute negative on performance. The culture of the bank is overall perceived as relaxed, easygoing, with laidback manners and attitude, but also with a collective, homogeneous approach. The organizational culture is not defined as cut throat in comparison with competitors such as Goldman Sachs. Managers also highlight the bank does not perform aggressively enough to achieve goals. The organizational culture of the bank is not suffering from an autocratic management style in contrary the relaxed culture is perceived to have hurt performance. Managers desire a change in the culture of the bank being more autocratic, as they perceived an existing influence from the organizational culture to have a negative perceived relationship to performance. The discursive perceptions of organizational culture are perceived positive among managers, although these become negative when implying a

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perceived relationship to performance. These were mainly identified through relaxed and laid-back perception of the culture. Managers revealed an affectionate relationship to the culture of the bank by implying it is friendly, nice, laid-back easygoing, which are also perceived negative to hurt the performance.

Analysis of Employees Statements The other aspect to examine is employees’ perception of how discourses of organizational culture imply a perceived relationship to performance. Our organizational culture is not Americanised or like Goldman Sachs. Organizational culture has positive contributions on our performance. We are lucky to have a bank that value employees, gives freedom, trust, and provides a none-aggressive environment. AAB is not like other banks. The work culture is friendly and it is a nice place to work – work colleagues are willing to help one another, it is not competitive.

Discursive perceptions of organizational culture imply a positive perceived relationship to performance. This is reflected by other employees who comment on the perceived relationship between organizational culture and performance of the bank. If the four concepts of respect, integrity, professionalism and teamwork which are our corporate values would work it would help performance – because these hold up a global concept of sticking together representing one bank [y] Teamwork increases the performance. I would believe based on the four concepts of respect, integrity, teamwork and professionalism that it helps us perform better. It is a good thing to have a good organizational culture because it helps people to perform. Teamwork helps and so does respect. It helps on our performance and to be a good employee.

Employees signify a positive work environment, given conditions of trust and freedom, and in return the employee feels valued. It is an emphasized discursive implication that the employee perceives a positive relationship between the organizational culture and performance. The feeling of solidarity by being a different bank builds the positive discursive image of the perceived organizational culture. The discursive image of the bank is also reflected through a non-aggressive environment and through hidden identification of the other, and the financial institution as the antagonist,

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which justifies the positive perceived relationship to performance. Employees present a discourse where reality is perceived through antagonising the other, the competitors. Overall employees indicate organizational culture at the bank is laid-back, relaxed, flexible, based on teamwork and respect, but also trust and freedom. Employees also perceived an easy going, helpful, friendly, and a flat hierarchy culture at the bank defined through integrity, teamwork, respect and professionalism. Employees signified great satisfaction working for the bank in comparison with American companies, epitomized as cut throat. Overall, employees’ discursive perceptions of organizational culture imply a positive perceived relationship to performance. Managers’ and Employees’ Perceptions of Organizational Culture’s Impact on Performance Managers and employees perceive discourses of the organizational culture in relationship to performance differently. Managers present a cynical discernment on the banks culture revealing it has a negative impact on performance. Employees perceive discourses of the organizational culture to have a positive impact on performance, which the following statement reflects: The way people deal with each other, there is a high performance. It is laid-back like a family. The employees know what it is about.

ANALYSIS Distinction in discourses at play at the bank and discursive perceptions of organizational culture are understood as a source of knowledge that constructs reasons for managers’ and employees’ performance. It also forms a discursive identity that relates to teamwork and respect, and these constitute the possibilities for practising performance (Hardy, 2001). Berger and Luckmann (1967) argue the human reality is reproduced through people’s acts and interpretations of their knowledge. These are also preserved and shared through human interactions, which relates to mutual shared knowledge of reality and becomes strong unbreakable patterns. Discursive perceptions of organizational culture are reflected through official corporate statements. This not only upholds the organizational culture as shared knowledge and interaction but also constructs an objective reality of the social reality perceived in discursive manners by employees to be respect, integrity, professionalism, and teamwork.

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A shared unbreakable pattern based on knowledge and interaction of the shared knowledge constructs discourses of organizational culture as the perceived reality. The discursive perceptions of organizational culture are providing managers and employees a solution that is transformed into belief, which is a part of the conceptual process that justifies actions and behavior (Schein, 2004). The organizational culture of the bank is perceived as a discursive construction of knowledge at the bank that managers and employees identify themselves comfortably through declarations as ‘‘laid-back and like a family’’ (Trompenaars & Hampden-Turner, 1997). These discourses are also strong patterns that construct and uphold their perceived reality. The social construction of organizational culture is the objective reality, in which the perceptions of performance are carried out. Dewey (1902) states that the mind is controlled by the environment and is entangled in a relationship to life processes. He gives significance to social and natural contexts of existing facts and states that these are inseparable from human environments. The average perceptions are conceived stating: People are very relaxed, easygoing. It is a good place to work. And you just look at everybody else and see how they behave

Reflections from the environment creates a process that reproduces the culture by ‘‘looking at everybody else and see how they behave,’’ which becomes an inseparable perceived blueprint between the employee and the controlled environment (Dewey, 1902). This does not distinguish the construction of culture and actual knowledge but comprehends them as the perceived discursive image of reality employees work in. The repetitive definitions and perceptions of organizational culture at the bank are marked by discourses identified as laid-back, relaxed, and easygoing. The patterns of reality are also manifested through symbolic attributes (Schein, 2004). The ambience of the office is good, with open offices and transparent rooms.

This discourse is understood as a visible creation of the organization, constructed by the physical and social environment, better understood as artifacts that are perceived as part of the organizational culture (Handy, 2005). As a consequence to an already positive perceived organizational culture created from various discourses, this generates a natural implication for a discursive perception that constructs a good ambience and considered an important factor to performance.

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Table 1.

Positive Discourses of Organizational Culture.

Pleasant office ambience Friendly work environment Integrity, teamwork, respect, and professionalism

Table 2.

Negative Discourses of Organizational Culture.

Lack of aggressive work environment Lack of competitive environment Laid-back, easygoing, and relaxed attitude

Table 1 outlines discourses of organizational culture, implying a positive relationship to performance, and gives an overview of what organizational discourses are at play at the bank. Table 2 draws attention to discourses of organizational culture implying a negative relationship to performance.

CONCLUSION This research looks at how discourses of organizational culture imply a perceived relationship to performance. Research was conducted at global Dutch bank, and 25 in-depth interviews were conducted with managers and employees. This research presents a minor segment of what is perceived as discursive reality, the constructions do not refrain from gathering a belief that is commonly adopted among 25 interviewees. What may also influence the perceived discourses from both groups are different backgrounds, gender, nationality, culture, ethnicity, work experience, and position. This research evaluates organizational culture from a perceptual presentation and as a socially embedded discourse. The analysis emphasizes on discursive constructions of organizational culture between managers and employees. Key findings in the analysis shows two results: managers perceive discourses of organizational culture negatively in relationship to performance, and employees perceive discourses of organizational culture positively in relationship performance. The purpose of conducting two types of interviews among managers and employees was to compare different outcomes in a theoretical context and to find several discursive structures of organizational culture to see how it implies a perceived relationship to performance.

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The discourse analytical method helps interpret and deconstruct the sedimentations of conducted interviews assuming organizational culture is an organizational discourse. Discourses explore relationship to reality by interpretation of hidden meanings. Certain ways of speaking represent a discourse. The final analysis demonstrates discourses of organizational culture are perceived as Tables 1 and 2 show and imply a positive and negative relationship to performance.

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CHAPTER 3 MODELING THE STRUCTURE OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann ABSTRACT This paper reports the results of a three-year-long research on business relationships, relying on qualitative data gathered through multiple-case study research of four focal companies operating in Australia. The industry settings are as follows: steel construction, vegetable oils trading, aluminum and steel can manufacture, and imaging solutions. The research analyzes two main aspects of relationships: structure and process. This paper deals with structure describing it by the most desired features of intercompany relationships for each focal company. The primary research data have been coded drawing on extant research into business relationships. The main outcome of this part of the research is a five construct model composed by trust, commitment, bonds, distance, and information sharing that accounts for all informants’ utterances about relationship structure.

Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 27–177 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016006

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INTRODUCTION This paper is the first of three that report on a three-year-long case study– based research on business-to-business relationships. The research approach toward business relationships is to see them as composed of structure and processes. Although the paper reports on the structure of relationships, this introduction exposes the overall research after which the paper focuses on the structure of relationships.

Background to the Research The main purpose of this research is to understand the dynamic interaction of business-to-business relationships, seeking to describe the findings in a manner that can be useful for further management of such relationships. Business and academic literature recognize for many decades the importance of business in acquiring and keeping customers. Drucker (1954, p. 37) proposes, ‘‘that the ‘only valid definition of business purpose [is] to create a customer.’’’ Levitt (1969, p. 218) augments this definition 15 years later to, ‘‘The purpose of a business is to create and keep a customer.’’ Both Drucker and Levitt emphasize the importance of having a customer while serving the market at a profit. More recently, Heskett, Sasser, and Schlesinger (2003) stress the importance of joint efforts between marketing and logistics to bring customers top quality products or services at the lowest possible cost. Reaching the market opportunely and at low cost requires a number of companies working together in integrated supply chains (Kanter, 1994; Stevens, 1990), which, as Lowson (2001) reports, work well at fulfilling customer needs. Joint efforts of companies for better serving the market require extensive information exchange, resource sharing, aligned objectives, and willingness to cooperate (Fine, Vardan, Pethick, & El-Hout, 2002; Stonecipher, 2002), but neither information sharing nor cooperation occur without trust (Morgan & Hunt, 1994). The challenge is how to develop and institutionalize trust between buyer and seller (Kirby, 2003). In one word, the problem is about relationships. Research studies business relationships from various perspectives. One perspective describes the evolution of relationships in time, whether as a sequential path in which the parties become closer and build rapport until they reach a level of commitment, or the relationship dissolves (Dwyer, Schurr, & Oh, 1987; Ford, 1980); or as exhibiting potential for dramatic

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change from one state to another, in which both commitment and closeness fluctuate over time (Ha˚kansson & Snehota, 1995b; Turnbull, Ford, & Cunningham, 1996). Another perspective, the relationship marketing perspective, identifies attributes of successful and unsuccessful relationships (Berry, 1983; Gummesson, 1997; Morgan & Hunt, 1994), whereas the service marketing perspective proposes the construct of relationship quality as one of the forms of quality encountered by customers (Crosby, Evans, & Cowles, 1990; Liljander & Strandvik, 1996; Naude´ & Buttle, 2000). Overall, these perspectives focus on the structure of relationships, which is very useful, but tell little about the processes by which relationships acquire such structure. This raises the first research question: how are the dynamics of business-to-business relationships accurately describable and explainable? The network approach to studying relationships sees business relationships as interconnected actors, resources and activities (Anderson, Ha˚kansson, & Johanson, 1994), embedded in extended networks formed by nodes and threads, in which interaction defines their strength, connectedness, and interdependence (Ha˚kansson & Ford, 2002). This view also explains structure, however, a new perspective within this same body of work proposes that relationships are socially construed by parties in reciprocal coordinated interaction. Effects that one party’s acts have on the other depend on evaluations of the actions (Ford & McDowell, 1999) and the contexts in which interaction occurs (Olkkonen, Tikkanen, & Alajoutsija¨rvi, 2000). This raises the second research question: how do executives coordinate actions and reactions? Business relationships are the result of dyadic interlinked acts and episodes embedded in complex networks. The better the experience of the counterparts during those acts and episodes, the better the development of the relationship (Anderson et al., 1994; Gummesson, 2002b). Nevertheless, the factors that influence actor’s reactions include expectations of the future, current, and past episodes within the relationship, and current and past episodes in the extended network (Ha˚kansson & Ford, 2002), suggesting that characteristics of relationships change over time. This raises the third research question: what accounts for changing construals of relationships over time? Empirical data collected during the research process show that outcomes of interaction might be different for different parties in the relationship, at times, very different. As a result, a further data-based research question was added: how is it that a single episode can result in such different consequences across different relationships?

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Rules Theory Rules theory offers an interpretive framework for understanding and assigning meaning to others’ actions. W. Barnett Pearce, Vernon E. Cronen, and Linda M. Harris introduced a theory of rules – the Coordinated Management of Meaning (CMM) – in the late 1970s, based on their observations that language creates, confirms, and potentially changes the social environment in which we participate. Rules theory (as CMM is called in this research) adopts a social constructionist perspective grounded in the language philosophy of the German philosopher Ludwig Wittgenstein, in systems theory, and in logical algebra. From a social constructionist view, rules theory helps people outside a system to understand the actions of people within the system. Rules theory is new to the field of business relationships. This research uses rules theory, in conjunction with the existing body of knowledge about business relationships, to better explain the dynamics of business relationships and describe them in a way that can help manage relationships within complex business networks. Scope This research was conducted in the business-to-business arena within manufacturing industry. It focuses on describing and analyzing relationships that result from commercial exchange between four focal companies and their major customers and suppliers. This research acknowledges that companies have relationships with a number of actors that are not directly related to exchange of goods or services; however, it limits research scope to relationships in the context of the supply chain and does not include relationships with the government, suppliers of financial resources, the extended society, or any other person related to the companies, whether they are stakeholders or not. This research also studies only relationships in which tangible goods are exchanged, recognizing, however, that even in product exchange there is an important component of service that influences the customer’s evaluation of the business outcome. Research Methodology This is qualitative multiple-case study research. Multiple-case study research is deemed the most appropriate methodology to answer the research

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questions given the objectives of the research and the complexity of the problem. This study adopts the realism paradigm with a constructivist slant. That is, a reality does exist, but this research recognizes that the study delivers only the researcher’s interpretation of such reality based on collected data and the interactions of the researcher with informants. The research comprises four case studies that include a total of 15 organizations. Data were collected through 55 tape-recorded in-depth interviews, participant observation in meetings between companies and observation of business practices, and review of documents, which include publicly available information such as companies’ websites, as well as confidential marketing reports and strategies. Validity and reliability were observed at all times using multiple sources of information, triangulating data, and providing back early drafts of the research report to informants to avoid misinterpretation of informants’ utterances. A condition for selecting participant companies was that the focal company operates in the business-to-business arena. That is, the main income of the focal company comes from business with other companies. This study sought variance in size and scale, type of product and service, and industry concentration. Data transcriptions were coded with the aid of NVivo 2.0. Structure of relationships is portrayed drawing on extant knowledge of business relationships; the dynamic evolution of relationships is described using rules theory. Single-case as well as cross-case results are reported. This research contributes to theory by proposing five constructs and their dimensions for describing relationship structure and a method for understanding the dynamics of relationships. It contributes to the practice of management through a detailed outline of a practical tool that practitioners can use to study and manage business relationships. The main goal of this research was to conduct scholarly indepth research to make a significant contribution to the practice of management.

Structure of the Paper The rest of the paper consists of four additional parts: literature review, methodology, individual case study reports, and cross-case analysis and conclusions.

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LITERATURE REVIEW Among the many studies of business relationships, a number of scholars attempt to identify attributes of successful and unsuccessful relationships (Berry, 1983; Gummesson, 1997; Morgan & Hunt, 1994). These and subsequent contributions are generally regarded as belonging to the domain of relationship marketing. To describe successful relationships, service marketing scholars propose the construct of relationship quality as one of the forms of quality encountered by customers (Crosby et al., 1990; Liljander & Strandvik, 1996; Naude´ & Buttle, 2000). Relationship quality is frequently mentioned as a construct composed of trust and commitment; however, other dimensions such as satisfaction and norm development are sometimes included. Buttle and Biggemann’s (2003) literature review of research on relationship quality finds no absolute consensus on the conceptual composition of relationship quality. They argue that trust, commitment, and satisfaction are commonly mentioned features of relationships, followed by goal congruence, communication, investments and adaptations, cooperative norms, bonds, coordination, and mutual understanding. Each of these factors is by itself a complex construct. Research identifies some characteristics as being more relevant than others when evaluating the quality of relationships. For instance, Crosby et al. (1990) consider relationship quality as a bi-variate construct comprised of trust and satisfaction; for Morgan and Hunt (1994) what counts is trust and commitment, as well as shared values and willingness to communicate; Mohr and Spekman (1994) ascribe importance to trust, commitment, communication, and coordination while Langerak (2001) endorses trust, satisfaction, goal congruence, and cooperative norms. Johanson and Vahlne (1990) emphasize the relevance of social, cultural, technological, and geographical distance.

Relationship Marketing: A Starting Point Relationship marketing plays an important role in the definition of features of relationships. Berry (1983) defined it, for the first time, as a new form of marketing that has the purpose to develop and maintain mutually satisfying relationships with customers. Morgan and Hunt (1994) refer to relationship marketing as the activities that establish, develop, and maintain successful relational exchange. Peck, Payne, Christopher, and Clark (1999) argue that

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the concept of relationship marketing originates in service marketing theory that focuses on the construction of long-term relationships between the company and a group of customers. Peck et al. broaden the scope of relationship marketing, suggesting that it represents the convergence of marketing, customer service, and total quality management. Definition Although Gummesson (1997, p. 270) stresses that searching for a universal definition to relationship marketing is a ghost hunt, and hence unnecessary, he defines relationship marketing as ‘‘marketing seen as relationships, networks and interaction.’’ Buttle (1996) regards relationship marketing as promoting mutually satisfying relationships with customers in a way that cannot be duplicated by competitors. He also asserts that the purpose of relationship marketing is to create healthy relationships characterized by concern for the customers’ welfare, trust, commitment, and service. Trust and commitment promote efficiency, productivity, and effectiveness; commitment maintains the relationship; service quality leads to customer satisfaction, which improves relationship strength augmenting relationship longevity and therefore customer relationship profitability. The topic of relationship marketing appears in practitioners’ literature. Gordon (1998) suggests that the objective of relationship marketing is to align the organization with the expectation of specific customers and to continuously deliver value these customers want. Relationship marketing, he claims, is based on six propositions: (1) relationship marketing pursues value creation for customers, (2) recognizes that value is created only with customers, (3) requires the company’s business processes to be designed so that they provide value to customers, (4) makes continuous cooperative efforts between buyer and seller, (5) recognizes the life-time value of customers and attempts to tighten bonds with customers, and (6) seeks to build a chain of relationships both within and between organizations. Regarding the aims of relationship marketing, Fournier, Dobscha, and Mick (1998) stress that relationship marketing builds more significant relationships with customers that may be reflected in the improved business performance. Subsequent to Berry’s (1983) introduction of the concept, Harker (1999) reviews 117 papers on relationship marketing literature encountering 26 different definitions of relationship marketing, all containing one or more of seven conceptual categories: birth, development, maintenance, temporal, interaction, output, and emotional content. Harker argues that a conceptually complete definition would represent all seven conceptual

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categories. Thus, Harker chooses Gro¨nroos’s (1994, p. 9) definition of relationship marketing: Relationship marketing is to identify and establish, maintain and enhance and, when necessary, also to terminate relationships with customers and other stakeholders, at a profit, so that the objectives of all parties are met, and that this is done by a mutual exchange and fulfilment of promises.

Then, Harker ends with his own proposition of a relationship marketing definition: An organisation engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers [partners] overtime is engaged in relationship marketing. (Harker, 1999, p. 16)

Both definitions raise several questions regarding the actions and interactions that are necessary to build and manage relationships. Relationship Quality Aiming to describe the activities that lead the parties to form a relationship, contemporary research focuses first on the features that such relationships should have. Research suggests that certain features of relationships contribute to the quality of the relationship regarding those features as relationship quality. Gummesson (1987) defines relationship quality as one of the four forms of quality encountered by customers. He notes that the total quality management movement has inspired the concept of relationship quality, which is quality not only in goods or services but also in relationships as part of total customer perceived quality (Gummesson, 2002b). Gro¨nroos (1999) extends his definition of relationship marketing adding that it requires mutual exchange and fulfillment. He argues that long and profitable exchanges require commitment from both supplier and customer. Although there is no consensus on the constructs that connote high relationship quality, trust, and commitment are the most commonly mentioned features of relationships. Satisfaction, bonds, and distance are often visible features, followed by others such as goal congruence, communication, investments and adaptations, cooperative norms, coordination, and mutual understanding. Each one of these concepts represents a complex construct itself. However, research suggests that some are more relevant than others in evaluating the quality of relationships. For instance, for Crosby et al. (1990) relationship quality is a bi-variate construct comprised of trust and satisfaction. Boles, Johnson, and Barksdale (2000) replication

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of Crosby’s et al. work includes equity as predictor of relationship quality. For Morgan and Hunt (1994) what counts is trust and commitment, although shared values and willingness to communicate are also important; Mohr and Spekman (1994) mention trust, commitment, communication, and coordination, whereas Langerak (2001) endorses trust, satisfaction, goal congruence, and cooperative norms. Ford (1980) points out the importance of social, cultural, technological, and geographical distance. Bejou, Wray, and Ingram (1996) propose customer satisfaction and trust as determinants of relationship quality, whereas Jap, Manolis, and Weitz (1999) emphasize that although there is no consensus on how relationships develop, trust and effort appear to be crucial elements. Holmlund and Strandvik (1999) propose satisfaction, value, commitment, and trust as features of relationship quality. Buttle and Biggemann’s (2003) review of the literature on relationship quality, both conceptual and empirical, concludes that there is more than one way of defining a high-quality relationship. They suggest that relationship quality is a social construct that is reflected in the meanings that are given to episodes occurring within it. A discussion of the major constructs research mentions in portraying business relationships follows.

Trust Trust is frequently mentioned as a highly desired feature of business relationships. However, it is difficult to conceptualize and observe. Thus, indirect observations of trust are common. For instance, Ford (1980) tracks uncertainty between relational parties arguing that the lower the levels of uncertainty the higher the levels of trust. Dwyer et al. (1987) observes the relationship between trust and the partner’s motivation to make investments in the relationship more directly. Crosby et al. (1990) operationalize trust as the belief that a salesperson’s behavior contributes toward the long-term interests of the customer. Trust plays an important role in relationships slowly evolving from minor transactions in which parties demonstrate trustworthiness, thus enabling the construction of longer-term relationships (Blau, 1964). Crotts and Turner (1999) consider trust as an essential part of successful buyer– supplier relationships. Trust benefits business relationships by decreasing decision-making uncertainty, thus smoothing the relationship and creating confidence that the trustworthy party can be relied on. Decision-making uncertainty is the degree to which the counterpart has enough information

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to make key decisions, can predict the consequences of those decisions, and has confidence in those decisions (Morgan & Hunt, 1994). Information sharing, risk, and trust appear to be closely related. Blau (1964) proposes that parties progress in risk taking while trust develops. Crosby et al. (1990) study relationship quality as a trade-off between value and risk, showing that customer’s perceived uncertainty decreases as trust in the relationship increases. Although trust is regarded as a component of a high-quality relationship in addition to other features in several studies, its operationalization is also diverse. Svensson (2001) identifies 22 forms of concepts or dimensions of trust: confidence, predictability, ability, competence, expertness, intentions or motives, benevolence, motivation to lie, business sense and judgment, altruism, loyalty, integrity, congruence, consistency, fairness, character, openness of management, linking, respect, faith, acceptance, and security. Sako (1992) argues that obligation contractual relations may have goodwill trust, a feeling that trading partners possess a moral commitment to maintain a trading relationship. Goodwill trust was later reinvented as benevolence, one dimension of trust, defined as the belief that one party will act in a manner that is beneficial to the other (Selnes & Gønhaug, 2000). Selnes and Gønhaug also add reliability as another dimension of trust, defined as the supplier’s capability to keep its promises. Anderson and Narus (1990) stress that if trust is present, positive as opposed to negative outcomes are expected from the partner’s actions. Ganesan (1994) suggests that trust rests on the partner’s honesty and competence, whereas for Geyskens, Steenkamp, Scheer, and Kumar (1996) trust exists as far as the parties believe the other is honest and benevolent. Thus, parties will be willing to rely on the actions of the partner in whom there is confidence (Moorman, Deshpande´, & Zaltman, 1993; Swan, Trawick, Rink, & Roberts, 1988). In their examination of American-Japanese joint ventures, Sullivan, Peterson, Kameda, and Shimada (1981) define interpersonal trust as a combination of honesty, benevolence and reliance that depends on past behavior and expectations of future behavior. Peterson and Lucas (2001) suggest that trust reaches into issues such as stock availability and other promises that a sales representative makes when dealing with customers. Foster and Cadogan (2000) distinguish between trust in the salesperson and trust in the firm. The latter is only achieved if there is existing trust in the sales person, which leads to satisfaction and, together with service quality, builds trust in the firm, ultimately leading to attitudinal loyalty.

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Sanzo, Santos, Va´squez, and Alvarez (2003) report that market orientation positively influences communication and trust, whereas Langerak (2001) argues that both customer orientation and supplier orientation increase trust and cooperative norms, ultimately improving financial performance. Geyskens, Steenkamp, and Kumar’s (1998) meta-analysis of 24 empirical pieces of research concludes that trust has a strong mediating role in marketing channel relationships. Trust mediates between a number of antecedents such as environmental uncertainty, own dependence, partner’s coercive power use, and communication and economic outcomes such as satisfaction and long-term orientation as consequences. Walter, Muller, Helfert, and Ritter (2003) conceptualize trust as a three dimensional construct comprising: (1) benevolence, the belief that one party will act in a manner beneficial to the other, (2) honesty, the belief that the other party will be credible, and (3) competence, the belief that the other party has the expertise to perform the task. As this proposition neatly summarizes the previous literature review, this research endorses this threedimensional construct of benevolence, honesty, and competence.

Commitment Social psychology studies commitment to understand the reasons why a person or group of people are willing to continue with a relationship (Blau, 1964; Thibaut & Kelley, 1959). Jones and Taylor (2004) argue that commitment is a generic construct expandable to other relationship contexts. Adapted to the business environment, commitment represents the intention to continue with the relationship (Geyskens et al., 1996), the tendency to persist with a course of action (Ha˚kansson & Snehota, 1995c), the level of one firm’s dedication toward a close and continuing relationship with another firm (Kim & Frazier, 1997), or the lasting desire to maintain or preserve a valuable relationship (Dwyer & Tanner, 2002). Morgan and Hunt (1994) assert that when one party believes the relationship is highly valued, it warrants maximum efforts to ensure its durability. Thus, the parties are motivated to commit to the relationship. Ha˚kansson and Snehota (1995c) argue that the parties often have no apparent causal motive to continue with a relationship. Thus, they base their acts in vague expectations, portraying commitment as an act of faith. Bendapudi and Berry (1997) suggest that customers maintain relationships with providers because of two reasons: they have to and they want to.

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Further contributions treating commitment as a multidimensional construct help to improve understanding about motivation for commitment, but they also expose the dynamic changes in commitment within a relationship. Geyskens et al. (1996) characterize two types of commitment: (1) affective commitment, which expresses the desire for continuation with the relationship, and (2) calculative commitment, which results from the need to continue with the relationship. They argue that the motivation for commitment depends on which type of commitment is in place, that is, affective or calculative. Sharma, Young, and Wilkinson (2001) divide calculative commitment into positive calculative commitment, where the willingness to continue is based on the rewards and value of the relationship, and negative calculative commitment, or locked-in commitment, where the relationship is maintained because of high penalties associated with leaving. The last implies an asymmetric relationship with the presence of a powerful partner whose power exploitation raises negative feelings and, therefore, calculative commitment not only prevails but also affective commitment decreases (Anderson & Narus, 1990). Nonetheless, if the powerful party refrains from exploiting its power advantage, it increases trust and reduces the effects of interdependence asymmetry on affective commitment. Thus, trust appears to influence commitment, especially when business relationships are asymmetric (Gummesson, 1994). The positive effect of trust is higher on affective commitment than on calculative commitment because high trust denotes positive feelings toward the partner (Geyskens et al., 1996). This results in less conflict and, therefore, in high satisfaction. Anderson and Narus (1990) stress the prevalence of negative feelings toward the partner within asymmetric relationships. So¨llner (1999) operationalized commitment combining the party’s specific inputs toward the relationship and the outputs that result from such relationships. Specific inputs are (1) instrumental, which are generally physical assets such as immobilized inventory, dedicated infrastructure or production capacity made for serving the customer, or human assets such as know-how or dedicated employees. Once these inputs are in place they are considered costs and not investments anymore because of the difficulty of diverting them to other applications. For these specific instrumental inputs, definite benefits are expected. Hence, instrumental commitment is calculative. (2) Attitudinal, which are intangible inputs such as psychological attachment or positive attitudes toward the partner. Thus specific attitudinal inputs are a form of affective commitment. Among relationship outputs are (1) relationship performance, which involves the contribution of the relationship toward business benefits, assessed by effectiveness and

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efficiency, and (2) relationship justice, which is related to how the parties share the benefits of the relationship. In the words of So¨llner (1999, p. 224): ‘‘relationship performance asks how much cake are we going to get? And relationship justice asks who gets which part of the cake?’’ So¨llner’s (1999) proposition illustrates the permanent specific inputs and subsequent evaluation of the outputs that both supplier and customer make, as well as the importance of relationship asymmetry in the parties’ willingness to continue making specific inputs. Brennan, Turnbull, and Wilson (2003) argue that both supplier and buyer adapt to their partners’ needs. However, these authors determine that supplier firms adapt more frequently than buyer firms, thus adaptation is the least symmetric dimension of commitment. Even worse, a big effort made by a supplier to adapt to a particular customer’s needs may be perceived by the buyer as a minor adaptation. Two types of adaptations exist: (1) formal, which are adaptations within the contractual terms, and (2) informal, which are adaptations made beyond the scope of the contractual terms. All things considered, this paper defines commitment as a multidimensional construct that comprises (1) inputs, which include (a) specific instrumental inputs and (b) specific attitudinal inputs; (2) outputs, which include (a) relationship performance and (b) relationship justice; and (3) adaptations, which include (a) formal adaptations and (b) informal adaptations. These dimensions of commitment can be reciprocal. That is, both parties may demonstrate commitment, or can be unilateral, that is, only one party demonstrates commitment.

Satisfaction Satisfaction is another feature of relationships frequently mentioned. A number of authors connect trust with satisfaction as a characteristic of quality relationships. Dwyer et al. (1987) suggest that high levels of satisfaction and trust allow the parties to assume more risk in early stages of the relationship. Crosby’s et al. (1990) model of relationship quality is based on trust and satisfaction. Likewise Parsons (2002) measures relationship quality as a composite of trust and satisfaction. In the same manner, Dwyer and Oh (1987) conclude that high relationship quality is reflected in high levels of trust and satisfaction with the supplier. Wilson and Jantrania (1996) include satisfaction as one of seven attributes of successful business-tobusiness relationships. For Baker, Simpson, and Siguaw (1999), relationship quality is formed by trust, commitment, cooperative norms, and satisfaction.

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Satisfaction is also regarded as a feature of relationships that lengthens customer tenure. Anderson et al. (1994) suggest that satisfaction increases the level of attractiveness of the company. Therefore, satisfaction improves the evaluation of anticipated effects on the other party’s network identity. Ennew and Binks (1999) argue that satisfaction has a very important influence on customer retention. Storbacka, Strandvik, and Gro¨nroos (1994) propose a model by which service quality leads to customer satisfaction, which increases relationship strength, contributing to relationship longevity, and therefore customer relationship profitability. Zineldin (1999, 2000) in a similar vein links total quality management with customer satisfaction, which increases sales, therefore providing a competitive edge. Eriksson and Vaghult (1999) show the connection between higher levels of purchase and improved customer retention with increased levels of relationship satisfaction. However, Wilson and Mummalaneni (1986) caution that while satisfaction may precede commitment, it is not a constituent part of commitment. Geyskens, Steenkamp, and Kumar (1999) conduct a meta-analysis of constructs used to describe and analyze channel relationships. Among the contributions were 71 empirical studies of satisfaction, trust and commitment. They find two different forms of satisfaction: (1) economic satisfaction and (2) non-economic satisfaction. Each form has different antecedents and consequences. For instance, a partner’s use of promises, centralization, and formalization are positively correlated with economic satisfaction, but negatively correlated with non-economic satisfaction. Anderson and Narus (1984, p. 66) define satisfaction as ‘‘a positive affective state resulting from the appraisal of all aspects of a firm’s working relationship with another firm.’’ This definition is more focused on the satisfaction with the relationship than on the satisfaction an end user may have with the performance of the product. For the purpose of this study, the focus is on the parties’ satisfaction with the relationship, which although related to the customer’s satisfaction with the product or service, is also reliant on aspects of the relationship itself. In sum, satisfaction can be deemed as a two-dimensional construct composed of economic and non-economic satisfaction.

Bonds Contemporary literature includes bonds as an important concept in understanding business relationships. Bonds are described as a measure of the relationship strength (Storbacka et al., 1994), as a structural outcome of

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interaction (Mo¨ller & Wilson, 1995), as a function of business networks that connects companies (Ha˚kansson & Snehota, 1995a), as the result of quality relationships (Crosby et al., 1990), or as the glue that holds the relationship together (Wilson & Jantrania, 1996). Despite variances in approach, contributions generally agree in stressing the significance of bonds in building and maintaining relationships. Within the network approach to business relationships, Ha˚kansson and Snehota (1995a) describe the role of bonds in giving shape to the actor’s identity as well as in keeping together the members of a network. According to them, bonds develop as a result of actor’s actions. However, those bonds connect the actors with other actors, which influence their behavior; thus, actors can be deemed as the product of their bonds. In the business environment, Ha˚kansson and Snehota consider a company as only a mental construction by people who get together. The role of bonds then is dual; on the one hand the construction of the network identity and on the other the formation of the relationship and its influence on its other attributes such as trust and commitment. As relationships evolve, the parties make adaptations to better serve the other’s needs. These make social and structural bonds grow, and therefore, mutual commitment emerges (Ford, 1980). Wilson and Mummalaneni (1986) point out that while the relationship develops, a process of bonding takes place and that may lead to mutual commitment. Conversely, Ha˚kansson and Snehota (1995a) regard commitment as represented by bonds, whereas Wilson and Jantrania (1996) suggest bonds indicate commitment. If bonds exist, Wilson and Jantrania stress, that indicates the parties are or have been committed to relationship maintenance. No clear consensus exists as to what comes first, bonds or commitment. However, Gummesson (1994) explains that commitments are the inputs that customers and suppliers make in the relationship to demonstrate their desire to continue with the relationship, whereas ‘‘bonds are the glue that holds the relationship together making possible its development’’ (Wilson & Jantrania, 1996, p. 56). Hence this paper proposes that one party can unilaterally express commitment, whereas bonds require both parties to endorse the connection. Bonds can take various forms, from which the most generally mentioned are structural, social, and economic. Structural bonds are represented by investments that cannot be retrieved when the relationship breaks (Turnbull & Wilson, 1989). Structural bonds get stronger with more investments in shared resources, for instance systems to exchange information, such as EDI or AXN, the system established by the American car manufactures to exchange information with their suppliers

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(Austin, 1999). Structural bonds are strengthened through joint product development (Buttle, Ahmad, & Aldlaigan, 2002). Structural bonds can be encountered in relational concepts as links, ties, connections, or institutional bonds (Holmlund & To¨rnroos, 1997). Social bonds develop as a result of person-to-person interaction and result from social investment in time expended and friendship between employees of partnering firms (Turnbull & Wilson, 1989; Wilson & Mummalaneni, 1986). Social bonds are found in positive interpersonal relationships (Buttle et al., 2002). Social bonds include emotional, mental, psychological, and personal relational concepts (Holmlund & To¨rnroos, 1997). Economic bonds denote the mutual interdependence of the parties to make the business possible, for instance a manufacturer and the distribution channel. Economic bonds are constituted by investments and financial adjustments that partners make (Holmlund & To¨rnroos, 1997). The difference between social and structural bonds is their resilience (Turnbull & Wilson, 1989). Structural bonds are harder to break and may represent an economic loss if the relationship terminates, whereas social bonds do not necessarily finish (Havila & Wilkinson, 2002). Havila and Wilkinson argue that social bonds are a kind of non-task relationship, which do not disappear when a relationship ends, in fact their energy can be exported to other relationships. Other authors identify further types of bonds. Gordon (1998) suggests there may be seven forms of bonds between customers and suppliers: (1) structural bonds, which happen when customer and supplier align their technologies; (2) brand equity bonds occur if the customer derives value from the functional and emotional attributes of the product; (3) attitudinal bonds, which arise when the customer develops affinity toward the supplier’s professionalism, values, culture, and customer focus; (4) personal bonds, which motivate people to do business with particular people no matter the organization in which they work; (5) information and control bonds, which exist if the customer derives value from the supplier’s information and reporting systems; (6) value bonds, which occur when the customer repeatedly derives value they seek from the supplier; and (7) zero option bonds that result from a monopolistic situation in which switching costs are perceived as high. Arguably, structural, social, and economic dimensions suffice to form the construct of bonds. Brand equity might be made up partly of social bonds, emotional attachment, and economic bonds. Functional attributes of the product, attitudinal, and personal bonds can be considered social bonds;

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information and control systems can be deemed as structural bonds; value bonds are economic bonds; and zero option bonds are locked-in commitment as established above. However, Gordon’s proposed taxonomy should not be ignored if empirical evidence demonstrates its suitability.

Distance Ford’s (1980) research into relationship development tracks experience, uncertainty, distance, commitment, and adaptations at different stages of relationships. Four types of distance assess the closeness between the parties: (1) social distance, which is the degree of familiarity with each other’s ways of working; (2) cultural distance, measured by the differences in norms, values, and working methods; (3) technological distance, represented by the differences in product, processes, and technology; and (4) geographical distance, which is the physical distance between companies’ locations.

Relationship Features Abridged Five constructs with their respective dimensions are the most desired features of business relationships: (1) trust, which comprises benevolence, honesty, and competence; (2) commitment, composed of specific inputs, which are attitudinal and instrumental, relationships outputs, represented by performance and justice, and adaptation, which can be formal and informal; (3) satisfaction, which is divided into economic and noneconomic; (4) bonds, comprised of social, structural, and economic; and (5) distance, consistent of social, cultural, technological, and geographical. Fig. 1 shows the model that contains these five constructs. Particular features of relationships are relevant when describing and analyzing business relationships. The most important features of business relationships build from the relationship marketing body of knowledge. Among those features, trust and commitment appear to be the most relevant but also other features come to the fore, for instance bonds, satisfaction and distance. A description of the features of business relationships contribute to improved understanding; however, these features are context dependent, that is, varying from case to case, even within the same company, and are potentially reshaped as a result of the ongoing interaction between the parties.

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Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Satisfaction

Economic

NonEconomic

Economic

Structural

Fig. 1.

Five Constructs of Business Relationships.

METHOD This part presents the research methodology before conducting the research and as it was executed during different research phases until completion. The relationship between the nature of the research questions and the character of data necessary to answer such questions constitutes the most desirable methodology. This requires examination of different research philosophies, the researcher’s beliefs about reality, and which methodologies could be used. The steps that the research follow include selection of the cases to be studied, choice of the instruments for data gathering, data gathering process itself, analysis of the information, feedback processes, and the final phase of reaching closure. Research Problem The overall research aims to answer the following questions: how are the dynamics of business-to-business relationships accurately describable and explainable? How do executives coordinate actions and reactions? What accounts for changing construals of relationships over time?

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Understanding the evolution of relationships as construed by participants of those relationships is important (i.e., employees of a company and their counterparts). High-quality relationships appear to have certain features that research needs to capture as well as examining the development of relationship over time. Thus, information regarding building relationships, their features, and specifics of intercompany relationships had to be sought.

Research Question and Data Character Advocates of qualitative research suggest that a relationship between the wording of the research questions and the selection of the research method exists. That is, whether the best research method is qualitative or quantitative depends on the research question wording. For instance Creswell (1998) recommends qualitative methods for questions starting with how and what and quantitative methods for questions that ask why. In opposition to Creswell’s point of view, Yin (2003) evokes what for quantitative methods, why for qualitative methods while agreeing with Creswell that how is more suited to qualitative research. Carson, Gilmore, Perry, and Gronhaug (2001) suggest that case-based research, denoting mainly qualitative methods, is more suitable for how and why questions rather than what or how should, which is better researched through quantitative methods. Sayre (2001) distinguishes between market data and market understanding which numeric (quantitative) and qualitative data, respectively, are better suited to. She proposes that market data are acquired through questions starting with who, when, where, and how, whereas market understanding uses why. Table 1 abridges these views. Qualitative methods appear to be considered more suitable to research questions commencing with how by most researchers with the exception of Sayre (2001) who prefers quantitative methods for how. Yin (2003), Table 1.

Research Questions and Data Character.

Author

Creswell (1998) Yin (2003) Carson et al. (2001) Sayre (2001)

Research Method Qualitative

Quantitative

How, what How, why How, why Why

Why What What, how should Who, when, where, how

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Carson et al. (2001), and Sayre (2001) endorse qualitative research to be used for research questions commencing with why; however, Creswell (1998) proposes the use of quantitative methods to answer this type of question. Research questions commencing with what should be answered using qualitative methods (Creswell, 1998) or quantitative methods (Carson et al., 2001; Yin, 2003). For this research, questions concerned with how lead to qualitative data; however, what question would be answered by using either qualitative or quantitative data. The relationship between the research question and the character of the data provides guidance, but the research design goes beyond the mere definition of the data character. It should contain the whole research methodology of which the research method is only one part. To define the methodology, the research paradigm is the first concern.

Research Paradigm The research paradigm reflects the researcher’s beliefs about reality, the influence that the researcher could have on the object of research, the effects of such influence on the interpretation of the reality, and the suitability of methods to capture such reality. The election of the research paradigm influences the character of the data, whether qualitative or quantitative, and the expected outcomes of the research, that is, what type of answer will be given to the research question. Two extreme approaches dominate research: deductive and inductive, with which two research paradigms are respectively associated, positivist and phenomenologist. Nevertheless, there is a continuum of options between these two positions that the researcher may prefer to adopt based on his/her beliefs about the nature of reality and his/her research endeavors. Three critical aspects portray the research paradigm: (1) ontology, which are the researcher’s beliefs about the nature of the reality; (2) epistemology, which represents the relationship between the researcher and the researched object; and (3) method, which depicts the characteristics of data as well as the methods for its collection and analysis. Hussey and Hussey (1997) assert that the positivist paradigm leads to quantitative studies and the phenomenological paradigm leads to qualitative studies. In this regard three major schools currently prevail: first, purists, who emphasize that methods and paradigms should not be mixed; second, situationalists, who believe that some methods are more appropriate than others, contingent to specific situations; and third, pragmatists, who make

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efforts to integrate methods according to the study needs (Onwuegbuzie, 2002). The next section discusses the three research paradigms. Positivist Paradigm The ontological views supported in the positivist paradigm are that reality is objective, singular, and that it exists apart from the researcher. The epistemological postulation sees the object of research and the researcher as independent one another. This unique nature of reality means that it does not change because it is being observed (Perry, Riege, & Brown, 1999). Reality can be captured by composing and categorizing discrete elements (Guba & Lincoln, 1994). Researchers who endorse the positivist paradigm are generally more concerned with theory testing. Data are considered value-free, that is, neither influence nor is influenced by the data collection process. This research paradigm is commonly associated with quantitative studies; data are typically collected through sample surveys and later are statistically analyzed. Research findings are generalizable to the populations from which the sample is obtained. The positivist paradigm dominates research in the business field; thus, it is often the first option that is considered. However, there has been some recent criticism, and concerns have been raised. The following lines recount these criticism and concerns while justifying why this paradigm appears to be not the most suitable for this research. Positivism in Business Relationships Research Positivism dominates research on business relationships and relationship quality. However, Gummesson (2002a) asserts that the positivist paradigm fails to deliver comprehensive answers to the issue. One of the problems that this stream of research faces relates to the limitations imposed on the number of aspects that it is possible to address using a survey questionnaire. Questionnaires do not allow for the inclusion of a large number of perspectives for complex business problems. Other concerns regarding the use of survey questionnaires also arise for research issues in business. One of these concerns is that people tend to answer questions even if they know little about the topic or what is worse, give answers that are closer to conventional wisdom than to reality (Foddy, 1993). This creates a problem of data reliability. Another concern is that survey questionnaires generally obtain very low response rates, sometimes lower than 10%, particularly in business-tobusiness. This raises alarms in relation to the validity of the research, regarding generalization of results to a population. Low response rates may

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result in biased data because of the lack of representativeness of the sample. Although different methods to increase response rates have been devised (e.g., Dillman, 2000; Erdogan & Baker, 2002; Frohlich, 2002), particularly in business-to-business research, response rates still tend to be low. Low response rates may cause bias and erode the fundamentals for generalization of the findings. Business relationships are the aggregation of people’s relationships within and between companies. These people might have different beliefs about the dynamics of relationships. A survey questionnaire is unlikely to reach various levels within a company, thus failing to capture those differences. The concerns discussed earlier, together with the objectives of this research to capture the dynamics of the interaction of business relationships, are the reasons why the positivist paradigm is not the preferred one to conduct this research.

Phenomenological Paradigm At the other end of the spectrum of research philosophy is the phenomenological paradigm. Gubrium and Holstein (2003, p. 217), drawing on the work of Alfred Schutz, state ‘‘the scientific observer deals with how the social world is made meaningful.’’ For the phenomenological paradigm, the ontological assumption is that reality is subjective and multiple. Participants in a study construe reality. Epistemologically, this paradigm sees the researcher interacting with the object being researched. Thus, the researcher influences and is influenced by the research process itself. Phenomenologists see reality as subjective, socially and historically contextualized and value-dependent as opposed to value-free. A number of research philosophies inform the positivist and phenomenological paradigms. For instance, Guba and Lincoln (1994) divide phenomenology into critical theory and constructivism, whereas Denzin and Lincoln (2003, p. 32) put forward seven theoretical paradigms and perspectives: positivism, postpositivism; interpretivism, constructivism, hermeneutics; feminism(s); racialized discourses; critical theory and Marxist models; cultural studies models and queer theory. Denzin and Lincoln add that these theoretical paradigms could be accompanied by research strategies such as study design; case study; ethnography, participant observation, performance ethnography, phenomenology, ethnomethodology; grounded theory; life history, testimonio; historical method; action and applied research; and clinical research. Carson et al. (2001) refer to a continuum of research philosophies that go from critical theory to

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phenomenology, including realism, constructivism, hermeneutics, humanism, and natural enquiry in between. Since Glaser and Strauss’s (1967) proposal for grounded theory, these methods of research relate with the phenomenological paradigm, and some consider them to be extreme (Charmaz, 2003). Eisenhardt (1989) states that the adoption of grounded theory requires the researcher to enter the field with no theory under consideration, to start from scratch because of the emphasis on the generation of theory from data only. Perry (1998) emphasizes that in many cases this extreme is neither practical nor preferable. Gummesson (2002a, p. 342) argues that ‘‘[g]ood theory puts a phenomenon in context and makes it comprehensible.’’ He adds that phenomenology seeks to understand reality inductively, thus bringing answers to unasked questions and reinventing business theory. Constructivism in turn ‘‘adopts a relativist ontology’’ (Perry et al., 1999, p. 18) seeing reality as socially and experientially construed. There are multiple realities, which are intangible and mental constructions. The nature of reality for constructionist research is based on people’s lives, produced, modified, and terminated in language by communicative practices that contain an embedded commonsense of their world (Buttle, 1992). Perry et al., citing Hunt (1991) contrast Buttle’s point arguing that business research seeks an understanding of business practices embedded in organizations and needs the consideration of clear real economic and technological dimensions with some tangible practices and not only of language and communication. Drawing on both, this research relies on the socially construed reality of the participants but also on a number of concrete dimensions that correspond to the business arena. Thus, pure constructivism appears to be not completely appropriate. It is necessary to develop a third way capable of blending some elements of positivism and constructivism. Realism Paradigm The realism paradigm is a blend of positivism and constructionism. Ontologically realism recognizes the unique nature of reality. However, realism perceives research only to deliver a perception of such reality. Thus, the interpretation of the same reality can be different from one research to another depending on the methods used to conduct them (Perry et al., 1999). Onwuegbuzie (2002) analyzes the link between the method of data collection and the perception of reality that it delivers. Onwuegbuzie critiques the purist approach of the realism paradigm and endorses the need to be more pragmatic when using multiple sources of information. The use of multiple

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forms of information is a form of triangulation and enhances reliability and validity of the data (Denzin, 1989). There are three domains subject to realism investigation: (1) the real domain, in which the processes that generate events produce patterns of observable events, (2) the actual domain, in which patterns of events occur whether they are observed or not, and (3) the empirical domain, in which experiences may be obtained by direct observation (Perry et al., 1999). The realism paradigm lies between the extreme positivist and phenomenological paradigms. It not only consents to but also encourages the use of multiple sources of evidence to understand the nature of reality. This research adopts a realism paradigm leaning toward social constructionism. The realism paradigm, in conjunction with qualitative data that this research plans to gather, encounters fertile grounds in case study methodology, which is discussed in the next section.

The Case Study Research The case study research (CSR) is a comprehensive research strategy that is increasingly in use for research in business management (Woodside & Wilson, 2003). CSR is consistent with the realist research paradigm and qualitative data collection methods. Creswell (1998) defines a case study as a bounded system in time and place where the case being studied can be a program, an event, an activity, or individuals. The strategy for case study design includes methods and techniques for data collection and analysis. Case studies may be single or multiple; holistic, if the global nature of the organization is examined, or embedded, if one or more units of analysis within the same organization are involved; exploratory, if it aims to acquire initial knowledge of the problem or explanatory, when a certain degree of knowledge already exists, but there is a need for further understanding. This is determined by the nature of the research question and the degree of development of previous knowledge. Case studies are based on either qualitative or quantitative evidence, or a mix of both. They are used to explain supposed causal relationships that are too complex to capture using only survey methods. In this regard Campbell (1979) underlines that when quantitative research is delivering conflicting results, qualitative methods may help resolve discrepancies to better understand the problems. Case studies can also describe a real situation and the context in which it occurs, illustrate the matters that take place while its evaluation is performed,

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explore circumstances that are not clear, or make a meta-evaluation, i.e., evaluate a study that evaluates a situation (Yin, 2003). Before describing the case study design and how the case studies were conducted, the forms of assessing the quality of the research should be addressed since they are closely linked to both design and execution.

Principles of Data Collection Research needs to observe the principles of validity and reliability. Case studies are sometimes criticized for not reporting how validity and reliability are addressed (Foddy, 1993). For field research, validity and reliability cannot be strictly distinguished as they are on survey research. There is in field research a natural interaction between researcher and the object of research; however, it is possible to design the research to minimize the threats to validity and reliability (Guba & Lincoln, 1994; Gummesson, 1991; McKinnon, 1988; Schofield, 2000; Yin, 2003). Validity Validity means that the researcher is studying what they intend to study (McKinnon, 1988). Three types of validity can be discriminated: (1) construct validity, (2) internal validity, and (3) external validity. Construct Validity Construct validity ‘‘is the establishment of correct operational measures for the concepts being studied’’ (Yin, 2003, p. 34). Yin advocates the use of multiple sources of evidence to establish a chain of evidence, that is, the systematic documentation of the steps and clear cross-referencing from the research questions to the report. This allows moving from one part of the case study process to another. Construct validity can also be confirmed by asking the key informants to review the draft report, to validate the procedures and to make certain that the essential facts and evidence of the case have been presented. Construct validity is addressed by reviewing comprehensively current literature on business relationships. Definitions of major features of relationships were extracted from the currently available taxonomy and afterwards used to code transcribed texts of data. Case study reports were also sent to informants to corroborate that the evidence of the case has been presented.

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Internal Validity Problems of internal validity may appear if when analyzing data the researcher attempts to determine if X leads to Y and does not consider the influence of a third variable Z. However, Schofield (2000) suggests that the point is not to produce standardized results from field notes but to give a coherent description of the situation that comes from notes and observations, portraying the evidence as accurately as possible.

External Validity External validity associates closely to generalizability (Gummesson, 2000). It is regarded as the extent to which results can be used in situations beyond the one being studied. In quantitative studies, this is an important issue because the purpose of such studies is to generalize their findings to sampled populations. Advances in sampling theory for surveys allow the researcher to claim for generalizability of results even for heterogeneous populations. For qualitative studies, Schofield (2000) argues that the early methodological literature paid little attention to the issue of generalizability until later times when the interest increased. However, Guba and Lincoln (1994) argue that generalizations are not possible because results are not contextfree. Instead they suggest replacing the concept of generalizability with the concept of fittingness, that is, the degree to which the situation studied matches other situations. Schofield recommends providing substantial information about the object studied, the context, and the environmental settings. She also argues generalizatility should not be considered in the sense of producing laws that apply universally. Healy and Perry (2000), siding with Yin (2003), propose analytic generalization as one criterion to judge qualitative research quality, which should aim to build theory that can be later tested and generalized or not to a particular population. Carson et al. (2001) claim that generalizability is not an issue owing to the specificity of qualitative research. In the same light, Gummesson (2000) suggests generalizability has become less urgent since research does not find the ultimate truth. In this research, drawing on Schofield’s (2000) recommendations, comprehensive data of the research object is provided. That is, this paper provides detailed characteristics of the participant companies and the contexts in which the episodes were occurring, aiming to help any interested readers make decisions about the applicability of the research findings to situations different from those of the present research.

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Reliability Reliability relates to the confidence that the researcher can have about the quality of information obtained during the research. Reliability is assured if a later investigator following the same procedures arrives at the same conclusions presented by the previous researcher (McKinnon, 1988; Yin, 2003). Non-independent data jeopardizes the reliability of survey-based research. In field research, there is interaction between the researcher and the object of research. This improves the researcher’s understanding of the topics and makes data more reliable. McKinnon suggests four threats to validity and reliability: observed-caused effects, observer bias, data access limitations, and complexities and limitations of the human mind. These threats can be managed with two basic principles: (1) playing the proper role while observing and (2) triangulating the data obtained. This study describes the second in the next section, since the roles played in observation are addressed in the section related to data gathering. Triangulation Triangulation is the use of multiple sources of evidence with the purpose of reducing threats to the reliability of a piece of research. The information may need to be confirmed because researchers could cause disturbances with their presence or because respondents could intentionally manipulate the information. However, triangulation could never be used to assert that the objective truth has been encountered (Fielding & Fielding, 1986). Four types of triangulation are available: (1) data triangulation, (2) investigator triangulation, (3) theory triangulation, and (4) methodological triangulation (Denzin, 1989). Data Triangulation Data triangulation represents the use of different methods for collecting data and different data sources to which the same collection method is applied. Different methods for data collection – interviews, observation, and documents analysis – are used in this research. For data source triangulation three subsystems are distinguished: (1) Time, which refers to gathering the information during different times of the day or even during different stages of the ongoing interactions in the relationship being observed. This can occur naturally in CSR because the data gathering process takes some time to be conducted, thus the researcher is in the organization on different occasions. (2) Space, which refers to different environments where data is collected. This may help to obtain different perspectives of the same person in different environments. It was possible to meet with people in different

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environments, for instance meetings held at a hotel and other external facilities. This does not apply to all informants though. (3) Person, which refers to the possibility of obtaining the same type of information using the same methods but with different people. Multiple interviews make this possible; results are even better when access to the counterparts can be achieved. Investigator Triangulation This requires using multiple observers, which was not possible in this research. However, the benefits of removing potential bias using multiple observers may also be captured by seeking the interpretation of other attendees to the observed episode, even if they are not researchers. Theory Triangulation Theory triangulation represents the use of more than one way to explain the findings. The researcher has to seek for contradictory propositions, competing theories, and also his/her propositions and theories. The advantage of theoretical triangulation is that it permits the consideration of various plausible explanations and avoids the adoption of an early set of propositions ignoring alternative explanations of a problem. Besides, the researcher is forced to continue doing theory research while the data collection occurs (Denzin, 1989). Denzin also suggests that the researcher should deliberately seek for negative evidence rather than searching only for support of their propositions. Methodological Triangulation Consider two forms of methodological triangulation: within-method and between-method triangulation. The second one combines dissimilar methods and seeks to compensate for the imperfections of a single method (Denzin, 1989). The case study as a comprehensive research strategy addresses the problem of multiple methods for data gathering allowing methodological triangulation to happen. Carson et al. (2001) suggest that three aspects for achieving trustworthiness of qualitative findings should be observed. They are (1) credibility, (2) dependability, and (3) conformability. Careful justification of the qualitative methodologies employed, and careful structuring of data analysis can be accomplished through careful use and interpretation of the appropriate literature. These and the previous considerations were addressed throughout the research.

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Case Study Design Eisenhardt (1989) suggests a succession of steps to design a case study. Those steps include the following markers: Getting started, in which the definition of the research problem is formulated and the relevant research questions are developed. Selecting case(s), in which the choice is made between analyzing one or multiple cases and between holistic and embedded cases. Crafting instruments and protocols, this step is the phase of the acquisition of the expertise to conduct the data collection process and the identification of specific issues to be addressed during the process. Entering the field, this step refers to selecting the proper sources of information, identifying people, gaining access to meetings, gathering documents and contracts among others. It represents the correct approach to manage the information sources from getting an appointment to providing feedback. Analyzing data, which covers from the data organization to the narrative. Shaping hypotheses, in which findings of commonalities and divergences should determine plausible options. Enfolding literature, the task of combining the findings from the research with the current body of knowledge to close possible gaps. Reaching closure, acknowledging the evidence has been exhausted and therefore the process reaches a conclusion. Creswell (1998), focusing on the data collection phase, proposes a circular string of steps that include locating site/individuals, gaining access and making rapport, purposefully sampling, collecting data, recording information, resolving field issues, and storing data. There is some overlap with the steps suggested by Eisenhardt (1989). However, Creswell’s suggestions for data collection activities will be used in conjunction with Eisenhardt’s path to achieve better management of the research. Getting Started Both the definition of the research problem and relevant research questions have been addressed in previous sections. A research case methodology was proposed based on them. Thus, this step needs no further consideration. Selecting Cases No agreement exists concerning whether single or multiple case provide a better source of information. Eisenhardt (1991) concludes, after reviewing a number of studies using both single and multiple cases, that both situations have merit. Despite that fact, she supports the selection of multiple cases as a preferred approach when designing a research project. Conversely, Dyer and Wilkins (1991) argue in favor of a single case study because of the

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likelihood of communicating more contextual insights. Ahrens and Dent (1998) posit that single cases produce richer stories because of the opportunity of going deeper. Yin (2003) focuses on the positive factors of a single case, enumerating the following: (1) the case is critical in testing a theory, (2) the case represents an extreme or unique case, (3) on the contrary, the case is representative or a typical case, (4) if the case was not accessible before then, it can be a revelatory case, and (5) if it is a longitudinal case, it also represents a positive aspect. With reference to multiple case studies, Yin advocates the following advantages: (1) on the whole, the study based on multiple cases is considered more robust because the data are more persuasive, (2) if logic of replication is pursued, multiple case studies are regarded as multiple experiments; however, Yin alerts that multiple cases are not equal to multiple respondents in a survey. Replication of multiple cases can be either literal replication, when the cases deliver similar results, or theoretical replication, when the cases deliver distinct results but for expected reasons. The replication logic of multiple case studies differs from the sampling logic of surveys. Surveys are statistically analyzed and results generalized to the population the sample was extracted from. Conversely, the results of a case study aim to generalize theories. Case studies typically return a large number of potential relevant variables, which with the sampling logic should require an impossibly large number of cases. Gummesson (1991) on the subject of single or multiple cases endorses the point of view of Glaser and Strauss (1967) who suggest that the selection of which and how many cases should stick to the theoretical sampling method. That is to say that the number of cases has to be decided during the journey of collecting and analyzing data. The decision of what to collect next and where to seek the information is an ongoing process. The addition of a new case aims to find differences and confirm similarities until the contribution of the evidence of a new case arrives to the point when it can be considered marginal; hence, the study arrives at the level of saturation, and there is no need to continue with further cases. This is consistent with Guba and Lincoln (1994) who recommend adding cases until the point of redundancy. Selection Criteria This research aims for the logic of theoretical replication. As described in the review of literature, the level of theoretical development in the study of business-to-business relationships can be augmented. On the contrary, if business relationships are deemed as social constructions built in

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interaction, it can be expected that results from case to case will deliver different results. Thus, this research includes multiple case studies in which contrasting results were anticipated. Such differences might be explained by the existing literature, but the case data should help to sharpen the edges of the theory and consequently build better theories.

Holistic vs. Embedded If the global nature of the organization is studied, then the case is considered to be a holistic case study; if, instead, the attention is focused on a unit or subunit within a case, it is regarded as an embedded case study (Yin, 2003). Creswell (1998), drawing on the work of Yin (1994), makes reference to the phases of analysis as follows: holistic analysis, when data of the entire case are being used, and embedded analysis, when the data of a specific aspect of the case are considered. Because the scope of this research is limited to the relationships within the supply chain, the cases observed can be deemed as multiple embedded case studies. This research comprises four case studies observed in four focal companies with offices in Australia, which operate in various industrial sectors: steel construction, vegetable oils trading, steel and aluminum cans manufacturing, and imaging solutions. Each case contributes different aspects making the research richer in variety. Among the companies’ differing characteristics are (1) size and scale, ranging from very large to medium, operating in local and global markets; (2) type, products, and services offered; (3) role, supplier, or buyer; (4) maturity and concentration of the industry, number of players and apparent positions; and (5) market trend, growing, or shrinking. Four case studies were chosen principally drawing on Daymon and Holloway (2002, p. 108) who affirm ‘‘[i]t is not usual to choose more than four cases because the larger the number, the more the benefits of the case study approach will be diminished.’’ However, in line with Carson et al. (2001), this research needed to stay within time and budget constraints. Nevertheless it can be noticed that the level of variety attained is significant, particularly regarding the markets in which the companies operate, the kind of products and services that they deliver, and the industry concentration, in which the number and size of suppliers and customers range from few to many. Table 2 is a summary of the characteristics describing the focal companies that participated in this research.

Few big suppliers, many distributors, and many customers that vary in size

Growing

Market trends

Very mature

Industry information: Industry maturity

Industry concentration

Supplier

Case study A: Steel Construction Industry Large, national; subsidiary of a very large global Finished steel products for the construction industry

Role

Type

Size and scale

Named as

Focal Company 1

Growing

Few logistics service suppliers connecting many small product suppliers to few big manufacturers

Very mature

Food commodities trader, importer, and exporter; logistics service supplier Supplier/customer

Medium, global

Case study B: Vegetable Oils Trading

Focal Company 2

Few manufacturers serving few industrial users, also manufacturers or providers of filling services Growing/in thread

Mature

Supplier/manufacturer

Case study C: Aluminium and Steel Cans Large, national; subsidiary of a very large global Industrial manufacturer of containers for the industry

Focal Company 3

Table 2. Focal Company Profiles.

Growing

Mature but constantly evolving Few suppliers, few distribution channels to serve several end consumers

Supplier/buyer

Large, national; subsidiary of a very large global Imaging solutions for business and end consumers

Case study D: Imaging Solutions

Focal Company 4

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Crafting Instruments and Protocols This is, as Eisenhardt (1989) indicates, the preparation step for a successful data gathering process. In this sense, consideration of the data collection methods that can be used is necessary before embarking on research. Yin (2003) recommends the use of multiple sources of information, from which he notes the existence of six – documentation, archival records, interviews, direct observations, participant observation, and physical artifacts – that can be used in case studies. Documentation The use of documentation is commonly relevant in all case studies. Documentation takes the following forms: letters, memoranda, and other communique´s; agendas, announcements, and minutes of meetings; administrative documents, proposals, and contracts; formal studies and evaluations, and articles appearing in the media. Other types of public documents, such as those published in the Internet, or printed publications may contain relevant information for this research. Archival Records Files and records include service records, organization records, maps, charts and layouts of the place, lists of names, survey data, and personal records. Some of these records are neither accessible nor relevant; however, in this research, it was possible to gain access to data of two customer satisfaction surveys that helped with analysis of one case study, within the limits of confidentiality that were requested by the companies. Interviews Interviews are the most important source of data for case studies. Interviews are, however, complicated and carry a high risk of bias (Denzin, 1989; Foddy, 1993). On the one hand interviews are of an open-ended nature, guided conversations instead of structured queries, and the researcher must avoid influencing the interviewee. On the other hand, the researcher has a limited and short period of time available, typically one hour, and needs to keep the study reliable. Consequently, to satisfy both requisites, the interview design includes the use of an interview protocol that contains the key aspects that the researcher aims to address. Each theme has a set of probe questions that the researcher will use to guarantee the discussion of critical topics that ultimately may lead to answers to the research questions (Yin, 2003). To prepare the interview protocol, Rubin and Rubin (1995)

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observe that the dynamics in the interaction between the object of research and researcher should be fluid instead of rigid. That is, the use of an interview protocol does not equate to conducting a survey face-to-face. Among the problems in gathering data through interviews are the dissimilarities in mind structures of interviewee and interviewer. This can lead to different levels of comprehension of the topics of discussion, jeopardizing the quality of the information, and therefore, the outcomes of the research. In social constructionist research, researcher and informant co-create reality. Foddy (1993) describes the dynamics of interviews from a symbolic interactionist point of view. It begins with the interviewer encoding the question, based on his/her own purposes, and presumptions or knowledge about the respondent as well as the perceptions of the respondent’s presumptions or knowledge about self (i.e., the interviewer). The respondent then decodes the question, based on her/his own purposes and presumptions or knowledge about the interviewer as well as on her/his perceptions of the interviewer’s presumptions or knowledge about self (i.e., the respondent). Then the respondent encodes the answer, based on his/her own presumptions or knowledge about the interviewer and his/her perceptions of the interviewer’s perceptions or knowledge about self (i.e., the respondent). Finally the interviewer decodes the answer, based on her/ his own presumptions or knowledge about the respondent, and her/his perceptions of the respondent’s presumption or knowledge about self (i.e., the interviewer). Thus, the presumptions or knowledge of each other, interviewer and respondent, play an important role during the interview. This process of coding–decoding leads the conversation to reach a destination that may not be intended, thus preventing the researcher from gathering the information that was being sought. Hewitt (2003) explicates symbolic interactionism drawing on the work of George Herbert Mead. Hewitt states that human beings not only react to stimuli based on fixed meanings but also co-create meaning in interaction through the use of symbols. Hewitt (2003, p. 322) stresses that the access to the other’s mind is not unimpeded, thus ‘‘the meaning lies in the response.’’ Hence, it is necessary to validate that information gathering additional information through other methods to avoid basing the whole research only on the information gathered through interviews. Denzin (1989) describes this as triangulation. Interview Protocol Drawing on the outcomes of the literature review, an interview protocol was prepared with the main purpose of having a guide who would help the

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interviewer to keep in mind all the concepts and elements of business relationships that could be relevant to describe relationships’ development. The interview protocol is organized in groups of themes and contains probes instead of direct questions. The interview protocol has questions as if it were part of a questionnaire. However, during the interview itself the wording was adapted to the context of the conversation. Mariampolski (2001) recommends the use of openended and non-directive questions to stay on the respondent’s path. For instance, to find out if structural bonds existed, the interview protocol contains the question: Are there specific assets that keep the parties working together? During the interview, instead of that question, if the interviewee mentioned being tied or linked to a customer or supplier, more details regarding the ties the interviewee was referring to were requested. Thus, relevant information was gathered without affecting the way informants viewed their relationships with their counterparts. Direct Observation Gathering evidence through observation provides additional evidence and improves the researcher’s understanding of the phenomena. The observation process may involve observation of meetings, people at work, casual encounters, specific interaction, and the like. The observer acts in a nondisruptive casual way; however, the use of an observation protocol is recommended to increase reliability of observational evidence (Yin, 2003). Participant Observation In this situation, the researcher assumes a more active part than in the direct observation method, assuming various roles throughout the case study. Denzin (1989) differentiates four roles or strategies that the observer can adopt: complete participant, participant as observer, observer as participant, and complete observer. McKinnon (1988), who is also concerned with the problems of validity and reliability, suggests six types of participant observation: watching from outside, passive presence, participant with hidden identity, observer as participant, limited interaction, and active control. Further explanations of the forms of observation are included in the next section, based on Denzin’s terminology but also taking advantage of McKinnon’s considerations. Complete participant, the researcher becomes a full member of the group under observation. His/her research intentions are not revealed; thus, the observer cannot make notes or record his/her observations, increasing the possibility of risk bias and decreasing validity of the field notes. This is

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the participant with hidden identity who does not disturb the organization but has very limited access and mobility. Participant as observer, the researcher makes his/her presence as an investigator clear and thus is not considered a full member. Nevertheless, during the observation process his/her status changes from being a complete stranger to the status of provisional member and finally he/she is accepted as a categorical member of the organization. During this process, both researcher and the object of research learn how to interact, improving the process and making easier for the researcher to penetrate areas initially banned to him/her. Observer as participant, the researcher typically pays only one visit or interview – commonly using a questionnaire – to the respondent. The nature of the contact is brief and formal, and there is no attempt to establish any relationship. Passive presence, the organization is aware of the researcher’s presence, but he/she has no interaction with the subjects. Complete observer removes the field worker entirely from interaction. This is the case of experiments where observation is conducted through oneway mirrors, watching from outside, totally unobtrusive but with the risk of providing an incomplete set of information. During the data gathering process, the researcher played the role of observer, from passive presence to participant as observer throughout the duration of the period. As a result of continuous interaction within the organizations, the researcher became more familiar with the environment, learned how to interact with different actors and improved his options to gain access to other members of the organization as well as to customers and suppliers in a number of cases. However, during observation of meetings between companies, the researcher kept as quiet and undisruptive as possible, playing a role that was closer to passive presence. Observation Protocol An observation protocol improves the quality and quantity of information that can be acquired through observation just as an interview protocol does. The type of information that observation seeks is the same as the information expected from an interview; thus, the observation protocol contains a grouped list of the research objectives. In addition to the contents of the conversation, the researcher has to go prepared to observe some extralinguistic phenomena that can be: verbal, pitch, loudness, timbre; temporal, rate of speaking, duration, rhythm; interaction, interrupt, dominate, inhibit; style, vocabulary, pronunciation, dialect, and spatial relationships

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(Emory & Cooper, 1991). This extra information might help explain the nature of relationships, cooperative, dominant, or subjugative, that prevail between the parties. Given that the observation opportunities were diverse, the observation protocol worked as a guide that needed to be customized to the specific situation. Physical Artifacts This last type of evidence is less commonly used in business research but it is widely used in anthropological research.

Entering the Field The process to gain access to the companies was heavily reliant on personal relationships of this researcher. These relationships provided the initial contact with an individual who was a member or an insider of the targeted organization, preferably occupying a senior position within the organization, the gatekeeper (Creswell, 1998). A purposeful sampling methodology was followed (Daymon & Holloway, 2002) to decide which companies to target. Two conditions were sought to pursue access to companies: (1) that the company’s main commercial affairs were in the business-to-business arena and (2) that the products offered by these companies were diverse (i.e., it was not desired to have two cases in the same industrial group). Seven companies were approached. Finally four companies granted access. Having established the initial contact, the researcher sent a brief document containing the most relevant aspects of the research. The document described its goals. It also contained the core research questions, the expected benefits for the participating company, the activities proposed for data collection, the standards for confidentiality and ethics, an introduction to the principal researcher, and an invitation to make contact for further explanation. After sending the initial document, several follow up calls were necessary before being able to arrange a preparation meeting. Each case study has its own peculiarities. For case study A, which is a national subsidiary of a large global company, the initial contact was a senior manager of the main company, who was interested in participating due to his relationship with a professor at the researcher’s university. This person received the access proposal, found it interesting, and then he provided access to the subsidiary at senior management level, involving one of the company’s vice presidents.

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After that, the research was planned in conjunction with the second person to whom the access proposal was also sent and to whom several follow up calls were made. The planning process consisted of a preparation meeting in which the research objectives were explained, and it was made explicit that there were no associated costs to the organization. Then a list of potential participants was prepared and a time line sketched. It can be argued that this initial meeting commenced to build rapport between the researcher and the project champion within the company. The process of building rapport was consistent with the claims of social exchange theory in regard to building personal relationships (see Thibaut & Kelley, 1959, for instance). Once the initial interest was attained, and the preliminary meetings were held, the researcher submitted a summary of the meeting reflecting the discussed topics as accurately as possible. It included the project champion’s major concerns as well as any other topics that were disclosed during the preliminary meeting. The researcher also included additional information listing potential benefits to the company that the project champion could use to persuade others to participate. These actions can be deemed as initial trust builders. They gave legitimacy to the project and helped to establish the necessary commitment for the parties to continue with the research project. The researcher’s University Ethics Review Committee requires that each interviewee has to fill in a consent form before being interviewed. This consent form, instead of being detrimental to the interview, was used as part of the rapport-building process. This consent form includes a brief description of the project, information about the principal researcher, acknowledgment of the research purposes, an explanation about what is expected from the participant, information about the recording methods, information regarding privacy and confidentiality, information of the means to obtain feedback, a statement guaranteeing participants the right to withdraw from further participation at any time without having to give a reason and without adverse consequences, and a footnote regarding complaint procedures. The researcher observed that the interviewees appeared to feel more comfortable after reading the consent form and having their signed copy. The form operates as a type of contract that provides an initial platform to build trust that the researcher might not be able to secure in any other way, taking into consideration that in most cases the signing of the form took place the first time the researcher was meeting the informants. For case study B, one of the researcher’s university associates’ friends, who is a business consultant, was approached and presented with a copy of the access proposal. Subsequently a meeting was organized to provide

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further information about the research. This person then agreed to recommend to one of his customers that he consider participating in the research. Once the company expressed interest, a preparation meeting was arranged and the process then was alike the process within case study A. For case study C, the same business consultant, the gatekeeper, suggested to another customer of his to participate. This did not happen until case study B was well advanced. The researcher has no evidence of the following, but it is possible that the researcher was not offered access to the third company until the gatekeeper had obtained some feedback from the first company he had recommended. From then onwards, the process was similar to the previous two case studies. Finally, for case study D, the researcher was given the opportunity to present his research objectives to a group of senior MBA students at his University. Through the presentation, the researcher secured the interest of one senior executive of the company, who presented the access proposal to her supervisor. Subsequently, a meeting was arranged with two senior general managers of the company, and following the same path than in the other cases, access was granted. Access to research is always a problem that needs attention. Gatekeepers are likely to decide whether or not to grant access after evaluating costs and benefits involved (Daymon & Holloway, 2002). Given that the benefits of academic research are uncertain to companies, research value is assessed by potential informants subtracting expected costs from an uncertain benefit. Thus, expected costs should be kept low to obtain a positive assessment of value (Thibaut & Kelley, 1959). The subsequent act of delivering what was offered, that is, a summary of the meeting and a list of potential benefits to the company, in conjunction with the university’s endorsement regarding high ethics standards, built initial trust that established grounds for commitment (Scanzoni, 1979). Within the companies that granted access potential participants were selected following a purposeful sampling strategy. Purposeful Sampling Strategy The sampling strategy determines who to involve in the research and who to exclude once the case has been already chosen and initial access granted. Glaser and Strauss (1967) propose the theoretical sampling method, which is a strategy that consists in adding any person encountered during the research who can be relevant to better understand a particular topic. This strategy is different for each case and depends on the type of themes emerging. The initial participants are chosen only for the initial period.

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For the purpose of this study, it was rather clear who could bring information about business relationships, thus participants were selected relying on theoretical sampling. Almost the complete list of participants was defined at the beginning. Participants were chosen by seeking those that were involved in relationships with customers or suppliers. They include people in marketing and sales, customer service, and operations, as well as senior management. New participants were added afterwards following a snowball process (Creswell, 1998). These new informants were identified during interviews with key initial informants. To gain access to third parties, customers or suppliers, the companies contacted some of their customers and suppliers, especially those who were considered important to the company’s business. Only after these parties agreed to participate, the researcher was given their details to make an appointment. Likewise, everyone’s agreement was sought before the researcher was able to observe intercompany meetings. It is interesting to note here that access to customers or suppliers is only possible with the company’s acquiescence. For case study A the need to include customers in the data gathering process was not clearly discussed. As a consequence, no customer could be interviewed, and the opportunity to add views from customers was lost. Nonetheless, an episode was analyzed for case study A using evidence from written communication between the company and one of its distributors. This does not dismiss the validity of the research. Instead, it enhances the whole research. For case study B access to one customer was obtained, which was, at the moment of data gathering, the most important customer of the company, and thus delivered valuable information. Having learnt from the first two case studies, for cases studies C and D access to customers and suppliers was requested before starting with the project. Thus for case study C, four people that represented three major customers were interviewed, and for case study D, six customers and one supplier provided information. A point learnt regarding methodology is that in conducting case studies in companies, the requirements of access should be defined at the very beginning. Later, the project champion goes back to deal with his/her ongoing activities and the addition of more people, whether part of the internal structure of the company or their customers or suppliers, becomes very difficult. Making Appointments Participation in the study was always voluntary. Initially, the project champion, who was a senior manager as previously explained, sent emails to

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potential informants inviting them to participate, always stressing the voluntary character of their participation. Then, a list of names and contact details from those who manifested their willingness to participate was made available to the researcher, whereupon emails were sent asking for a one-hour interview at their earliest convenience. Most of them replied within a range of 24 to 72 hours suggesting a date and time, which the researcher tried to accommodate, unless it was impossible to do so due to other commitments. It was necessary to send a second email to a number of potential participants, which resulted in additional appointments. The researcher telephoned those who did not answer the second email, thus gaining access to the complete group. Virtually everyone on the lists accepted to participate except one person who was leaving the company. Those participants added later on during the research were typically identified as a result of a theme that emerged during an interview and were contacted through the person who suggested their names to arrange further meetings. They were, as all the other participants, given the option to voluntarily accept to participate. Securing access to individuals involved a cost–benefit evaluation, similar to that made regarding gaining access to the companies. Initially informants did not expect benefits; in view of that, costs of participating were reduced by adapting to the participant’s time availability as well as pledging the interview was going to take only one hour. The consent form that participants had to fill in before the interview can be deemed as having reduced further costs, providing assurance of confidentiality and the option to abandon the research at any moment. In regard to the benefits that informants gained from their participation, a number of them declared that having had the opportunity to reflect about the topic was beneficial. Hence, even those who did not make explicit that they also gained something out of the interview agreed to have a further interview in case it was necessary.

Collecting Data The main methods of data collection used in this research were (1) interviews, (2) observation, and (3) analysis of documents. It was not possible to observe meetings in all the cases. Interviews Interviews were the main and most important source of data. One-hour in-depth semi-structured interviews were conducted and tape-recorded

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within the focal companies, with customers and with one supplier of one of the companies. The purpose of the interviews was to access the other person’s perspective on the features, relevance, value, and dynamics of business relationships. Before starting the interview itself, the informants were asked to read and sign the consent form, of which they received a copy signed by the researcher. Then, the interviewee’s agreement to use the tape recorder was verified. The researcher started the interviews by giving a general explanation of the research aims and subsequently asked a very open question like ‘‘Tell me, what do you think is important in building business relationships?’’ or ‘‘How does your company manage its business relationships?’’ As this was the starting point, the interviewee was subsequently allowed to build on his/her ideas. During the interview, probes instead of direct questions were used to permit the relevant topics to emerge without influencing the interviewees. The interviewees were asked to describe their views of business relationships and also to recall specific episodes with customers or suppliers. The interviewees were strongly encouraged to comment on episodes occurring within the company relationships that could enhance understanding of the topic. The interview protocol that was previously prepared served as a reminder of the topics and as a source of probes. However, it was not used in any particular order. Only two interviewees did not agree to the use of the tape recorder. In both cases notes were taken. However, the richness of the information was not the same as that in which the tape recorder was used. In this regard, the researcher did not notice that the interviewees were guarded in expressing their opinions when the tape recorder was on, as Brennan et al. (2003) suggest could be the case. The interviewees instead appeared to forget about the presence of the recorder soon after the interview commenced. Besides, the use of a digital device helped not only in the later process of transcription but also silently worked without interfering with the conversation.

Documents Public and internal documents were collected during the data gathering process. Among the public documents are those available on the companies’ websites, printed publications, and sales catalogues. Internal documents included customer surveys, contracts, letters to and from customers, and internal communique´s.

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Observation Different observation opportunities existed during the research process. They were subject to the specifics of each case study. Within the four case studies, the researcher observed business practices while waiting for interviews and during the interviews themselves when somebody interrupted with an urgent problem. This gave the researcher an idea about people’s reactions toward dealing with unexpected problems; for instance, an urgent request of a customer. Any information gathered through this method has been recorded in writing, and specifics are reported in each case study. Details of observations performed in each case study follow. For case study A, the researcher was given full access to their one-day annual sales team meeting; for case study B, no specific meeting was attended; for case study C, the researcher observed three review meetings with three main customers; and for case study D, no specific meeting was attended; however, the researcher visited a number of sales channels and observed whether or not the company products had a preferred location at the point of sale, looked for specific advertising material produced by the company, and noted whether salespeople tended to favor any specific brand in their interaction with the end consumer. Summary of Data Collected During the data gathering process in the four case studies, 55 interviews were conducted, four meetings observed, and two customer surveys, one dealer contract, and several documents collected. Table 3 portrays the detail of information sources used for this research.

Analyzing Data Two stages in analysis are generally acknowledged: within-case and crosscase analysis (Daymon & Holloway, 2002). A third one that results from the data management after an interview or after revising a document can be added. It occurs indeed before the others. Single Source Data Analysis Soon after the interview, a contact summary form (Miles & Huberman, 1994) was produced, which had the purpose of collating the information obtained during the interview to help the researcher keep in mind emerging topics that could need further explanation from the same informant or

Various editions of the internal communication letter Various public documents

1 confidential document regarding distribution centers Various public documents

1 letter from a distributor

1 customer satisfaction survey 2 presentations of the customer relationships strategy

1 letter to a distributor

8

12

Documents

0

0

Direct observation of business practices

1

0

Participant observation of 1 sales team meeting Direct observation of business practices

7

12

Case Study B

1 plan for key account management Various public documents including publication directed to customers

Participant observation of 3 meetings with three major customers Direct observation of business practices

12

0

4

8

Case Study C

Details of the Gathered Information.

Observation

Interviews within the company Interviews with customers Interviews with suppliers Total interviews

Case Study A

Table 3.

Various public documents

Sales catalogues of distribution channels

1 customer satisfaction survey 1 dealer contract

Direct observation of business practices

Direct observation in distribution channels

23

1

6

16

Case Study D

55

1

11

43

Total

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Table 4.

Contact Summary Form.

Case Study

Main Contact

Company

Contact with

Position

Site

Contact type

Visit

Contact date

Phone

Email

Today’s date

Duration

Questions addressed  What people, events, or situations were involved?  What were the main themes or issues in the contact?  Which research questions and which variables in the initial framework, did the contact bear on most centrally?  What new hypotheses, speculations, or hunches about the field situations were suggested by the contact?  Where should the field-worker place most energy during the next contact, and what kind of information should be sought?  What are the emerging themes?  Who else knows about the topics discussed?  What was found that is not consistent with existing knowledge?

Source: Original table inspired by Miles and Huberman (1994).

be complemented by information provided by another informant or be triangulated from other sources with the aim to increase reliability. Five questions helped prepare the contact summary form. It has been illustrated in Table 4. An interview report was also prepared. It summarizes the points discussed in the interview. Interview reports were prepared and sent only to some interviewees, when a specific topic needed clarification. Within-Case Analysis The researcher personally transcribed in full the records of all interviews. The notes from observations as well as pertinent parts of the reviewed documents were word-processed. These operations provided the basis for the next operation of document coding. Coding and Memoing Coding is the process of defining categories in which field notes and transcriptions can be sorted (Sayre, 2001). It can also be regarded as putting labels to themes that shared common patterns in the data (Llewellyn, 1993; Miles & Huberman, 1994). These categories, labels, or nodes as they will be

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called in this thesis represent constructs extracted from the literature review. Constructs that have various dimensions were defined as child and subchild nodes, using NVivo 2.0 notation. NVivo 2.0 is software that permits management of qualitative data. All documents, transcripts of interviews, presentations, internal letters, observation notes, and intercompany documentation were coded using NVivo 2.0. The next procedure has been followed: 1) Documents were converted into rich text format and then imported to a project created using NVivo 2.0. 2) Attributes were assigned to characterize each document. This helped in grouping and separating documents. Document attributes include the case study to which it belongs, the correct number to identify quotes, the position of the interviewee within the company and the document type. 3) Each document was read through seeking to match paragraphs – the initially defined coding unit – with a previously defined node. At this stage, it became clear that within a paragraph several themes were mentioned; therefore, the coding unit was reduced to the sentence level. 4) Passages that could be coded with more than one node were initially assigned more than one node. Because of the flexibility that NVivo 2.0 offers, it is always possible to withdraw a code or to recode a passage or document. 5) Any new theme emerging from the data resulted in the creation of a new node, which afterwards was made available to be used with other documents. With this procedure in place, any new data was potentially suitable for analysis. Five nodes to code features of relationships and five nodes to code phases of relationships were initially identified. For each node, as well as for their child and sub-child, a description was assigned. Table 5 contains the list of the nodes that were initially defined to code passages. The expressions uttered by informants that could not be matched with the initial nodes were used as new nodes, using the word exactly as they were mentioned, even though some initially appeared to have the same meaning. Later during data analysis the researcher combined different nodes used to describe the same topic. Expressions uttered by informants that were used to create new nodes are illustrated in Table 6.

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Table 5. Nodes for Features and Steps of Relationships Initially Defined. Features of Relationships Node

Child

Sub-child

Competence

One party’s belief that the other has the required expertise to perform the task. The capacity to keep the promise

Benevolence

The belief that one party will act in a beneficial manner to the other party as well

Honesty

The belief that the other will be credible

Trust

Attitudinal

Positive attitudes toward the partner; psychological attachment to the role of the relationship

Instrumental

Resources allocated; physical assets, dedicated employees; rising switching costs

Performance

Contribution of the relationship to the parties; increased efficiency; how much cake are we going to get?

Justice

Distribution of the benefits; who gets which part of the cake?

Formal

Specific adaptations to single partner contractually agreed

Informal

Specific adaptations to single partner beyond the terms of the contract

Specific inputs

Commitment

Relationship outputs

Adaptations

Satisfaction

Bonds

Distance

Description

Economic

Financially assessable

Non-economic

The feeling of enjoying the engagement

Structural

Information systems, ties, links, connections, institutional

Economic

The business only exists if performed in conjunction

Social

Emotional, psychological, mental, personal relationships

Cultural

Differences in norms, values, and working methods between the parties

Technological

Differences in product, processes, and technologies

Geographical

Physical distance between companies’ locations

Social

Familiarity with each other’s ways of working

Phases of Relationships Node

Description

Awareness

One party identifies the other as a potential partner

Exploration

Searching phase, high levels of uncertainty

Expansion

Growing benefits, increased interdependence

Commitment

The honeymoon

Dissolution

Disengagement process, changes in the reward-costs position

Source: Original underpinned by the literature review.

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Table 6. Node

Nodes Created from the Informants Utterances.

Source

Origin

Clarity Clearness Consistency

Case D Case D Case D

‘‘What they want [customers] is to have access to your thinking and thoughts and the logical process you go through and then you first of all are very clear, secondly communicate clearly and thirdly you are very consistent. If you get those three elements of clearness, clarity, and consistency I think you are most of the way in that.’’ (C2, pp. 14–15)

Empathy

Case A

‘‘Understanding, displaying empathy, it is a mix of psychological factors.’’ (L2, p. 164)

Fear

Case D

‘‘It is difficult for us, sometimes, adjust to the new style and there is also a sense of fear each time a new person comes down.’’ (C19, p. 10)

Integrity

Case B

‘‘To me integrity is we honour our commitments, I honour your commitments and you honour my commitments.’’ (G4, p. 102)

Motivation

Case A

‘‘In business relationships there is a critical difference between a real friend and a business friend and that is motivation. Real friends have no motivation to be a friend of one.’’ (L5, pp. 8–9)

Supplier alignment

Case B

‘‘We think this about supplier alignment because in a lot of cases we don’t produce, so we talk about alignment with the suppliers and then we think about servicing our most valuable customers.’’ (G8, p. 8)

Understanding

Case C

‘‘As you get along your relationships and your understanding gets stronger, we probably have confidence in each other but we don’t have personal match.’’ (A9, p. 116)

Source: Constructed from interview transcripts.

Writing the Report Having all the documents completely coded, individual reports for each node were produced to make the texts suitable for writing the case study report. The structure of the case study reports was prepared to be consistent with the structure of the literature review. Within the reorganized texts, shared and opposing views were sought to construe the researcher’s interpretation of the company’s and their partners’ (those who participated in the study) views regarding development, features, and value of relationships. This part of the report provides a map of the shape that relationships appear to have for the participants in the study. After providing a portrayal

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of relationships, a number of episodes were described using Rules Theory, to explain their dynamics. Writing the individual case study reports, the researcher did not refrain from including as many quotes as were necessary. This not only assists in demonstrating validity and reliability but also gives life to the report. What the interviewees expressed could not be better relayed in the researcher’s words. Peoples’ expressions are quoted exactly as uttered. Each quote ends with a code and paragraph number. This protects the interviewee identity while making it possible to trace the source of the information in the original data. Each case study has its own particularities. Each one of the companies operates in different contexts with different traditions toward relationships. Thus, they have provided different amounts of information relevant to the analysis of different topics. Consequently, the four case study reports are slightly different from one another. For instance, within case study A, a shared view of how relationships develop or can be developed appears to exist, whereas for case study D business cannot be conceived of without the existence of relationships. Thus passages of case study D relate more to current episodes than to relationship development. Early versions of each case were sent to participant companies seeking feedback on how accurate the description of the information was. After giving the company members time to read the report, a meeting was arranged to discuss the topics. The views of those who attended these additional meetings were used to make necessary clarifications. These meetings were also useful to determine whether the taxonomy used within the report made sense to the company members. Cross-Case Analysis Both within-case and cross-case analyzes were guided by Yin’s (2003) model of multiple cases research. Yin proposes a three-step model that describes the process of define and design; prepare, collect and analyze; and analyze and conclude for data analysis within multiple case studies. 1) Define and design: this step comprises the use of contemporary literature to select cases and design the data collection protocol. 2) Prepare, collect, and analyze: in this step individual cases are conducted and reports written. As the outcomes of each case emerge, the first phase is revisited and changes to selected cases or to the data collection protocol made, if necessary.

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3) Analyze and conclude: this phase includes the processes needed to write the cross case report, which may include theory modifications. Shaping Hypotheses This step of the research design is addressed throughout the analysis, seeking evidence that could be used either to endorse a construct or to suggest its modification, mainly in relation to constructs such as trust and commitment for which various conflicting models have been proposed. Enfolding Literature This was an aspect observed throughout the whole research. This is the reason why the case study reports rely so heavily on blending the structure of current knowledge with the empirical evidence. Reaching Closure Reaching closure is the recognition that the evidence has been exhausted (Eisenhardt, 1989). Early in this section, theoretical considerations regarding the number of case studies to be used were discussed. As explained, four case studies were conducted from which variety was achieved. An appropriate number of interviews were conducted to allow as many participants as possible who could in turn improve the study’s examination of business relationships. Levels of data saturation were reached regarding many themes that emerged in the data gathering process. However, the dynamics of business environments make the subject matter potentially everlasting, since relationships are permanently evolving and new episodes keep occurring. Thus closure was reached by imposing a limit in time in which new topics were added. Any new episodes occurring after the period in which the interviews were conducted were not in the researcher’s knowledge and thus could not be included. The meetings held after the case reports were sent aimed to gather feedback regarding the episodes already considered, rather than seeking to find out if new episodes had taken place. Ethical Considerations As explained earlier, high ethical standards were observed at all times during the research. To keep the information confidential, names of companies and

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participants are not disclosed in the report. Most of the information collected is electronically stored and password protected, including the records and transcripts of interviews, survey reports to which the researcher could gain access, and notes from observations. The paper-based documents are secured in a locked filing cabinet at the researcher’s office.

INDIVIDUAL CASE STUDY REPORTS Case Study A: Steel Construction The Company The company is a manufacturer of structural and ornamental steel products for the construction industry. It has manufacturing facilities and sales offices in Australia, and its head office is in New South Wales. The company is a subsidiary of a large steel producer with operations worldwide that supplies the coil used to manufacture the company’s products. The company serves the market directly in the case of large customers and through distributors when dealing with smaller customers. Enquiries of small or new, unregistered customers are directed to the closest distributor in the customer’s area. The company supports its distributors through technical support and advertisement.

Data Collection Methods The research methodology used in this case study is described at length in the previous section. Here the study describes only the specifics of the case study under analysis. Three methods were used for data collection: (1) interviews, (2) participant observation, and (3) analysis of documents. Interviews Twelve in-depth semi-structured interviews, one-hour long on average, were conducted and tape-recorded within the company. Three persons took part in one interview taking the total number of interviewees to 14. Participant Observation The researcher acted as observer in the annual sales team meeting for the areas of Sydney and Southern NSW. Participants were informed of his role as observer before and at the beginning of the meeting; the researcher kept

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as quiet and behaved as unobtrusively as possible. The researcher took notes of the issues discussed in the meetings including the presenters’ approach toward relationships with customers. The researcher also observed business practices while waiting for interviews and during the interviews when somebody interrupted with an urgent problem. Analysis of Documents Public and internal documents were collected during the data gathering process. Among the public documents are those available in the company websites, printed publications, and technical and sales catalogues of the company. Internal documents include the company’s marketing plan, customer service performance charts, and two letters exchanged with a distributor, one sent by the company and the distributor’s reply.

Data Management The records of each interview were transcribed in full. The notes from observation and pertinent parts of the documents reviewed were also wordprocessed. The written texts were subsequently coded with the assistance of NVivo 2.0, employing constructs drawn from contemporary knowledge related to business relationships.

Participants Potential participants were identified in earlier meetings, initially with the vice president marketing. The selection criterion was the relevance of the person’s position in relation to the possibility that he/she could influence the company’s relationships with its major customers. A total of 14 people participated. Within the national office, the participants were the vice president marketing, the marketing services manager, the project manager marketing enterprise group, and the national accounts manager; in Sydney and South NSW region: the regional general manager, the regional sales manager Sydney and South, the business manager Sydney, the logistics coordinator, the customer service coordinator, the field sales manager, and two sales area managers; in the North and West regions: the manager north and west regions, and the north NSW sales manager. The general interview scheme has been illustrated in Fig. 2.

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Vice President Marketing Project Manager Marketing Enterprise Group

Marketing Services Manager

National Accounts Manager

Regional General Manager

Manager North & West Regions

Regional Sales Manager Sydney & South

North NSW Sales Manager

Business Manager Sydney

Customer Service Coordinator

Field Sales Manager

Logistics Coordinator

Fig. 2.

Sales Area Manager

Sales Area Manager

General Interview Scheme.

Structure of Relationships The company’s perception of the most desired attributes of a high-quality relationship consists of 12 main characteristics. Three subsets of attributes are identifiable, depending on the frequency with which they appear in the transcripts. Table 7 summarizes these clusters. Some of these attributes are grouped into four major constructs: commitment, bonds, trust, and distance. However, they are initially presented separately, as mentioned by the research participants.

Attitudinal Inputs to the Relationship Parties in a relationship make specific inputs to demonstrate they are committed to keep the relationship alive. Among these inputs, the most important for the interviewees are the attitudes that people have toward the

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Table 7.

Features of a High-Quality Relationship.

Group

Themes (Based on Extant Research)

1. ‘‘Themes mentioned most often’’

   

Attitudinal inputs to the relationship Social bonds Competence Cooperation

2. ‘‘Themes mentioned less often’’

   

Instrumental inputs to the relationship Benevolence Mutuality Empathy

3. ‘‘Themes least often mentioned’’

   

Honesty Formal and informal adaptations Distance Relationship performance

customer and therefore toward the relationship (So¨llner, 1999). Positive attitudinal inputs may be used to build a good relationship. I would like to understand your business so I can put together the right package, for us to move forward. (L6, p. 9)

Negative attitudes decrease the quality of the relationship. The answer given by an interviewee when describing a bad relationship illustrates this point: and additionally, swears the employees of the company whenever needs something urgent. (L5, p. 35)

The parties have different means of showing positive attitudes. These attitudes are crucial when limited resources need to be assigned. The company’s employees demonstrate their attitudes toward keeping the company’s relationships with their most important customers going by giving preference to them over less important customers. We have customers that we call gold customers. You make sacrifices for these customers, delaying the order of another customer. (L9, p. 22)

This was manifest when one competitor went on strike, and as a consequence, the company could not manage the increased demand. We have five top customers that we call gold customers, we made sure that we didn’t affect them, but with the rest of them was very hard. (L7, p. 135)

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When the relationship is perceived to be good, most of the informants assert the importance of demonstrating commitment through attitudinal inputs. Conversely, the company would hardly be prepared to do anything extra for customers who are not perceived as being in a relational level. If the customer is not loyal why shall I do something extra for them. (L9, p. 23)

A bad relationship is said to be one in which the buyer does not show consideration for the company and therefore demonstrates a negative attitude toward the relationship. I have a customer who was for 20 minutes complaining for a missing part of a gutter that costs $2.34, and then we spent 80 dollars in the courier to deliver it out, and heard all his abuse. But at the same time, although we did make an error, we did not have to hear that. If we want to build up a customer relationship, then just as it works for them to ring and complaint to us, they can do it the proper way, and will get what they want but at the same time they must respect us. (L10, p. 100)

Social Bonds In keeping with their relationship building strategy, company members firmly believe in the value of social activities as a sign of a good relationship. When asked how they know that they have established a good relationship with customers, typical answers were: Relationships are more than technical, but also emotional, mental, with psychological bonds y we built emotional bonds. (L2, pp. 119, 121) see him in the supermarket with his wife, ‘‘Hi, how are you y ’’ so it is more than just product, service, solution, it is a lifestyle, and we do that to people. (L4, p. 53)

The importance that is dispensed to social activities is immense. The next two quotes, taken from what one person said at the sales team meeting and the comments of an interviewee, exemplify this: Go to build relationships, I will let you spend money in entertaining customers, hotels and dinner bills. (L8, p. 17) We have a fishing event with customers, it is a deep sea fishing classic. This is a hook that better builds our relationships. (L4, p. 49)

Competence Within the group of the most important elements, a third element that was often mentioned is the capability developed to show customers that the company goes through with what it has offered. The interviewees mentioned

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competence as a trust builder in the relationship. Competence is the belief that the other party has the required expertise to perform the task; a form of trust (Selnes & Gønhaug, 2000). Competence is distinguished by its tangible nature to evaluate the other party’s trustworthiness. Whether an order is delivered in full and on time; whether a problem is fixed within the timeframe that was proposed; or whether the processes for tracking an order work as the company said they would, the evaluation is based on concrete figures, not only on perceptions. The grade of our service, his reliance, worldwide benchmarked, roughly 80% of the calls have to be answered within 20 seconds all the time, so that is how our call centre operates. (L3, p. 13) The company needs to demonstrate technical expertise. (L5, p. 23) Extra service means consistently meet the customer’s expectation, that is, consistently meet your commitment, not only customer’s expectation but the agreement between what the customer needs and what is possible to do. If you do that, the customer knows that he can plan his work. (L6, p. 51)

The company achieves competence by having the right processes and methods but also through its supplier’s own competence: Probably, the supplier that needs to have big customer focus is the transport company because they are seeing the customers all the time and we also got to make sure that they have a professional image, and are also able to provide the service all the way through. (L7, p. 15)

Though incompetence may outweigh competence. You do four good things and nothing happens. One wrong thing brings you back here [down in the relationship]. (L9, p. 102)

Cooperation This aspect of the relationship implies a joint effort in seeking solutions that suit the market needs better. The parties cooperate when they are able to use their resources by working together in the pursuit of the same goal. Cooperation demonstrates that a relationship is good but also leads the relationship to an even better state. Participants of the research often mentioned cooperation as a valued relationship feature that helps to achieve common goals and consequently enables partners to reap more benefits from the market.

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With this customer we worked together to find solutions to the problems so he can go to sell the shades to his customers, [the customers are] paying an extra 150 dollars because of the solution he has now. (L4, p. 24) We started three or four years ago, it was a pretty bad start, taking a lot of work to get it, to an area where we both have agreed common goals, and then we worked together to achieve what we wanted to achieve. Because we know that when they are successful we are successful and when we are successful they are successful, and it is a dual relationship to make it work. (L6, p. 30)

Instrumental Inputs In the second group of important features of business relationships, instrumental inputs head the list. In the same way that attitudinal inputs do, instrumental inputs demonstrate that the company is committed to nurture the relationship. The difference lies in that instrumental inputs are more tangible, hence more visible than attitudinal inputs. Both inputs supplement each other, accentuating the other’s perception of commitment. Instrumental inputs are those physical or human resources that aim to fulfill the counterpart’s needs better (Geyskens et al., 1996). The company has assigned people as a sole point of contact to serve their gold customers and has also invested in communication equipment to make customer recognition possible over the telephone. We put most of our resources to these guys first to build us a base to keep the day-to-day business ticking over, and then we could keep growing at different levels of the market. (L1, p. 35) With the customer through the phone, I do have a couple of people who are a key point of contact to some of our bigger customers. (L10, p. 17) The worst thing of answering the phone is that there is no way to know who will be at the other end of the phone, even though we have changed that, we have now a priority queue for our five gold customers, so when the call comes up we can answer that first. (L7, p. 143)

Although instrumental inputs may be unilateral and without the other party’s consent, sometimes, when instrumental inputs to establish the relationship are excessive, the relationship may be perceived as not genuine. Because we probably set them up and give them inclusive the machinery to produce the parts for us and they produce only for us, so there is lot of more trust on that side. Some of the other suppliers are genuine suppliers. (L7, p. 219)

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Benevolence Benevolence is defined as the belief that the counterpart will act in a manner that is beneficial for both parties in a relationship, a form of trust (Ganesan, 1994). The first and most direct way of showing benevolence is in the pricing of the product or service, as one of the sales representatives stressed with reference to building and maintaining relationships with customers while presenting at the sales team meeting, ‘‘We have to have the correct price’’ (L8, p. 86), and as one of the interviewees mentions with reference to a negative experience when a customer was lost: All the work with the key influences, meetings, formal processes like technical advice, and joint research and development; informal processes like dinners, etc. came to zero because the price was wrong. (L2, p. 82)

Benevolence through a fair price is also attained through acts of both parties that improve the efficiency of exchange. With the main contract in the Sydney Metro we have some arrangements that we made when we were really focusing on costs. But we actually help them as well because, if can get more tons on the track there are less trucks, so that is money for them and money for us and we can share that gain as long as we are doing what is needed for service. (L7, p. 44)

Mutuality Mutuality denotes the grade of symmetry of the relationship in terms of resource dependence and power structures. Mutuality is discovered by determining what two or more people do to each other or for each other in the context of the relationship (Holmlund & To¨rnroos, 1997). A relationship has mutuality when one party’s behavior is expected to be similar to the other’s because of their mutual dependence. Conversely, if within the business interaction one party commonly sees only its own interests, ignoring the value of the counterpart, this denotes a lack of mutuality and it is less likely that a relationship will be built. Instead, the exchange will tend to stay transactional. I think our industry in the past has been driven mainly by the customers, it has been very price focused, not much weighting put on relationships, working purely by the dollar value. So the customer can call ourselves and competitors saying ‘this is the price I am prepared to pay’ and the one who meets the price is the one who gets the order but this is not sustainable in the long term because there is no margin. (L1, p. 8)

Mutuality is also manifest when one party gives to the other something special because of the expected benefits of that action or does something for the other that increases the commitment.

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For big customers prices are different because it provides the base to keep the machinery running. (L2, p. 94) An example would be with a builder who is building the airport, he needs somebody to put the roof, so I go and recommend a roofer to him and then I go to the roofer and tell I am recommending you for this job, and I am also ordering the coil. He doesn’t have the contract yet but I am pretty much sure that he will have it, because I am recommending him y . With this particular customer [the one of the airport] he comes from Sydney to do a job here, I referred to him somebody who can do the job, so he has one thing less to be worried about. (L4, pp. 64, 68)

Empathy Empathy implies a positive attitude toward the counterpart. It demonstrates the effort made to understand the other party’s needs and priorities. Empathy builds relationships, helps find solutions, and makes the parties more likely to get the appropriate information that will allow them to get to know the customer and his/her business. Empathy makes mutuality possible through the parties’ positive attitudes. It is also differentiated from attitudinal inputs to the relationship, which is a demonstration of commitment toward the relationship that already exists, whereas empathy is demonstrable even at the early stages of the interaction. You have to be empathetic giving the customer the opportunity to tell you all about his business. I do this because I am interested. I never went there with an offer, I went always to find out how does your business work, give me the issues, I will come back with the solutions, you have to be genuine. (L1, p. 46) Yes, and I think the reason behind that there is not enough empathy between people in the relationship, to understand the other person. Because it is so much pressure in doing things happen. A lot of people stop to understand what the real issue is, they go and fix the problem and go away, but there is no solution in place that is long term and simply pops and happens again later. (L4, p. 11) Unless you have a relationship and have the empathy to talk to people, you will not find key points in their business. (L4, p. 19)

Honesty Honesty is frequently mentioned as one of the characteristics of a relationship although less emphasis is put on honesty than on the first two groups of relationship’s features. Honesty, a form of trust, is the belief that the other will be credible (Morgan & Hunt, 1994). Parties look forward to the other being equally honest. Honesty is expressed in many ways, from only stating something ‘‘I expect honesty’’ (L1, p. 84), to proving it ‘‘I also send information to customers when we have problems’’ (L3, p. 23),

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or having the right attitude ‘‘Keep putting your face forward’’ (L8, p. 141). Thus, lack of honesty may contribute to ending the relationship. I want my customer to buy from me continually to keep my business running but if I am not genuine with the customer he works it out pretty good. Therefore the relationship falls through. (L4, p. 53)

Direct and clear communication when facing hard problems showed that honesty was able to bring calm to the waters that could otherwise end up sinking the relationship: And people called the rep. to say I cannot rely on you, and the rep. said I know you cannot and I am not here to tell that we are suddenly reliable, I am here to tell you give me time and I will be right, and when I come back through the door the next time I will be right and I will be confident on what I will talk to you and make my commitment. (L6, p. 46)

Naturally, the company also expects suppliers to be honest as described by one interviewee when asked about incidents by which a supplier could lose trust: That is what happened when we couldn’t get product from our suppliers but our customers could, that is a lack of trust. If they are telling us one story that they don’t have in stock and somebody else has got it, that is a lack of trust. And when you find that kind of things you lose trust. (L7, p. 231)

Formal and Informal Adaptations Adaptations are specific changes that one party makes for the other (Ford, 1980). At the moment of signing, be it a contract or a general sales agreement, both the seller and the buyer may consent to adjusting parts of their service, product or processes to better fulfill the counterpart’s requirements. This is a formal adaptation, and it demonstrates commitment to the relationship. Because of the dynamic character of the relationships, it is impossible to anticipate everything that will be necessary to deal with the other party. Therefore, adaptations may be arranged later, beyond the scope of the contract. These are informal adaptations, which also demonstrate commitment. A number of interviewees suggest the need for both formal and informal adaptations to make the relationship work better: For serving our customers, we need the transport to come with us and achieve our goals, doing what the customers require in terms of delivery. (L7, p. 39) Once you are aware of that [customer’s specific likes and dislikes], you behave in the proper manner, and that allows you to sell to that customer. (L4, p. 45)

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We have weekly reviews and monthly reviews, and see how they’re going and then, we agree that what happened last time just happened, so we are not in to all this conflicts, fighting over, which is what we used to do before, now we agree as we go. (L7, p. 57)

Adaptations are necessary when problems emerge and the customer needs to be served. Naturally the supplier expects something in return. It can be economic or not. If there is a problem, I will later do follow up, ringing them up. Some customers also ring to say ‘‘thank you very much,’’ some customers don’t care if you bent rules for them. (L10, p. 145) We can track how often we do special things for the customers. It is a tool to ring to the customer, ‘‘look on the 29th you asked for a shorter lead time’’. (L9, p. 104)

Distance Anything that is different between the parties increases the distance that separates them. Distance can be cultural, because of differences in norms, values, and working practices; technological, the differences in product, processes, and technologies; geographical, the physical distance between company’s locations; and social, the extent of familiarity with each other’s ways of working (Ford, 1980). Although distance is not desirable, it is an important aspect of relationships. Thus, reduced distance can be deemed a desired feature of relationships. However, not all the forms of distance exist in the company’s relationships. For instance, there was not a single mention of technological distance, and only one mention of geographical distance to illustrate the need of being located close to the market, ‘‘to bring service and price on a commodity product I will be a local producer.’’ (L4, p. 20) Cultural distance exists with some transport providers who have different ways of working, which in the end affects the service level that the company goes after. The company manages cultural distance by either taking out suppliers, warning them to make changes or establishing rigorous key performance indicators (KPIs). I took one out of there because I couldn’t let them understand what was servicing a customer as well as understanding more and more about the costs, now I think they got the message. I think they can start working a bit closer together. (L7, p. 51) I think that developing KPIs in Sydney helped developing the relationship. Now we agree on what those KPIs are and we pay them for those KPIs. (L7, p. 57)

Social distance is reduced through different actions that the company takes to increase their understanding of the customer in the phase of

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developing the relationship. Misunderstanding the other’s ways of working leads to regrettable consequences. [I]t was asking questions and then developing a plan around their answers, about how we can do it better. You have to understand what is turning ony (L1, p. 43) We didn’t identify how was it going to influence the decision making process. We didn’t understand the changes quickly enough. We hadn’t identified clearly enough the structures and the dynamics that were changing in the company. (L2, p. 122)

Relationship Performance and Justice If the contribution of the relationship to the parties is important, increased commitment to the relationship would be expected. The outputs of the relationship count in two aspects: (1) performance: how much cake are we going to get? (2) justice: who gets which part of the cake? (So¨llner, 1999). The value of a customer is the sum that the customer buys per year. For the interviewees that sum equates to the relationship output. On the topic of who gets which part of the cake, the company aims to build relationships that are of mutual benefit. I don’t know what a customer is worth unless the rep comes to me and says ‘‘this customer is worth X amount of dollars’’. (L10, p. 92) We better commit ourselves in a relationship that works 50/50. (L1, p. 87)

Summarizing the Features of Relationships One informant explains the expected behavior of the customer toward the company: I expect honesty, openness, positive attitude towards us, integrity. (L1, p. 84)

The aforementioned sentence summarizes fairly well the attributes of a highquality relationship. The various aspects that members of the company mentioned as desired features of relationships, or not desired as in the case of distance, are described earlier in descending order from the most frequently to the least. A graphical representation of these features is presented in Fig. 3. Fig. 3 provides a general map of the interviewees’ views of relationships. The arrows suggest connections between constructs but are not intended to represent or delineate a causal model. Each feature is connected to theoretical constructs identifiable within contemporary knowledge. The thickest boxes display those features mentioned more often and the thinnest those mentioned least, as shown in Table 7. For the concepts that are seldom mentioned during the data collection period a dotted line is used with the aim of suggesting its absence in data but presence in theory.

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Benevolence

Honesty

Competence

Mutuality Cooperation Empathy

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Satisfaction

Economic

Non Economic

Economic

Structural

Fig. 3.

Constructs of Business Relationships Case Study A.

The information shows a disproportionate inclination to intangibles and less attention to more tangible characteristics. The company seems to be more willing to make more specific attitudinal inputs than instrumental inputs. Also of concern is that structural or economic bonds, to maintain a strong relationship, are hardly mentioned. The lack of tangible bonds may force the company to continually maintain the strength of the social bonds to keep the relationship alive. It should be desirable to maintain a balance between tangible and non-tangible features of the relationship.

CASE STUDY REPORT B: VEGETABLE OILS TRADING The Company The company is a global privately owned Australian company with more than 80 years of operations and with offices in five continents. The company group comprises: 1) global trading operations in fats and oils, 2) oilseeds processing, and 3) bulk liquid terminals.

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The company vision says: [The company] strives for stakeholder satisfaction and mutual prosperity in our chosen markets. (G10, p. 14)

The company’s service offer includes optional origin/optional product supply, shipping logistics and documentation, bulk liquid storage, processing, financing, full supplier owned inventory management, price risk management.

Data Collection Methods Three methods were used for data collection: 1) interviews, 2) analysis of documents, and 3) observation. Interviews Eight in-depth semi-structured interviews, with an average one-hour length, were conducted and tape-recorded within the company and one customer. Analysis of Documents Public and internal documents were collected during the data gathering process. Among the public documents are those available in the company websites and printed publications. Internal documents include several issues of the company’s internal newsletter and two presentations specifically prepared by the marketing function, one to communicate to the employees of the company information about their global marketing strategy and the other to introduce the company services to a potentially important customer. Observation The researcher observed business practices while waiting for interviews and during the interviews when somebody interrupted with an urgent problem.

Data Management The records of each interview were transcribed in full. The notes from observation and pertinent parts of the documents reviewed were also

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word-processed. The written texts were subsequently coded with the assistance of NVivo 2.0, employing constructs drawn from contemporary knowledge of business relationships as described in the literature review.

Participants Potential participants of the research were identified in earlier meetings, with the commercial director and the customer relationship manager. The selection criterion was the relevance of the person’s position in influencing the company’s relationships with their major customers. A total of eight people participated, seven within the company and one representative from the company’s most valuable customer. Within the company the participants were the managing director, the commercial director, the customer relationship manager, the trading and logistics manager, a trader, an international soft oils person, and a person in logistics documentation. From the customers’ company the group manager fats and oils participated. The general interview scheme, illustrated in Fig. 4, shows the connections between the customer, differentiated with a double line box, and two

Managing Director

Commercial Director

Customer Relationship Manager

Trader

Trading and Logistics Manager

International Soft Oils

Customer Group Manager Fats & Oils

Fig. 4.

General Interview Scheme.

Logistics Documentation

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Table 8.

Features of High-Quality Relationships.

Group

Themes (Based on Extant Research)

1. ‘‘Themes mentioned most often’’

   

Social bonds Attitudinal inputs to the relationship Benevolence Structural bonds

2. ‘‘Themes mentioned less often’’

   

Economic bonds Distance Honesty Competence

3. ‘‘Themes least often mentioned’’

   

Relationship performance Instrumental inputs to the relationship Formal and informal adaptations Satisfaction

departments within the company, one customer oriented and the other trading oriented. Later this study will describe how this dual customer contact, at times, brings inconsistency to the management of relationships. Features of Relationships The company’s perception of the most desired attributes of a high-quality relationship consists of twelve characteristics. Three subsets of attributes are identifiable, depending on the frequency with which they appear in the transcripts. Table 8 summarizes these clusters. These attributes are grouped into five major constructs: commitment, bonds, trust, distance, and satisfaction. However, they are initially presented separately as they were mentioned by the research participants. Social Bonds Among the main desired features of relationships are personal bonds between members of the companies. Whether with reference to suppliers or customers, the informants show concern for the need to have the appropriate level of personal relationships to develop good business relationships. In other words, bad personal relationships prevent companies from having good business relationships. If you have a terrible relationship with an individual in a company then it is very hard to build a good business relationship between the companies. (G2, p. 101)

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The type of personal relationships influences the attitudes that one party has toward the counterpart. I look at him [one supplier], because of his actions, the way he is, the way he presents himself, the way he handles himself around us, in a business sense, makes me not want to assist him in anyway for his business. And it is very important. (G6, p. 230)

The company’s employees are very aware of the importance of having close personal relationships. They specifically undertake actions to establish social bonds, which, in their opinion, make the road smoother for doing business with the other party. The activities reported range from simply having a meal together, ‘‘we would, on occasions, try to go and have dinner or lunch, have a beer. That sort of thing definitely is something we will aim to do’’ (G5, p. 101), to more complex plans in which the personality of the counterpart is analyzed before business and social meetings. In this case, the company adapts its actions and style to the counterpart’s style. You get to know the individual. You need to have some rapport with the individual and everybody is different so you get to analyze what turns that person on, is it someone who likes to only do business and not even talk about a football match, the weather, what they do on the weekend, is it just purely a business relationship? Or is someone who likes to have a business lunch, to get entertained, or to go to a sports match together? (G8, p. 55) It is very much customer by customer; with some customers you can have a great personal relationship but it is not a lot of talk or that is not talking about sports or weather or anything else like that and might be talking about business but they value your opinion, you discuss business, you discuss some markets. It is still a very good relationship, you can go for lunch together or to drink together but you find that the extent of the relationship talks is around business. Other customers want to talk about everything else, they might want to go out to sporting events, fishing, golfing, Australian rules football, cricket events and things like that. (G7, pp. 42, 46)

This does not imply that the company needs to hire one person to match each customer’s style. Instead, the same person should be able to work with different types of customers. Nevertheless, there are some similar characteristics that seem to favor the dyad match. In [the company] we don’t have enough people to satisfy [all customer styles], you have to have general skills. (G7, p. 54) The relationship is very strong because he is young, so we get along socially; we used to go for a beer. (G6, p. 190)

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Occasionally two persons interacting at the same level are unable to establish a relationship, or a person within the company may feel incapable of doing it. I rather go through a third party rather than dealing face to face, it is a personality thing for me. (G1, p. 114)

This prevents the relationship from growing and therefore the parties from doing better business. If that happens, it has been suggested that the social bonds between two people at higher levels of the organizations may replace the lack of social bonds between two other individuals. Hence, the business relationships may still exist. The head buyer is a bit erratic I suppose, would be the best thing for describe him, he takes things very closely y . There are two components: the head buyer, and his boss who [one of the company’s executives] has a fairly good relationship with. (G6, p. 21) Whenever there is a transaction coming or we are trying to look forward to doing some pricing, there is always a little bit of communication between [the executive] and the boss, in a sort of keeping the big picture relationship intact, because they are key to our business. (G6, p. 25)

Finally, the company’s efforts for establishing social bonds appear to be delivering rewards. This reinforces the importance given to this aspect of relationships. What is driving this relationship is basically because the individual trader there is a young guy who sees advantage in establishing a relationship with us. (G6, p. 189)

In sum, the company favors the development of social bonds, not only because of the detrimental effects that bad personal relationships are believed to have on the development of business relationships, but also because of the benefits of good personal relationships. These social bonds are established by becoming familiar with the customer’s preferences and style. The company aims to build social bonds at different levels of both organizations, since strong social bonds at one level can compensate for the weak ones at other levels. Attitudinal Inputs to the Relationship The interviewees also mention the importance of demonstrating commitment toward the relationships. The company demonstrates positive attitudes toward its counterparts, whether suppliers or customers, and expects them to reciprocate.

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One of the interviewees stressed the relevance of proving the counterpart’s commitment during the good times to make sure that the relationships survives the bad times. Another interviewee illustrates the importance of the counterparts’ positive attitudes whenever there is a problem. When things are going well we keep into a mould. I always come to my staff when things are going well that is the time to test and retest and retest what makes a good customer if things start to go wrong we’ll be able to talk to them. (G4, p. 152) If we have a quality issue and we took it to [one supplier] he would be acting as we were the customers, ‘‘ok let us deal with that, let’s work together’’ whereas [the other supplier] would be more ‘‘well, that is not our issue, it is your problem.’’ It is a different mentality. (G6, p. 226)

Positive attitudes toward the counterpart can be demonstrated before problems occur only to show the customer that you care, as one interviewee did when was transferred within the company: ‘‘What I have said to the customers is: if you have any problems or any concerns call me’’ (G2, p. 46); or when one party has problems, instead of condemning them, the counterpart does whatever possible to fix the problem and give them another chance. So what I did to try solve that problem was readdress our requirements with them. y So we went back to the drawing table and we listed back the whole set of procedures. y They appreciated the effort we have done, they also made their promises. (G2, p. 86) With our good customers I find we always are in a rocky road but you have to help them but that’s why they are good customers. (G4, p. 111)

This makes relationships survive. Another way to demonstrate positive attitudes is being visible to the customer and easy to contact. Not being contactable may damage the relationship and may even lead to losing the customer. It is important that they can get a hold of us, in occasions when you travel or things like that you get back quickly or someone else can help the customer. (G5, p. 52) The relationship has been recently faulted a little bit. What happened is, before I started, [my boss] was in hospital and they couldn’t get contact and this particular person rang up looking to book some product and the message wasn’t passed on the client and he never received the call so he just booked with [the competitor]. (G6, p. 162)

In brief, positive attitudinal inputs toward maintaining the relationship are appreciated and demonstrated by the company as well as expected from the counterparts, whether there are problems or not.

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Benevolence Trust takes many forms in companies. Benevolence is one form of trust, honesty and competence being the other two. Benevolence is defined as the belief that the counterpart will act in a manner that is beneficial for both in a relationship (Selnes & Gønhaug, 2000). The particular characteristics of the market in which the company operates, trading of commodities, increase the relevance of trust as a desired feature of relationships, particularly in the form of benevolence. The company seeks to build relationships with a few suppliers that are trustworthy, rather than many, given that dealing with suppliers who are not trustworthy is harder to manage, for instance dealing with suppliers who are competitors at the same time. The way that [the company] structures their business, they focus on suppliers that they know and have trust with, they have a relationship with. So rather than hundreds of different suppliers they have a basketful of suppliers that they have long term agreements with or a relationships with. (G2, p. 130) I find these sort of relationships [trading with competitors] quite difficult and I guess the only way I managed them is making sure that I have done everything that I could possibly do to cover [the company’s] interests and that would be like putting things in writing, making sure I get a response, make sure I get an acknowledgement. (G2, p. 58)

The company distinguishes itself from the competitors by demonstrating benevolence. They emphasize the importance of having the opportunity to act opportunistically but choosing to do the right thing instead. Most of our competitors are producer-exporters so they think ‘‘I have my coffee, so I am going to sell it. It is the best coffee and I am going to sell at a premium’ whereas we don’t produce things we sell in most of cases, so we can source for you globally and offer you what you want, not coming to sell you what we have. We tend to think in the customer first rather than ‘here is our product we must sell it.’’ (G8, p. 36) You have to have good experiences to develop the trust. It means you say you are going to do something and you do it. You had an opportunity to squeeze me on price or on delivery or screw me in some way but you didn’t. These are thing that contractually trust is built on. (G8, p. 51)

Furthermore, the company stresses the importance of making clear to the customer that they act benevolently. A conversation with a customer was narrated to illustrate this point. We never did anything intentionally to upset you as a customer, we have to work around you, sometimes you might not like totally what are we doing but we are doing the best as we can in the circumstances. (G7, p. 120)

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In another passage, one interviewee indicates how important it is to the company to demonstrate to the customer that they look after the customer’s interests as well. [My boss] has been saying to him for a while this is an option for you, we are not pushing to our way but just let me know if it is an option for you and I suppose that is why it was taken to the next stage and said here is the option, here is how it works, how it impacts your business. (G6, p. 38)

In summary, the most desirable relationship feature that the informants mentioned is trust, predominantly benevolence. This aspect is sought in relationships with both suppliers and customers. Interviewees perceive it as a condition that allows business relationships to progress further, principally in a commodity-type business in which the product is hard to differentiate and the price, although beyond the party’s control, is very sensitive. Therefore, it is crucial that one party believes that the other acts to look after the interests of both. Structural Bonds Structural bonds are the result of specific investments that join the parties. It exists where the parties are committed; hence, absence of structural bonds means other alternatives are preferred (Buttle et al., 2002; Wilson & Jantrania, 1996). The company establishes structural bonds with customers and suppliers when the characteristics of the exchange make it possible. Two specific investments in assets to serve different customers illustrate this concept. We got an opportunity in Western Australia, a little crushing plant that [a customer] used to buy their oil from has gone bankrupt and they came to us and said, guys we need someone who buy it. We are happy to sign a deal for few years if you buy. (G7, p. 91) Integrated Investments y A state of the art clay bleaching plant in Durban, South Africa commissioned in early 2002 for [a customer]. (G11, pp. 22, 29)

With other parties, establishing structural bonds would be more complex, however. The company seeks to establish structural bonds with other customers through a supply agreement. This is a specific instrument that provides the mechanism for pricing a product that is linked to an independent market. We agree on the pricing mechanisms and the different rules of the agreement, then that is all done and then for the rest of the year there is nothing for us to negotiate or argue about, this is an independent market price that we look at. (G5, p. 9)

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This agreement not only constitutes a structural bond but also reinforces the supplier’s belief in the company’s benevolence. Thus, it provides the necessary ground for growing together. Even though we have been buying [from them] for a long time it is only starting to recognise now that we’ve been doing our best. They are a customer that is a very important customer to us. You want to grow with them. (G6, pp. 43, 68)

The company’s internal communication described an e-procurement initiative that appeared to be another form of structural bond. However, when asked for more details the answer was: On hold indefinitely until other parts of the system are up and running. A concept rather than something embraced by the trading/marketing/purchasing people. (G9, p. 31)

Even though the business activity between the parties in which the specific investments were made is much broader than the crushing or the bleaching plant, its existence helps to keep the other business going. The price mechanism established with the suppliers currently contributes to the overall relationship. Economic Bonds The concept of economic bond is suggested by Holmlund and To¨rnroos (1997) as part of the economic dimension of a relationship, together with investments. Although it is not totally separable from the structural bonds concept, in the case of the company, economic bonds become evident when the benefits of dealing together are clearly recognized. For instance, one of the interviewees commented regarding the mutual benefits of dealing with a vegetable oils producer in South America: Our ambitions complement each other. They have no ambition to sell to international markets, they just want to sell FOB say Argentina and we have no ambitions to become crushers in Argentina or Brazil. (G1, p. 77)

Illustrating the convenience of maintaining a relationship with the company one customer said: We have a shipping arrangement. We underwrite imports of vegetable oils from both the States and South America and they export tallow with the same ship y so we are able to formulate strategic relationships that allow us to tie up vessels for their exports of tallow and our imports of vegetable oils. (G3, p. 18)

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Given that the parties recognize that working together produces complementary financial benefits, the existence of a bond that is not social, nor structural but keeps the parts joined, should be termed ‘‘economic bond.’’ Distance Several passages of the transcripts indicate that distance is among the parties’ concerns. From the four forms of distance the most notorious is cultural distance, which results not only from trading globally but also through trading with local companies with different structure. With overseas customers and suppliers, cultural distance results from the economic value of money and language, rather than from ethnic matters. Distance prevents the parties from building long-lasting relationships and can cause misunderstandings, as one customer mentioned. This passage suggests how in dealing with some customers overseas, problems arise with amounts of money that locally would mean nothing: Because of the places we are dealing in, they are all third world type countries where ten or twenty dollars is a lot of money, it is difficult to build deep long lasting relationships. At the end of the day all that we are looking for is honour the contract terms and pay us for the product. (G1, p. 128)

The next passage denotes the customer’s perception of cultural distance between them, a food manufacturer, and the company, a trader. The second one denotes cultural distance because of language difference. The last is a more easily bridged distance. Occasionally there are misunderstandings. I think this is due in part to the fact that at the end of the day [the company] is a trading company. They make their money by buying and selling and taking a margin and a profit at the end of the day, and, at the end of the day we are a food company. (G3, p. 46) If it is someone within an English zone you don’t necessarily need a broker but if it is the Brazilian soybean who only speaks Portuguese on other time zone then you need someone to help. Sometimes to build the first part of the bridge we use a broker that is local. (G8, p. 72)

Being a local player can be advantageous if competing with a multinational company. If we both have the same price they will take us over [the competitor] not because the Australian fact but just because they are the big bad multinational reaping off what is possible from a little guy, and his approach, his thinking can benefit us. (G6, p. 138)

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However, the ownership of the companies, private or public, may be a factor of cultural distance even harder to bridge than those factors found in dealing with different nationalities. You meet an executive who is within [a multinational] who is an egomaniac who is trying to climb the corporate ladder, every dollar that he makes or loses isn’t coming from his pocket. He is a corporate employee, so the objectives of the relationship are different; you’ve got to massage his ego. (G8, p. 81)

Because of the global character of the company, the factor of geographical distance is, more often than not, present. It does not preclude the construction of relationships but does increase its difficulty. If we take [their most valuable customer] and transplant them to a place where we do not have an office, the communications will not be the same, they will be done by telephone, will be done by fax, email or whatever it may be available. They will not be the personal that we are talking on now, the one on one. (G4, p. 50)

Social distance exists with some suppliers, particularly with those that are less sophisticated in managing the pricing of the product in the market. The company addresses the issue by introducing a pricing mechanism in the supplier agreements and educating the counterpart. I sent him all the education and explanations and very stringent procedures that he could follow up without getting himself in trouble. (G6, p. 39)

Honesty Honesty is a form of trust. Geyskens et al. (1998) define honesty as the belief that the other will be credible. Within the company, honesty has a central place in building and maintaining business relationships, with more emphasis among the senior executives but also present among the more junior levels of the organization. In the international trading commodity industry, in which problems may occur at any time, being able to be credible or having a counterpart who is credible makes management of the problems easier. You never know if you will have a problem because in our business we are always having problems dealing in commodities, dealing with big ocean ships that not always run on time, they run early, run late. They [the suppliers] also have some issues, whether they had a problem with the crushing plant, they are a bit behind, they need a bit of help. (G1, p. 29)

Being honest with the customers as well as with suppliers is perceived as one of the most important things for keeping the relationship at high-quality levels and achieving customer satisfaction.

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I think honesty. I am very honest with what the capabilities of the ships are, and I think I have been around long enough to have some respect. I think the customers know me, they know that we do the best for them. I think being honest is the most important thing and knowing the forward planning, but we are not doing things for the customer because it necessarily suits us. We do our best to satisfy the customer to keep them happy and I think it is trust there. (G2, p. 27)

Naturally, the company also expects their customers to be honest. Paying on time means being an honest customer. Hence, not paying denotes dishonesty. If a customer says to me ‘‘I am paying you tomorrow,’’ then I expect him to pay me tomorrow. If he doesn’t pay, to me, then to me is not honest. (G4, p. 101)

Moreover, a customer that pays on time is perceived as a valued customer and therefore appreciated and better served within the organization. They are making and extra effort with [the customer]. The girls in the office love them because they pay on time. They are a good customer to us. Therefore they project to us the value of a customer. (G6, p. 151)

However, the concept of honesty goes beyond the mere act of paying by the due date. For the company, being honest also means being open in communication if there are problems and later on fulfilling any obligations. A customer is honest if says to me ‘‘I can’t pay you at the moment but I would pay you in three months time.’’ That’s opposed to a person that says nothing and doesn’t pay you. (G4, p. 101)

As the quotes illustrate, honesty is repeatedly mentioned during the interviews focusing on the whole relationships within the supply chain. Although the company expects its counterparts, whether supplier or customers, to be honest, it intends to demonstrate honesty too. Being honest makes the relationships possible and increases the value of the customer. Competence This is a third element of trust, which is closely connected with the company’s expertise for completing the service offer. Selnes and Gønhaug (2000) argue that the competence element of trust exists when one party believes the other party has the required expertise to perform the task. Competence, as with the other elements of trust, maintains the relationship but also augments further options for more business. The company is confident in their capability for achieving what the customers are looking for and believes the customers are aware of this competence.

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When we provide a product the customer knows that we have the logistics for that. If we sale something to them they will receive that on time. All the customers down here are manufacturers therefore are relying on having product on time as specified, so they can run the factories. (G7, p. 32) When you think about the relationship, when our guys go to the buyer then the relationship is I trust these guys, I know they are doing something smart, they are sharp and they are giving me something a little bit different. If the trust is there, the smartness and innovation is there, and then, you put the relationship in. That makes business to have much better chance to conclude. (G8, p. 43)

Likewise, the company expects their counterparts to have competence. Lack of competence may undermine the relationship. It could be the practices, it is lack of knowledge and procedures for certain things, and that compounds a problem of the relationship, because if I don’t seem to have the shipping instructions, or nominate vessels properly, or those sort of things, that is difficult. (G2, p. 62)

Competence is an essential requisite for doing business and improves the quality of the relationship. However, it is a feature that needs to be present in both parties, so that they can both rely on the other. If only one party has expertise, there would still be business exchange although with more difficulty. Relationship Performance If the parties recognize that a relationship is making possible a worthwhile business, then it is expected that they will be committed to the relationship. So¨llner (1999) proposes that commitment toward a relationship increases when a relationship contributes to the parties’ effectiveness and efficiency. That is, there is a ‘‘cake’’ to share resulting from the relationship with a particular company. One interviewee commented about one relationship: Now how do we define them as our most important customer? Because we sell them many products and many services, they don’t buy from us 100%, but we have a significant exposure with them in terms of what we sell them. [We sell them] freight, we sell them shipping; we sell them canola oil from our own business in Australia. We import vegetable oils for them from elsewhere in the world, they store in some of our terminals. So they are very important customers. (G4, p. 38)

The customer in turn said: Overall we have a close relationship, an important relationship, and that is a big relationship too with a few different fronts, with a few different business activities, and it has been quite a long relationship, and we are probably doing more with [the company] than we ever had. They are now in the shipping, and the storage, and the canola business, so it is probably more important than is has been before. (G3, p. 161)

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These citations show a clear alignment between customer and supplier regarding their shared perception of the outcome of the relationship, which they perceive as beneficial for both. Whenever the performance of the relationship is discussed, fairness ( justice), issues of profit, and revenue distribution are made more evident. The participants did not bring this topic to the conversation, arguably because the size of the cake has grown so much that it delivers enough benefits to the parties for both to be pleased even if the parts are not equally shared. Instrumental Inputs Instrumental inputs are also a form of commitment. They are evident in the tangible, specific inputs to the relationship that demonstrate commitment toward continuing the relationship. The company invests in specific inputs to improve their management of business relationships. The most important instrumental inputs are a new customer relationship management (CRM) system, which is already in place, and a new telephone system to recognize the customers when calling. Although the interviewees recognize the importance of the CRM system, the reality at the time of conducting the interviews shows that it was not working as expected. The actual system is working from a data entry point of view however the uptake is poor. Pressure has been put on managers to champion the system in their respective regions or departments. Unfortunately the response to date is still unsatisfactory. I suspect it’s a mixture of ownership from the top lacking, the ‘‘hassle’’ factor of having to copy and save information (not user friendly enough), and the fact that for most in a relatively lean organization the CRM system is not a high priority. (G9, p. 7)

When potential users of the new system were asked about their willingness to make CRM work, the answers ranged from: ‘‘[it] is working from a data entry point of view however the uptake is poor’’ (G9, p. 7) and ‘‘I have to do it myself or coordinate someone else with me training the others’’ (G5, p. 130), to perhaps the most insightful comment that illustrates the management of customer information. We talk about a specific customer, or specific market or specific opportunity so rather than collecting all in a beautiful database that no one ever looks at, is more on the run, at the coffee machine, around the table, quickly. (G8, p. 184)

If more people see CRM as ‘‘a beautiful database’’ that will not deliver any value, it may never work properly.

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Formal and Informal Adaptations Another form of commitment is demonstrated when the parties are prepared to be flexible, within (formal) or beyond (informal) the actual contractual terms. This is called adaptation. The company is flexible with the counterparts that it considers important. Also, they value the flexibility that some counterparts show. We expect our people to decide and say yes we will keep our factory opened for an extra half an hour and you can come and pick up the load or give them some options but not simply saying sorry call back next week. So the flexibility is a key word in our business. (G5, p. 52) Definitely, [we rather deal with], people that are flexible so we help each other and that is important. (G1, p. 30)

Adaptation is seen within the company as a relationship feature that facilitates problem-solving or even paves the road for building long-term relationships. Some degree of flexibility is also perceived as a form of adaptation. They accept what I tell and then we move forward to solve the problem, which not only makes easier the explanations for the difficulty that we got but also to offering a solution. But it doesn’t stop there, we take that one step further when there is a solution offered they go away and consider the solution and if it is acceptable they will accept it and if it is not acceptable they will come back trying to think in some other ways for solving the problem. (G2, p. 37) That has to be managed in a sense that we had to say well ok we agree and what we will do, we gave them a discount with a long term view. (G6, p. 77)

A customer also perceives the company’s flexibility as a reason for developing long-term relationships with them. To a certain extent they are not a global conglomerate, so they do have adaptability within the organization. That is certainly a plus for them. At the end of the day they are pretty easy to deal with. (G3, p. 89)

Satisfaction Satisfaction is recognized as a key condition for building relationships, whether as a condition for further investments leading to structural bonds or as a catalyst in the judgment of the other party’s acts within the relationship (Geyskens et al., 1999; Wilson & Mummalaneni, 1986). Satisfaction can be economic, that is, clearly connected to financial benefits or costs resulting from the relationship, and non-economic, simply

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associated to how pleased the parties are dealing one another. Both types of satisfaction are amongst the interviewees’ observations. If the supplier inability to fulfil their obligations costs us money that will definitely put the relationship deteriorated. If we are happy we don’t seek for another supplier. (G1, p. 90) I want to make sure that the customer is happy. (G2, p. 53)

However if one party is not satisfied with the relationship, it would not be of much help. It has been very difficult. The relationship is, just we don’t feel like the customer, and, in essence we are. We had a meeting with his superior, the trader’s superior, where we basically said that. It seems like we are the only that are saying let’s get things going, let’s build our businesses. (G6, p. 217)

These passages suggest that satisfaction with the relationship retains the customer for longer, whereas dissatisfaction with the supplier not only leads to termination but also affects the customer’s perception of who holds the relationship. Summarizing the Features of Relationships One interviewee summarized his expectation of a high-quality relationship: For me there are three words that I will use: honesty, trust and integrity. (G4, p. 97)

Although honesty, trust, and integrity are regarded as part of a broad definition of trust, among the 22 identified by Svensson (2001) and therefore only one aspect of relationships, it can be argued that the sentence above does a pretty good job of summarizing the most desired aspects of a high-quality relationship for the company, as trust is deemed critical to any further progress in building relationships. The various aspects that members of the company mention as desired features of relationships, or not desired but important as in the case of distance, are described in the previous sections in descending order from the most frequently mentioned to the least. A graphical representation of these features is presented in Fig. 5. Fig. 5 strives to provide a general map of the interviewees’ views of relationships. The arrows suggest connection between constructs but are not intended to represent or delineate a causal model. Each feature is also connected to theoretical constructs identifiable within contemporary knowledge. The thickest boxes display those features mentioned more

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Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Satisfaction

Economic

NonEconomic

Economic

Structural

Fig. 5.

Constructs of Business Relationships Case Study B.

often and the thinnest the least, as organized in Table 8. For the concepts that were seldom mentioned during the data collection period, a dotted line is used with the aim of suggesting its relative absence in data but presence in theory. The company has a very well-balanced definition of the most desirable features that count in high-quality relationships. The interviewees mention concepts that most of the contemporary knowledge recognizes as crucial in building relationships. The only characteristic that was hardly mentioned, with the exception of one interviewee, is justice. Relationship outputs can be divided into two: performance or how much cake is the relationship delivering, and justice or who gets what part of the cake. If justice is perceived to exist, the parties will be more committed toward continuing the relationship. (So¨llner, 1999). If one of the parties, instead, perceives that the counterpart is reaping unfair benefits, that party will be less committed toward the continuation of the relationship and would be more likely to seek alternative partners (Geyskens et al., 1996).

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CASE STUDY REPORT C: ALUMINUM AND STEEL CANS The Company The company is an Australian manufacturer of aluminum and steel cans that is a part of a Global Public Company in the packaging industry. Its head office is in Australia. The company has two production facilities located in New South Wales, one specializes in aluminum and the other one in steel. Although the market is segmented into users of aluminum and steel cans, the marketing and sales team is the same for both types of product. There are customers that exclusively require one or the other type of product although there are also customers that need both aluminum and steel cans. For the purposes of this case study, the researcher has chosen one customer that uses only aluminum cans, one customer that uses only steel cans, and a third customer that uses both types of product. Together, these three customers account for more than half of the company’s total revenues. Data Collection Methods Three methods for data collection were used: (1) interviews, (2) participant observation, and (3) analysis of documents. Interviews Twelve in-depth semi-structured interviews, one-hour long in average, were conducted and tape-recorded, eight within the company and four with customers outside the company. Participant Observation The researcher acted as observer at three meetings between the company and its three major customers. Participants were informed about his role as observer before and at the beginning of the meeting. The researcher kept as quiet and unobtrusive as possible. The researcher took notes of the issues discussed in the meetings including questions asked, explanations given, and compromises made. The researcher observed a number of other factors, which can be classified as verbal, pitch, loudness, timbre; temporal, rate of speaking, duration, rhythm; interaction, interrupt, dominate, inhibit; style, vocabulary, pronunciation, dialect, and spatial relationships. The researcher

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also observed business practices while waiting for interviews and during the interviews when somebody interrupted with an urgent problem. Documents Public and internal documents were collected during the data gathering process. Among the public documents are those available in the company websites and printed publications. Internal documents include marketing plans, notes from previous meetings with customers, and performance reports.

Data Management The records of each interview were transcribed in full. The notes from observations and pertinent parts of the documents reviewed were also wordprocessed. The written texts were subsequently coded with the assistance of NVivo 2.0, employing constructs drawn from contemporary knowledge of business relationships.

Participants Potential participants were identified in earlier meetings, initially with the general manager and afterwards with the sales and marketing manager. The selection criterion was the relevance of the person’s position in influencing the company’s relationships with the three major customers. Out of the customers, the main contact persons were invited to participate. A total of 12 people participated, eight within the company and four within the customers’ companies. Within the company the participants were the general manager, the sales and marketing manager, the former national sales manager, three key account managers, the technical manager of the steel plant, and the production planner of the aluminum plant. Within the customers’ companies, those who participated were the supply chain managers of two companies, the packaging, purchasing and development manager of one company, and the production planner of one company. The interview scheme, illustrated in Fig. 6, shows the relevant people who have influence in the management of the company relationships, as well as the commercial and technical links between companies. Shadowed boxes denote people who were not included in the research.

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General Manager

Production Planner Customer A

Sales and Marketing Manager

Key Account Manager Customer A

Supplier Manager Packaging Customer A

Key Account Manager Customer B

Supply Chain Manager Customer B

Key Account Manager Customer C

Packaging Purchasing & Development Manager Customer C

National Sales Manager

Operations Manager

Technical Manager Aluminium

Technical Manager Steel

Production Planner Aluminium

Fig. 6.

General Interview Scheme.

Features of Relationships Focusing on the description of the main features that the company seeks in its relationships with customers does not imply that the company has a unique type of relationship with all customers. Rather, it simply identifies the most common features that the interviewees mention during the data gathering process. These features provide a framework to understand the relationship context of interaction as well as to identify commonalities and differences among the company’s relationships. The company’s perception of the most desired attributes of a high-quality relationship consists of twelve main characteristics. Three subsets of attributes are identifiable, depending on the frequency with which they appear in the transcripts. Table 9 summarizes these clusters. These attributes can also be grouped into four major constructs: commitment, bonds, trust, and distance. However, they are initially presented separately as they were mentioned by the research participants.

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Table 9.

Features of High-Quality Relationships.

Group

Themes (Based on Extant Research)

1. ‘‘Themes mentioned most often’’

   

Attitudinal inputs to the relationship Social bonds Instrumental inputs to the relationship Cultural and social distance

2. ‘‘Themes mentioned less often’’

   

Competence Honesty Relationship outputs, performance, and justice Informal adaptations

3. ‘‘Themes least often mentioned’’

   

Benevolence Structural bonds Technological distance Economic bonds

Attitudinal Inputs to the Relationship Attitudinal inputs is one type of specific input that demonstrates commitment toward relationship continuation. So¨llner (1999) asserts that positive attitudes toward the partner, actions that show psychological attachment to the role of the relationship, and purposeful intentions are a form of commitment that can be grouped together as specific attitudinal inputs. These do not require the deployment of tangible resources, although the counterpart appreciates them. The company creates specific attitudinal inputs through different means. These are associated with different circumstances that connect the companies. The parties, whether supplier or buyer, may feel committed to relationship continuation only because of the relative importance that each company attributes to the other. We are committed to the continuation of our relationships with [the company] because they are major suppliers. They are at this moment sole suppliers but five years ago it was 50/50 with other suppliers. (A3, p. 29) Yes, it is a very long standing relationship it is a very good understanding there, we are mutually committed to the relationship because of the circumstances. Our volume requirements for aerosol cans are such that [the company] is one of our only two suppliers in the country who can supply us. And as far as [the company] concerns we are one of their three major customers. (A6, p. 13)

The preferred supplier program that one customer operates denotes an attitudinal input toward the relationship.

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We rate suppliers in [our company] through our preferred supplier system y They’ve been a preferred supplier for most of the time they have been appraised. What preferred means, is you have the rights to quote any new business in that category field and it tends to be a strong relationship between the two. (A5, pp. 14–15)

The company’s willingness to work together with customers seeking improvement is seen as a demonstration of commitment. They’ve been continually committed to work in that direction over a long period of time and that really means an openness to exploring new ideas, new ways of working, new processes. (A6, p. 22)

In contrast, their reticence to share critical information that would help in finding better methods to work together is perceived as lack of commitment. Cost structures are also a bit too high but they don’t share or open up with us their cost structures either. They haven’t ever really shared that information with us. They always said look we are working on a new system because I was saying I want activity based costing. (A5, p. 85)

One way of working together is by holding meetings between the company and its customers. During these meetings not only is information exchanged but also relationships are constructed at multiple levels of the organizations. If a customer needs additional quantities of product as a result of a successful promotion or from unexpected changes in demand, the company’s efforts to satisfy that extra demand are perceived as a supplier’s attitudinal input. Equally, if the company cannot satisfy such extra requirements, the customer’s acquiescence is also perceived as a customer’s attitudinal input. They expect you to do the best thing you can. They don’t demand. An issue would be if they give us a forecast and we violated the lead time then both of them will demand us just to do the extra lot. But if they haven’t give us such notice then they are in the position of the best you can do, we will live with that. (A7, p. 46)

A number of people within the organization suggest that the public-owned status of the company makes customers that are also public companies easier to work with. This is reflected in the attitudinal inputs toward the relationship and their perception of the counterpart’s commitment as well. Moreover, if a customer is either a privately owned or small company, there seems to be no desire to form a relationship with that customer. The multinationals, in the time that I’ve spent with [customer A] and [customer C], from the relationship perspective, I found that they tend to stick with their suppliers and work with their suppliers a little better than a private company would. Purely because a private company in some cases, could drop you quite quick and go to another supplier. (A2, p. 31)

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That is a small company, two or three people that run the plates, so you only got two people to deal with them. They do the order issues and the production. So I visit them once a month, they put their orders well in advance, so it is very rare to have a supply issue. They are an easy customer to deal with. They are like a minimum effort of work to keep them. They want things on time and we will look after as we can but at the end of the day they always take second place to the majors, which unfortunately, is the way business is. If you have to upset someone it is going to be the small customer. (A7, pp. 146–147)

Regarding the most relevant current issues of capacity constraints and plant relocation, the company encounters opportunities to demonstrate attitudinal commitment. For instance, because of the absence of a capacity cushion, the aluminum plant has very little opportunities to react to changes in demand. However, the company started an aluminum cans imports program to cope with those extra requirements, almost exclusively for one customer. We actually purchase cans from overseas for [customer A], and for Christmas we did for [customer B] as well, we imported from [supplier X]. It was for an export job that came from [a company overseas]. Suddenly they needed 2,500,000 in a hurry and we couldn’t just drop it in our schedule straight away. (A1, p. 99)

These imports help the company to retain customers because they demonstrate the company’s commitment toward the relationship. The relationships are getting a little stretched, but the reason they are tolerating it is not only because we are the only manufacturer of that particular can in this country, that makes it hard to them to switch, they [also] see the way we reacted. (A2, p. 90) Are they trying very hard to make sure there are cans here? Yes they are. (A5, p. 159)

Social Bonds Social bonds are perceived by the informants as a very important feature in business relationships. Social bonds denote positive personal relationships (Buttle et al., 2002), which are characterized as demonstrating emotional, mental or psychological attachment (Wilson & Jantrania, 1996). Some interviewees equate a good business relationship to a good personal relationship or to having a friendship with the counterpart. Others, although recognizing the importance of personal relationships, make a clear distinction between friendship and personal relationships in the business context. You have to get to know the person you are dealing with key contact over a period of time and even within a business relationship that time gives you the ability to develop a relationship that is not unlike the personal relationship. You get to know for instance the person’s wife, their family, ups and downs with that, their sporting likes, their dislikes.

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You’ve been to football games with them and watched somebody missed the last goal and lost the game. And you’ve the games they want, over the time you get the ups and downs of a personal relationship as well as the ups and downs of a business relationship. The ability to have a really strong business relationship is the ability to have strong personal relationships that you treat as a business relationship. (A2, pp. 69–70, 82) I get invited to a lot of [the customer’s] functions and things like that but not very much as mates. I’ve been invited to barbecues to [the company manager’s] place or things like that may be bringing the family but not that often. Even with the sales manager, we would play golf on the weekend. (A1, pp. 176–177) We both know that is a social occasion and we don’t, you know, we split the bill, we don’t pay on company’s Amex, we pay cash, we split the bill and that is probably the aspect that both of us know that this is a social occasion. Because if I bring out the Amex is always something in his head that probably says oh, maybe [the supplier] wants something more out of this than he is actually saying. (A4, p. 96)

The aforementioned quotes show how three different people at the same company have three different understandings of personal and business relationships. Looking at the customers’ point of view the differences are also evident. In relationships it almost ends passionately on a personal level, how well you get on with someone how much you can trust someone and whether you tell something, you say look it is between us, that sort of relationship versus the relationship that you need there to get the job done like a business relationship only. Both things definitely count. (A5, pp. 78–79) There’s been a change of account manager in the last 12 months and other changes within them, sort of sales and commercial structure, which all impacts upon the understanding in their business about how they work with us and to some extent it forces us to re-educate the people. And also, some of our expectations, which could be easily met previously, started drift to the point that they don’t really understand our expectations without some reinforcement. y It is not the case of we don’t think the people in place aren’t competent to do the job, anything like that, it is just a simple fact that when someone goes to another role or leave [the supplier’s] business they take with them their understanding and the history of what is transpired. (A6, pp. 48–53) I will only have social interaction with some suppliers, with those that the company has interest in building relationships. (A3, p. 50)

As illustrated, with reference to building social bonds, friendship and personal business relationships are not clearly different, as there is no consensus on how intimate the relationship should be. For some, personal relationships lead to understanding but not friendship. What is more, within

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a dyad in which the relationship is close and cooperative, the parties’ perception of the level of friendship that exists is considerably different. We see each other three times a month but it is not really a social relationship, I mean we’ve got a good working relationship and we’ve got a lot of honesty between us. We need to be very honest but certainly there is no personal relationship, the only socialising we do is in the intercompany functions. (A10, p. 48) Yes, there is also a social connection between us, it is not huge because she is working at [her plant] but we can have a chat about having a weekend and things like that. Yeah, it is beyond the work relationship, it is not a strong friendship relationship but we confide in each other. (A12, p. 30)

Despite the difference of perceptions in relation to the friendship element, most of the informants agree with the benefits of having social bonds within a business relationship. The main benefits include: getting to know the counterpart better and improved information flow. Probably was until six months or so that I really got to know the supervisors on the actual production lines, then they really knew who I was and now is like Hi John, Hi Jim, Hi Colin, or whatever. The more social personal you get it on, the more information feedback you can get back, and it is like, things that maybe people might tell you that maybe they should not or whatever or it is maybe someone else who is doing, however you are more likely to be able to get that information or sometimes telling with issues that rather than being as formal issues and maybe treated as less serious and deal with it maybe before becoming a major issue. (A7, pp. 101, 103) If we have a problem I’ll go to the [customer’s] office, he will scream and yell and abuse me and said it is not personal, I want you to go back and tell them what has happened. (A1, p. 187)

In sum, social bonds are regarded as a desirable feature of business relationships. However, the company has not established social bonds at all levels with customers. Among participants, there was no consensus on the level of intensity required in personal relationships. Instrumental Inputs to the Relationship Demonstrating commitment through more tangible input is as important as demonstrating commitment through attitudinal inputs. This more tangible input can be called instrumental inputs. This input is composed of those physical or human resources whose purpose is to serve the counterpart’s needs better. Instrumental inputs, although perceived as purely calculative, have the benefit of increasing switching costs and therefore keep the relationship going (Geyskens et al., 1996; So¨llner, 1999).

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Instrumental inputs that demonstrate the company’s commitment toward continuing the relationship may be classified into assets allocation such as equipment or inventory, tools to manufacture exclusive products, software, and dedicated human resources. Nevertheless, most of the resources deployed or offered for deployment are supplier’s initiatives. Many but not all are driven by the capacity constraints that the company faces in the aluminum plant. In response to the capacity constraints, the company demonstrates instrumental commitment in three ways. The first one, which also has the biggest impact on the relationship, is the appointment of the aluminum plant production planner to work in direct contact with the customer’s production planner. They get on exceptionally well and they essentially keep the place running without a doubt. (A5, p. 75) She is holding the relationship together, that is our best level [in the relationship]. (A11, p. 94)

The second beneficial instrumental input is the company’s decision to build inventory of cans, both imported ones and locally produced ones. They are bringing now a million and a half to two million cans. They have now going to have cans on the floor because I can’t pack a million and a half cans in a week, they now are doing the stock build, which is great, which means we can focus on something else in their plant. Those stocks will be coming in, we can build our stock and then we will be in a healthier position. (A12, p. 84)

A third instrumental input is the investment on the setting up of a third production line, which is still to come, and therefore, the customers have not yet experienced it as an instrumental input. The customers are worried about the timeline of the project, as well as about the possibility of the company buying a second-hand line instead of a new one. They haven’t got the third line yet y . No one yet has come back and said we have bought it, because the other thing is they are buying a second hand line, it is not a new line, they have to find one. (A5, p. 158) I would prefer the third line to be new. (A13, p. 19)

The company cannot go ahead with the decision because on the one hand a second-hand line has not been found yet and, on the other, the costs for a new line, which are as much as double those of a second-hand line, ‘‘do not make much sense,’’ as reported by the general manager. To increase the feasibility of a new line, the company has asked its customers to sign a

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supply contract. One customer answered that they do not believe in contracts and therefore refused. The other customer will sign a contract but will not give any volume guarantees. A project established to correct a quality problem of the product is expected to impact upon the customer’s perception about the company’s commitment. I think the big one will be, if we can, what would help to cement the relationship will be when we make the process and all the leakage drops dramatically so that would be ‘‘oh, they listen to us, they heard us.’’ (A9, p. 145)

In sum, instrumental inputs toward relationship continuation are a very important feature of business relationships. The supplier appears to be making most of the specific instrumental inputs. Contrary to that, customers did not make any instrumental input. This asymmetry in commitment increases the risk of opportunistic behavior of the counterpart (Anderson & Narus, 1990). Cultural and Social Distance Cultural distance refers to the differences in norms, values, and working methods between the parties; social distance relates to the familiarity with each other’s ways of working (Ford, 1980). Specific episodes within the interaction as well as changes in personnel may lead to increased or reduced distance between the organizations and therefore affect the nature of the relationship. The ownership of the companies is one of the main causes of increased cultural distance, that is, whether the company is privately or publicly listed. As the company is publicly listed, it has clustered the three big customers into two groups. Two are publicly listed and one privately owned. It was common to hear interviewees talking about how they manage each group of customers. We think that with similar companies, public listed companies, it is easier to build and maintain relationships. (A8, p. 9) [Customer A] and [customer C], multinationals, big and public listed companies, as a result of that, deal with the suppliers in a different way, particularly our industry, to a company that is a private company such as [customer B]. (A2, p. 19)

But when invited to elaborate on the idea, it became quite unclear what made the interaction different between public and private companies.

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From the relationships perspective, the way that [customer B] deals with suppliers they will use some of the systems and processes that a big multinational might use but culturally [customer B] will be different to [customer A] and [customer C]. (A2, p. 20)

Once again it was necessary to revise the context in which the relationships evolve to understand that the major concern was about the processes required for capital expenditures. A customer said: ‘‘They needed board approval to relocate the [steel] plant, now they need board approval to invest in the [aluminium plant] third line’’ (A3, p. 62), denoting that it takes too long to see the company taking action. In contrast, within the company, when comparing this customer (privately owned) with other that is a public company, they said: ‘‘They [customer B] just can’t see why don’t we invest, [customer A] on the other hand understand that there is an economic equation around whether you will invest or not’’ (A11, p. 41). In a public company, executives report to the board that has a responsibility to its shareholders. In a private company, accountability is more direct and the decision-making process seems to be faster. One interviewee summarized the company’s views on their private customer: The business personality is different because there is a tendency to [customer B] to want to make things happen quicker. They go and purchase machinery, they go to the bank and pum, pum, pum. They want quick return on funds, yes. (A2, p. 40)

There is also less cultural distance between two publicly listed companies because of their organizational structure. It is because we have similar culture, same sort of organizational arrangement, so each of us has a peer in the other organization. (A8, p. 11)

The perception of one of the customers differs to this opinion. He sees the general manager of the company as an interesting person to deal with but: ‘‘it is not my day to day he is more senior I guess, and, I am here [in the middle], and, there is nothing in between. I don’t think there is clear structure’’ (A5, p. 95). This implies that for this customer, dealing with the company, which is also a public company, does not equate to having a peer to deal with. Changes in personnel also create social and cultural distance. The company may have one specific person matched to each person within the customer’s structure, but if the person is new to the organization, he/she may not have peer-to-peer links with the customer. I think [he] is someone who is new in a job, which is always hard because they need somebody who can hit the floor running between me, a lot of experience. I can’t afford another year until he gets up to speed before he sees how can things work. (A5, p. 77)

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Changes in personnel, whether on the customer’s side or on the supplier’s side, may cause distance to increase, even in existing relationships, and this makes the counterpart perceive that interaction has become harder. Before, he was [customer’s B] Supply Manager, we got on well with whatever interface I had with him but now that he is Supply Chain Manager at [customer B]. For being new he is trying proving himself and is trying to enforce things a lot harder on what they used to be with the previous supply manager. Whereas previously we had problems which I could go to explain why and when we were going to fix it, [he] is finding a bit difficult to accept it at the moment just saying we need it done and what you have to do, do it. (A1, pp. 155–156) You just need to understand how someone works and when there is history and when there is experience a lot less needs to be said to achieve a certain outcome whereas when you are dealing with people who are new you don’t have the rapport and the history and trust built up, there is a lot more discussion, takes a lot more work to actually drive initiatives through their completion and to get the understanding required to make them happen. I would say it has been the most significant disruption to the way our business works. (A6, p. 62)

Even internally, changes in personnel are perceived as jeopardizing company relationships: ‘‘When we go through a time of conflict is when there is someone new to the business’’ (A9, p. 97). The contrary also happens. If two persons are in continuous interaction, they reduce social distance to the extent that it makes them feel as if they are working in the same company. We are both at the fine detail, it is mindset, if you know what I mean, we know the small things might turn into big things and that the fine details not taken care explode into a situation we are in now. No, to me she is part of my working day every day. That is why I say is like she was part of [the customer’s company] because of the contact we have is a constant day to day, it is like she actually physically works here with me. (A12, pp. 8, 185)

Finally, the difference in the attitude toward quality is also an element that creates cultural distance. Not specifically different processes, which are instead a form of technological distance, but the parties’ views toward quality compromise. The following quotations illustrate this point. Their CEO is, I suppose you have to say, passionate about the quality aspect of the business because I believe quality is where their business is based on. (A9, p. 53) The problem is [customer B] are expecting Japanese quality for an Australian price and we are refusing to do that, I mean I’ve got no issue with the attempting to meet Japanese quality but not at my cost. (A11, p. 99)

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I don’t pretend to understand what Six Sigma actually is, so that is probably a fundamental. Secondly some of the fundamentals of TQM [total quality management], TPM [Toyota production method], five pillar, whatever, are the cultural changes and that foundation isn’t in our business. (A9, p. 62)

In sum, cultural and social distance are features of the company’s relationships linked to the capacity constraints in the aluminum plant and the changes in personnel that have occurred in the last 12 months. Reducing distance is an immediate task the company should undertake. Competence Competence, a form of trust, is the belief that the other party has the required expertise to perform the task (Selnes & Gønhaug, 2000). The higher the trust in the other, the more risks the party will be willing to take in leaving the management of the relationship in the hands of the counterpart. In normal circumstances, once the parties demonstrate their competence, they do not need to perform outstandingly; it is instead a matter of keeping the relationship going. They want to have the least trouble that is possible, they want the systems flowing smoothly, with the minimum interference, they want supply to be on time so the factory of aerosols is not making any issues, compliances about the supply quality, then the management upfront don’t want issues to get involved. They basically want the supplier to manage everything on their behalf and they don’t really get involved. (A7, p. 9)

Conversely, when there is a problem that captures the attention of the parties, like the capacity problem, the margins of error are significantly reduced, and the supplier has to permanently demonstrate competence to keep the relationship going, as is the case with at least two of the company’s major customers. In one of the meetings, a customer said: ‘‘A late delivery is a late delivery and doesn’t matter if somebody tries to arrange it later’’ (A13, p. 9), indicating that they cannot accept any excuses for not having the product available on time. A customer commented in relation to the company’s capacity to keep up with the problem: ‘‘We know they are now in the bottom line, how they manage to get out of that could earn them respect’’ (A5, p. 163). The problems related to capacity constraints appear to be exacerbated by changes of personnel, creating a situation in which a new contact can hardly find an opportunity to prove his competence. If I ring him and say ‘‘[my contact] is not there, can you help me with this?’’ he’ll have to check someone else, do you know what I mean? I am cutting him out of the loop, I am not involving him I rather go direct to [my contact] and talk to her. I need an answer

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straight away, not ‘‘I have to get back to y ’’ he gets copy of the correspondence I do give to [my contact] so he is partly aware but I am not talking to him directly, unless I can’t find her which is not very often. He is my second option. (A12, pp. 15, 17)

Changing personnel, without the addition of other problems, affects trust as well. A new person has to prove his/her competence to manage the affairs to the customer. There is also a matter of trust that you build up with individuals over a period of time and when someone new comes into a role, we trust [the company] as a business to appoint someone who is appropriate and competent to do the job and that sort of stuff, so from that point of view is a degree of acceptance. We are happy to accept who [the company] has assigned to the role, and we’ll give that person all the cooperation that need but still at a personal level is a degree of trust and understanding that needs to be rebuilt after someone else departs and it is quite disruptive. (A6, p. 61)

Competence-based trust is clearly a desired feature of relationships within this case. The long tenure of the relationships suggests the company demonstrates competence and earns trust. However the current problems require some members of the company to rebuild trust. This supports Foster and Cadogan’s (2000) distinction between trust in the company and trust in the sales person. Honesty Honesty is also a form of trust that supplements competence and is regarded as the belief that the other will be credible (Geyskens et al., 1998; Morgan & Hunt, 1994). The interviewees generally noted the importance of honesty as a feature that needs to be present in relationships. Honesty is commonly connected to telling the truth. For one informant, being honest prevents further problems and is the fastest way to find a solution to problems. It even prevents the unnecessary involvement of members of staff at higher levels of the organization. For my point of view is being pretty straightforward with them and tell them the truth. Therefore when you go back again to tell them there is a problem, they believe you are telling the truth. Because I can come back to him and if he says it is not my problem is your problem and I will say well it is my problem but the trouble is no matter what you say is not going to make any difference because we can’t do anything about it, it is something impossible. Yeah, and I say look I have done everything I can, you can try to go higher at the [company] level but you will get the same answer, we can’t do anything else, we have done what we could. (A1, pp. 146, 164, 168)

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The best relationship observed between all the participants was the one between the two production planners. This relationship is undoubtedly characterized by a high level of honesty between the parties and, what is more, the perception they share about how being honest facilitates interaction. I can sit at her work station, I have a laptop, she is on her PC, and we are running our systems and she says I need X amount of cans and I can see her systems, there are no secrets, and then she says well I’ll cut the batch back and I’ll fill something else instead. So I mean she is not hiding anything. I think that is the only way of doing it, you’ve got to be upfront there is no good hiding the issues. (A10, pp. 52, 69) So for me number one is communication with [the company] and she is extremely open and honest and that is what I like to have from a supplier. They are my only supplier. No, I am not hiding anything, no. Nothing at all. It is safer to show the real figures. (A12, pp. 9, 66)

A lack of honesty prevents the relationship from developing as one interviewee illustrates when making reference to a customer other than the three involved in this study: ‘‘There is no real try to work with them and do things because of the issues, they are not going to pay on time and that is in other areas as well’’ (A7, p. 145). The relevance of honesty in building relationships is such that one interviewee when requested to describe a high-quality relationship sums it up by saying: We have a supplier who is honest, straight. No games. (A5, p. 199)

Performance and Justice Performance and justice refer to the relationship outcomes that make the parties commit toward the continuation of the relationship. Performance of a business interaction is evaluated in terms of its effectiveness and efficiency, as well as in terms of the contribution of the relationship to the parties. Justice focuses on the distribution of the outcomes. So¨llner (1999) describes performance as how much cake the parties are going to get and justice as who gets which part of the cake. The outcome of the company’s relationships with its three main customers is critical: ‘‘these three account for more than half of our total production which means if you lost anyone of them it would be very large income lost’’ (A8, p. 96). Therefore, these relationships should also provide justice, that is, produce profits. Arguably, if a company does not make

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profits from more than half of its sales, it would hardly be a worthwhile business. Nevertheless, the themes occurring between the company and these same customers, particularly the capacity shortage, demonstrate that the relationship provides the basis to find imaginative solutions, for instance, the imports of cans to cope with the increased demand. This can be described as an increased performance even though it jeopardizes the justice of the relationship. Regarding the profitability of these imports, a customer commented, ‘‘No, they are losing’’ (A5, p. 146). Within the company the perception seems to be, however, that this constitutes an investment to capture future demand. If we can import cans and not make a profit but recover our costs of doing that process it is over and above 24/7 production I don’t see that is an issue. (A4, p. 186)

The capacity constraints are also jeopardizing relationships with other customers because of the company’s inability to increase output: ‘‘They are saying we are not really growing because you cannot supply us the cans’’ (A11, p. 40). Performance and justice are important features of business relationships, and these features are present in the company’s relationships. They are only changing since the capacity problem became more serious. Informal Adaptations Formal and informal adaptations are a dimension of commitment toward the continuation of relationships. Adaptations are specific changes that one party makes to accommodate the other. Adaptations are regarded as formal when they are included within the business contract and informal when they are subsequently arranged beyond the terms of the contract (Ford, 1980). Since the company does not have contracts with its three main customers, any adaptation will be therefore informal. Although buyers and suppliers implement specific adaptations, it was found that suppliers tend to make more adaptations. Thus, adaptations can be considered the most asymmetric of the three dimensions of commitment. Moreover, big efforts by one party are often perceived as minor adaptations by its counterpart (Brennan et al., 2003). The company’s relationships are characterized by adaptations made by both parties with (especially) active adaptations made by the customers. For instance, a customer might accept a quantity of product that is bigger than what they ordered, ‘‘they might say ‘look leave with me all and we will see how to use it up here’’’ (A7, p. 111) or offer to be more flexible in their quality requirements.

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Maybe the print quality on something is a bit marginal or the colour is not exactly right, we can still go to the brand manager and say ‘‘we printed this, are this ok? Can we supply this?’’ And they may look it and say ‘‘Yeah, it is not too bad, yes send them in.’’ So, you supply rather than writing off. (A7, p. 115)

In this research context, adaptations are strained by the capacity constraints. One customer is working only with one day’s inventory instead of the optimum three days they prefer to carry out quality inspections. The customer, who purchases aluminum cans, adjusts to the company’s potential to supply while the company also does its best to adapt to the customer’s needs. They realise the constraints that we’ve got and they work with us, say 100% in solving the issue, they know we are between a rock and hard place and they are certainly not unreasonable in their expectations. (A10, p. 44) If she rings, can I change things around? If can do I say yes I can, same with me, if I need to change something in her production order, we did it for each other. (A12, p. 8)

Benevolence Benevolence, a third element of trust, is the belief that one party will act in a manner considered beneficial to the other party (Ganesan, 1994; Selnes & Gønhaug, 2000). Participants of the study showed concern about the role of benevolence in business relationships. For instance, one of the interviewees comments that he always bears in mind the interests of his customers. We go direct to the customer of [customer B], talk to them about artworks, shapes of cans, whatever but I always clear with [customer B], I always notify [customer B] that I have a meeting with their customer next week. I also talk to the marketing people to know ideas on a new launch or brand. (A1, p. 35)

The customers in turn expect benevolence from their partners: ‘‘we want to think our suppliers are helping our company to grow and make profits’’ (A3, p. 12). In another passage, a customer illustrates how the company looks after their interests too when faced with changes in government regulations and standards. There was an impact from a change of an Australian standard for can manufacturers and that has had an impact on us but I think [the company] managed that fairly well and it hasn’t really affected our day to day business and the vast majority of our business at all. It does [instead] create some opportunities for the future, which we’re aware of. (A6, p. 57)

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In contrast, the capacity issue has stressed the relationship with a customer to the extent that it has made him suspicious of his partner’s acts, so much so that he questions whether his competitors are getting preferential treatment. We only make up X percent of the total and what I don’t know is what is happening with the balance. There are times when they make a lot of cans for [another customer] for a relaunch for [one of our major competitor’s product] so they sudden[ly] hit the plant up. They had spare capacity four months early and now they don’t have spare capacity. (A5, p. 104)

Structural Bonds Structural bonds result from resources allocated by both parties that keep them working together. Structural bonds are found in teams working together, in groups of people meeting regularly, in shared information systems or processes, and in multiple links between two companies. Several forms of structural bonds are found within company relationships. For instance, the meetings between the company and its customers create a form of structural bond in which both supplier and buyer spend time searching for solutions to issues and for ways to improve the way they interact. The company developed an internet-based software that allows the exchange of manufacturing information between the parties; ‘‘[a]ll their schedules and orders get automatically uploaded from their system into our system so they just send through a file once a week and automatically goes into our system’’ (A7, p. 151). This software is being used to service one of the three major customers, is in the process of being installed for the second customer, and scheduled to be installed for the third company. The benefits of this software implementation are immense in many ways: it improves information sharing, it saves time, it enhances visibility through the supply chain, it improves data accuracy, and it keeps data up-to-date. The company can now forecast over 12 months of a customer’s activities, which should help reduce the bullwhip effect and therefore increase the inventory service level (Kopczak & Johnson, 2003). The software also produces exception reports, which focuses the parties on managing those exceptions instead of having to spend many hours typing orders and production deliveries. This allows the key account manager’s time to be spent on more productive work. I suppose in that aspect I can spend my time in other more value added issues than the day to day time. Working with the brand managers, working with the packaging people, looking at their business, trying to find cost saving measures, improvements. (A7, p. 161)

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When this research took place, the benefits of the system were not yet fully reaped. This is because, on the one hand, the capacity constraints greatly limit the scheduling, and, on the other, there are continual changes in demand that even the customer appears not to understand very well. Perhaps we’ve been doing that at the same time that we had capacity issues is not being ideal. An ideal trampoline is when you have something new and you’ve got plenty stock in the floor and you can afford to make mistake and it is not going to come big issues but you don’t plan for this things. If they are not seeing demand from exports then the information is not appearing in the system and we don’t see their demand with exports. (A10, pp. 114–115)

The application of another tool is also in the pipeline. It is an art design Internet-based system, which a brand manager or a marketing specialist would use to design a new product. All three major customers will be offered this software. The key account management model presented in the sales and marketing conference aims to develop intercompany teams. This is a way of creating structural bonds between the company and their customers. A technological innovation project, ‘‘the project where we try to make a can which is a lot less aluminium and a lot less labour and that’s got potential huge advantages’’ (A11, p. 54), could develop into a significant structural bond. Nevertheless, it is currently perceived as not making progress. Four years ago we started working on a project which should have freed out capacity and the process should have taken couple of years and nothing great really happened in that at all. (A5, p. 35)

Technological Distance Technological distance refers to the differences between customers and suppliers in terms of product, processes, and technologies (Ford, 1980). In a previous section, it was argued that different approaches toward quality increased cultural distance between the company and one of the main customers. However, the company is working to deploy a quality program, which may reduce not only cultural but also technological distance thus improving the quality of the relationship. At the moment for a business point of view, we’re just about to roll out what they call the medals excellence program which is basically a similar model to the Toyota model, TPM, that sort of things that we are doing modifications to the [company’s] type, the Australian type cultural focus. (A9, p. 36)

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Economic Bonds Economic bonds result from the mutual dependence between supplier and buyer. One cannot do business without the other. The particular nature of the product, aluminum and steel cans, ties the buyer to the supplier in a manner that one cannot reach the end user market without the other. The mutual dependence to be in business is such that there is no other supplier that can substitute the company under study while there are no other important customers that can substitute these three. Both importing and exporting cans is rather difficult and hardly sustainable in the long term. On the other hand, customer expenditures on the company’s products are also quite significant. One customer remarks: ‘‘[the company] rates first in the supplier’s qualification according to the money spent. Moreover, steel and aluminium are separated and rate in the first two places’’ (A3, p. 59). Another customer states: ‘‘The other thing to keep in mind is that about one third of the [customer’s] profit on personal care comes from this business’’ (A5, p. 58). The huge economical importance of the product to the success of all three customers keeps the relationships with the company going despite existing problems. However, at the same time, it puts additional pressure on the whole inter-company system. Summarizing the Features of Relationships The various aspects that members of the company mention as desired features of relationships, or undesirable ones as is the case in connection with distance, are described in the previous paragraphs in descending order from most to least frequently mentioned. A graphical representation of these features is presented in Fig. 7. Fig. 7 aims to provide a general map of the interviewees’ views of relationships. The arrows suggest connection between constructs but are not intended to represent or delineate a causal model. Each feature is connected to theoretical constructs identifiable within contemporary knowledge. The thickest boxes intend to display those features mentioned more often and the thinnest the least mentioned, as presented in Table 9. A dotted line is used to represent the concepts that are seldom mentioned during the data collection period. This aims to suggest their absence in data but presence in theory. The features of relationships that the company appears to mostly desire are highly influenced by the dominant themes present at the moment of gathering data. Thus, the relative importance of the different dimensions might change in different circumstances. From the three predominant themes, two – changes in personnel and the plant – relocation are perceived

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Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Satisfaction

Economic

NonEconomic

Economic

Structural

Fig. 7.

Constructs of Business Relationships Case Study C.

as the sole responsibility of the company. The third, capacity constraints, is perceived as a consequence of a combination of factors that range from the company’s disregard of the circumstances that were showing the need to increase capacity, to the customer’s unawareness of the market tendency. Both of these factors prevent the parties from acting on time. The relevance of these issues and the company’s obligation to deal with them, as perceived by the parties, has increased the recurrence of some aspects of relationships such as cultural or social distance and diminished the importance of features such as economic or structural bonds, which exist within the relationships.

INDIVIDUAL CASE STUDY REPORT D: IMAGING SOLUTIONS The Company The company is a large global manufacturer and supplier of imaging products and solutions with sizeable commercial operations in Australia.

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The company has two main divisions or business groups: the Business Imaging Solutions Group (BISG) and the Consumer Imaging Product Group (CIPG). Although both business groups work under the same brand positioning, each group has its own management team, markets different products, uses different market channels, and has developed a different sales and marketing strategy. The CIPG serves the end consumer market using various channels to ensure that there is product available anywhere the customers would like to acquire it. Market segmentation has always been done according to its needs and characteristics. From the relationships perspective, the company deals with the channel, with whom it shares the interest of keeping the end consumer satisfied. The channel also holds inventory of competitors who offer comparable products. The BISG, instead, serves the industrial market directly, generally without the intervention of third companies in between. However, beyond the boundaries of the main capital cities in Australia, the company has renounced to the direct model and sells through a network of dealers who they expect have better capabilities to serve the market in the countryside. Thus, the direct and the dealer-through models work side by side within the same business group. From the relationships perspective, each model’s management is different. In the direct model, there is a close contact with the end consumer, whereas through the dealers, the contact is indirect and the relationship that the company manages is, instead, with the dealer who services the customer needs. There is a third subdivision within this group, the telesales, which is responsible for the consumables, mainly ink, toner, and paper. This division also deals with product suppliers that are not part of the main group. Relationships in this group can be deemed as recurrent. They are in permanent interaction with customers that for equipment are serviced through the direct model or the dealer channel, and with some customers of the CIPG.

Changes to the Business Environment For both BISG and CIPG, the rapid development of digital technology is driving product changes and has embedded the company in a dynamic business environment in which several changes are happening: first, the product life cycles have been reduced; second, the introduction rates for new products have increased; third, the sales channels have been redefined with

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the introduction of new non-traditional channels; and fourth, consumer behavior has changed. The company itself is moving from being a copier and printer supplier to an imaging solutions provider. All these changes affect not only the nature of the company’s relationships but also define who the relevant actors are in those relationships. Data Collection Methods Three methods were used for data collection: (1) interviews, (2) analysis of documents, and (3) observation. Interviews Twenty three in-depth semi-structured interviews, of an average length of one-hour, were conducted and tape-recorded within the company, with customers and one supplier. Analysis of Documents Public and internal documents were collected during the data gathering process. Among the public documents are those available in the company websites, printed publications, and the company customers’ sales catalogues, particularly for the CIPG. Internal documents include the 2003 BISG customer survey and the 2004 dealer agreement contract. Observation The researcher observed business practices while waiting for interviews and during the interviews when somebody interrupted with an urgent problem. The researcher also visited a number of sales channels and observed whether or not the company products had a preferred location at the point of sales. The researcher also looked for the company’s specific advertising material and tried to gauge if salespeople tend to favor any specific brand in their interaction with the end consumer. Notes were taken throughout this process. Data Management The records of each interview were transcribed in full. The notes from observation and pertinent parts of the reviewed documents were also wordprocessed. The written texts were subsequently coded with the assistance of NVivo 2.0. Nodes were defined drawing on the most generally used taxonomy of contemporary knowledge of business relationships.

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Participants Potential participants were identified in earlier meetings with the senior general managers of both business divisions. Afterwards, some other participants were included to reach a better understanding of some episodes that emerged. The selection criterion was the relevance of the person’s position in influencing the company’s relationships with its major customers. A total of 22 people were selected, 15 within the company, six in customer’s companies, and one supplier. One employee of the company was interviewed twice. The general interview scheme is illustrated in Fig. 8. Within the company, the participants are (1) from the BISG, the senior general manager, the national marketing manager, the regional dealer manager, the assistant general manager, the national telesales manager, the team leader of dealer sales, the state manager NSW, and two account managers; (2) from the CIPG, the senior general manager, the marketing manager, the national sales manager, the state sales manager NSW, and two account managers. Within the customers, two general managers of two dealer companies, two procurement managers of two of BISG’s customers, and two of CIPG’s customers participated. One major supplier of the consumables business is also interviewed. Shadowed boxes in Fig. 8 denote people that are not interviewed, although they are mentioned in the data gathering process. Participants of the research that do not belong to the company are differentiated using a double line box. Dotted lines represent those connections. In the diagram, arrows numbered from one to four represent the hierarchy of the interviewees that belong to the company. However, customers who were represented to illustrate their connection with a specific division of the company can occupy different levels in their own organizations. This has been made explicit with a small number within each box.

Features of Relationships The first task undertaken to understand business relationships within this case study was to review the coded data and find out how often the informants mention a specific feature as valuable in relationships. Because of the company’s different business models to different products and customers, and the executives’ belief that the valued features of relationships change depending on the level of the organization to which the informant belongs, the coded data was analyzed first as a whole, and then segmenting

MD Customer C

4

1

3

2

1

1

Team Leader Dealer Sales

Regional Dealer Manager

4

National Telesales Manager

General Manager Supplier 1

1

Manager of Financial Information Unit Customer G

Fig. 8. General Interview Scheme.

National Manager Computers Customer A 2

Customer I

Account Manager

Buyer Printers and Scanners 4 Customer B

Account Manager

Account Manager Government Business

3

National Sales Manager

State Sales Manager NSW

Distributors Customer H

Account Manager

State Sales Manager NSW

Assistant General Manager

Senior General Manager CIPG

Marketing Manager CIPG

Customer E

Procurement Manager Customer F

MD Customer D

National Marketing Manager BISG

Senior General Manager BISG

CEO/MD

Account Manager

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Table 10.

Features of High-Quality Relationships.

Group

Themes (Based on Extant Research)

1. ‘‘Themes mentioned most often’’

   

Attitudinal inputs to the relationship Social bonds Competence Relationships outputs, performance, and justice

2. ‘‘Themes mentioned less often’’

   

Multi-contact Mutual disclosure Honesty Benevolence

3. ‘‘Themes least often mentioned’’

   

Social distance Instrumental inputs to the relationship Cultural distance Product quality

the information by business group and then within the business group by considering the direct and indirect models, and also by level in the organization hierarchy. The results are contrasted with the desired features described by customers of the company. Using all the information, twelve most desired attributes of high-quality relationships are identified. Depending on the frequency with which they appear in the transcripts, these attributes are clustered in three subsets summarized in Table 10. Attitudinal Inputs to the Relationship This was the feature of relationships most frequently encountered among the coded transcripts. Attitudinal inputs to the relationship is one type of input that demonstrates commitment of one party toward the continuation of the relationship. It also demonstrates good predisposition of one party toward the establishment of long-term relationships. So¨llner (1999) asserts that positive attitudes toward the partner, actions that show psychological attachment to the role of the relationship, and purposeful intentions are a form of commitment that can be grouped as specific attitudinal inputs. These do not require the deployment of tangible resources. The company appreciates its partners’ attitudinal inputs as they demonstrate their commitment to the company. A very important attitudinal input is to share information that improves the counterpart’s capability to perform. For instance, the action of visiting a customer and openly communicating to them plans and direction for the business resulted in reciprocation through information sharing by the customer.

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This is construed as increased commitment by both parties. An interviewee recounts the company’s action as providing: [o]pen communication as much as solid information, real information, more than just providing with ‘‘this is a price list and the brochures.’’ y Now we go with market stats, some of the changes we observed, we start talking on road maps three to four months out from our current position. They never had this information before, they never knew what [the company] was doing next month. (C3, pp. 31–32)

The customer seeks this information disclosure as a measure of trust; however, that shows him the supplier’s attitude toward continuing the relationship, as well as the fact that there is a real relationship in place. For me, I always measure trust on how much the other person exposes themselves so if they provide information to me which I can eventually use to harm them but they provide it in trust because they know I will use it proactively, I know that they trust me, I know that we have a real relationship. (C22, p. 36)

Another interviewee regards information sharing not as a measure of trust but as a willingness to trust the counterpart, which triggers the counterpart to share information as well, information that is normally reserved. These acts, although closely linked to development of trust, denote purposeful intentions toward the continuation of the relationship. So if I am willing to describe my market share figures, my delivery performances are registered, customer service performance, certain levels of financial results, that individual in that business, [the counterpart], feels that, ‘‘ok here is a company who is willing to trust me with some of their business information, how can I respond, I can give them more information about my business, what am I trying to achieve.’’ (C23, p. 26)

The company seeks opportunities to deliver information that is proactive and shows the customer the direction in which the industry is evolving. Contact is permanently sought as part of the value the company delivers to its customers. This contact makes the customers feel that they are given support and have a close relationship with the company. We brought them in for an account planning game. We brought them in to talk about the account review that we also share with them new technologies. We took them across our research and development centre, we showed them what is possible in the future. We showed them where we think we can really add value. (C10, p. 155) Customers want regular contact and regular update to the products or additional products and that is probably the prime that we think we offer the customer. We proactively approach them about new products, new information. (C11, p. 37) Those guys work very closely with us, they contact you regularly, they work right down to the sales staff level, my people. There is a lot of support there. (C16, p. 107)

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That those at high levels of the company are involved in interacting with customers demonstrates the interest the company has in the customers and therefore the company’s commitment toward the relationship. You are adding to the sales relationship, you are certainly adding to [the company’s] relationship from the customer’s perspective showing a broader face. If the rep is the only face they ever see, then they might really appreciate that but may not feel that [the company] really values them as much. (C9, p. 66)

From the customer’s perspective, this interaction with high-level managers indicates the interest of the company in its customers and makes them feel that it is possible to access high levels within the organization to seek solutions to problems. A customer, who mentions two executives of the company using their first names, describes his access to senior managers: We’ve got access to whoever is in the internal structure, account managers, to [name], the National Sales Manager or to the Managing Director, [name], so they are very accessible and we have a very good relationship. I can pick up the phone any time about any issue I’ve got at any time. (C5, pp. 8–9)

In contrast, not all the company’s executives value their involvement with the customer. One executive describes a difficult customer and his/her insistence on talking to an executive: The customer rang me a number of times and another managers in a number of occasions and if I am in a meeting that is not acceptable for the customer. (C11, p. 77)

Results of the customer’s survey show as ‘‘Major Weakness/Declines in Performance’’: Less contact with Senior Management than some customers would like. (C24, p. 237)

A number of other demonstrations of commitment were identified. For instance, a salesperson admits to having used his personal allocation for discounts to enable his customers to buy discounted equipment as a way of nurturing the relationship and making the customer feel good. With the friends of the [customer’s organization], I have personally used my allocation for discounts to buy a camera for them at a discounted price and this is for them to use personally. They will pay. This sort of things that you do, help you to build the relationship and to be proactive in that y . If you buy the camera at the staff price, it makes him feel good personally and if you make him feel good he will feel good about you and then you can maintain the relationship. (C15, pp. 97–98)

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A Dealer who receives cameras for servicing that were not sold through his channel: We now have our drop off point. People can bring their cameras here because we’ve got so many we said let’s do something about it. So at no charge if someone has got a camera problem, give it to us, fill out some paperwork, put in a locked box and we send it to [the company]. (C19, p. 133)

Or a blend of day-to-day experiences: It is all the little things that we do every day, the way that my girls answer the phone, the way that they make sure that something is definitely in the mail tonight. (C21, p. 89)

Although this form of commitment is identified as one of the most desired features of relationships in this case study, data show only few passages that exemplify it within the information belonging to senior managers, level 1 of the organizations, whether within the company or the customers’ companies. It appears, instead, that instrumental commitment is more important to this group of people, arguably because instrumental commitment is more tangible, therefore more visible and manageable. In short, major forms of attitudinal inputs encountered are information sharing, permanent contact, and senior management involvement; whereas minor forms would be transference of personal benefits, such as employees aiding to access discounted prices, or willing to take cameras for service and send them to the main office, and those day-to-day ‘‘little things.’’ Social Bonds Data suggest the informants perceive social bonds to be a very important feature in business relationships. Social bonds denote positive personal relationships (Buttle et al., 2002), which can be characterized as demonstrating emotional, mental, or psychological attachment (Wilson & Jantrania, 1996). Bonds and commitment can be thought of as separate constructs. One party can unilaterally express commitment, whereas bonds require the participation of both parties. People asked about personal relationships or emotional attachment initially react based on their position within the organization. At salespeople’s level, an interviewee talks about one business relationship as if the final purpose was to become friends with the customers. At the very start the relationship was very businesslike, then it didn’t take me long because somehow I clicked very quickly with these people, so within few months I was able to have a much less business like, a bit more friendly-like relationship where the

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phone calls could happen at any time, they could call me at the anytime and I could call them at almost anytime. y I know when they’ve got holidays, I know when they have babies, I know what happens with a lot of the events that surround their lives and they probably know quite a bit about me personally, that is not just a business relationship. (C15, pp. 26, 53)

Along this line, top executives see the salespeople approach to business relationships only as a pursuit of friendship at a personal level. They make this assertion, arguably, based on their experience of having heard more than one passage like the one just cited. I will ask sales people, how good is the relationship with XYZ customer? He will say, great, I get on really well with that customer and I will say, on what way you get on really well? And he will say, well we are good friends, I take him to the rugby, we do this and that, and my answer is, how is that giving you competitive advantage from your counterpart from a competitor company, because he might do exactly the same and he probably say the same thing if I ask the same questions. I don’t know. (C1, p. 32) What I am finding lesser a feature is more social relationships. It used to be you took him out for football, you took him out for drink therefore you were given first priority in deals, almost 99% not the case. (C2, p. 18) The challenge to our people is to think more businesslike in terms of the relationships rather than more socially in terms of the business relationship. (C1, p. 159)

Further exploration suggests that, at salespeople’s level, there is an awareness of the difference between personal and business friendship. Most of the dealers I work with are my friends but it is a business friendship, not a kind of personal relationship. (C13, p. 71) Even though you develop a bit of personal relationship but you are not their friend like a friend who you go on the weekends to drink and have parties with. It is not like that, it is still a business relationship in which you have personal understanding. (C15, p. 30)

And this also suggests on the contrary that senior management endeavor to create opportunities for social interaction with customers through functions specifically geared toward this type of interaction. If I develop an even deeper relationship with our customer in a personal level through contact the outside work maybe engineered through a corporate hospitality they would have in, that is where people explore each other a little bit more. (C23, p. 24) We actually plan functions that gear at certain levels. At the end of the year we have something on Sydney Harbour where we hire a boat and we take 200 people out. That gears more than the procurement level. Three times a year we participate in a function called Aria, which is the Australian opera having singers singing at the Aria restaurant near the opera house. We take half a dozen tables and we put a very senior [company]

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person in each table with their partner and we have two or three clients and partners in every table so is a very dignify refined evening and we gear the invitations not a procurement level; at CIO, CFO level. (C8, p. 83) We are constantly trying to do things to develop relationships with the senior management of companies that we work with. (C10, p. 62)

Thus, the social aspect of business relationships appears to be more important at high management level than the initial reaction seemed to show. The same seems to be the case with salespeople: they are more aware of the business side of the relationship than their initial comments seemed to show. Concerning the value of the social aspect, an interviewee said, ‘‘In building relationships I think the most important thing is the human to human element’’ (C8, p. 9), it was also mentioned, ‘‘you can get in the door much faster’’ (C2, p. 23), which suggests that existing personal relationships help in opening doors whereas they make it difficult for competitors to establish relationships: If I’ve got a five year relationship with you and we are delivering and you are happy it is hard for a competitor to break that relationship. With [one customer], one of their guys’ relationship with our state manager is good and I believe that person wouldn’t spend a lot of time trying to develop relationships with competitors. (C10, pp. 170, 172)

Social bonds appear to accompany a person when that person moves from one company to another, as two of the company’s customers stress in relation to an executive with whom they had relationships at his former job. I guess it has changed my relationship with [the company] because I could tell him exactly what I needed to tell him because he will listen it. (C5, p. 205) So [the person] had a very Senior role at [competitor X] and then he left to work with a third company and went back to industry with [the company] and when he left [competitor X] the relationship suffered because the replacements did not have the same type of relationship with us and when he arrived to [the company], the [company’s] relationship improved day to night because the relationship we had was based on over ten years trading with us. (C22, p. 13)

However, the beneficial effects of hiring someone with whom a social bond already exists is limited to his fit with the new organization and the image of the organization. When a person like [him] moves into a company like [the company] you say yes, this is a good fit, we will work together well, we feel very comfortable, our relationship will go to the next level. If a person like [him] moved into a company that had a very poor trading relationship with us, particularly if that is a company that has a history of churning and

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burning in management then you would say, [he] is good guy, and I hope he does really well but certainly I am not going to expose myself heavily to this company until I have seen a very significant proof that this is turning around to change. (C22, p. 64)

Another customer, instead, makes it clear that his personal relationships with some employees within the company do not give it advantages in gaining business. I have one or two people I had met from a previous work, we have a good personal relationship, I keep in touch with them but if they are bidding for business they still have to bid, they don’t get any favour from me because they know it, they are not going to get any favours I might treat them slightly better because of the relationship but ultimately I have to make the decision on behalf of the organization not me. (C6, p. 88)

The company attempts to build social bonds with customers as part of its approach to business at all levels. There is a clear recognition of the differences between personal and business friendship. Regarding the benefits of Social bonds in business relationships, they appear to improve the development of further relationships, to open doors easily and to make it difficult for competitors to establish relationships. However, it seems that the social aspect of business relationships does not decrease the weight of the price component in the deal. Therefore, it does not guarantee that a company will gain business. Ceteris paribus, social bonds appear to weigh in favor of the company. Social bonds are not the only feature of relationships that count but appear to be a very important one. At the end of the day if you say to people, all things being equal, price, product, global brand, etc, would you rather deal with somebody you like? Or would you rather deal with somebody who you feel completely neutral towards? And the answer for most human beings is I’d rather deal with somebody I like, and his company I quite enjoy over the occasional lunch, or whatever, and when my wife met them because we go the opera, we really like to go too. And when I came back to home and talk about I having bought this from [the company], I can talk to her a little bit more because she has actually met the people I am talking about. (C8, p. 21)

Competence Competence, a dimension of trust, is the belief that the other party has the required expertise to perform the task (Selnes & Gønhaug, 2000). High trust in the other’s competence leads the counterpart to be more willing to assume risks within the relationship. The company relies in competence-based trust to develop long-term relationships with customers. An interviewee states that they expect large

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customers to seek referrals from other customers regarding the company’s capabilities. Some large customers would call our other customers and say what is your experience with [the company], do they deliver as they say they will? y What our surveys tell us is, one of the most important things in the customer’s mind is a good reliable service, so how do we prove that, well you can talk to other customers that are experiencing good customer service, we can show them our survey results from our customers that show we’ve got good customer service, we can show them our current average response times for our customers, so we can provide evidence that show, what we say is what we are actually delivering today. (C10, pp. 30, 134) Trust happens around because you do what you say and you are consistent with that. So you must do what you said and say what you are going to do and you must be reasonably consistent with that you know. It ends up with this is no surprise and then you can become reliable. (C1, p. 64)

Depending on the business group, competence is demonstrated in different ways, which always affects the level of trust developed within the relationship. The CIPG is expected to be able to support the channel’s marketing efforts, typically expressed through a catalogue promotion: One important thing for relationships is delivery and commitment to stock availability, that is extremely important, so because of that reason, if you promote something this month but you have no stock this month it is too late because by the time delivery is coming it is too late. (C4, p. 55)

The customer presents a forecast, to which the company makes its pledge: They provide us the forecast, catalogue specific, ‘‘I want this many,’’ and we also have to commit to make that product available, I can say ‘‘sure you can place that order.’’ So forecast from them and the commitment to supply from us. (C4, pp. 60–61)

The company’s responsibility is to supply the forecast; although any deviation would not be seen as the company’s fault, as can be seen from conversations with a sales representative and a customer. We will be able to supply what their forecasts are and what our commitment is. (C4, p. 66) I don’t care how much they carry what I care about is they can supply my forecast. (C5, p. 148)

However, if the company cannot supply the forecast as seems to be the case, it damages the relationship. There have been situations like this, certain categories perhaps in the last 18 months, that is exactly what happens, a particular category, they would say we need 300 a month,

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we supply 50 every month. Very difficult situation, not happy, not just [customer X], other customers too. (C4, p. 75)

Competence-based trust is equally important for both BISG and CIPG. Within the direct model, the company demonstrates Competence through their service department, promising what could be delivered: ‘‘what we commit to is what we are achieving, so we don’t say we can do two hours if we are actually doing four hours’’ (C10, p. 138). However, exceeding expectations improves the relationship: ‘‘I was talking to a very big customer last week and we are implementing systems there right now and we have exceed their expectations in terms of expectation and the relationship is incredibly good as a result’’ (C10, p. 24). The outcome of the service builds trust to the extent that the customer requests to be sent the same technician, a request that currently the company cannot comply with. People start feeling they trust the service technician and they would like the same service technician back. We have enormous problems with that request. (C9, p. 70)

The consumables division has 25,000 customers of whom one-quarter is managed in an ongoing basis. This increases the opportunities to demonstrate competence as well as the opportunities to fail. Problems with billing, late deliveries, or machines not serviced on time affect the customers’ perception of the company’s competence, their trust, and satisfaction. For instance, a customer who has had a number of incidents with billing and deliveries has expressed his dissatisfaction with the company. We have a customer at the moment who is in the print business who is extremely dissatisfied with [the company] as a supplier, they feel that nobody cares about their business and nobody cares about what is happening with their business. (C11, p. 74)

Within this same division the company, in its deals with suppliers, terminated a relationship with a supplier that missed deliveries, left the company without stock, and did not provide feedback on the actions that were taken. An interviewee qualifies the situation as ‘‘it was like our business wasn’t valued’’ (C12, p. 58). Arguably, the customer that is experiencing problems in dealing with the company may possibly seek to replace the supplier. For the dealers, through subdivision, competence-based trust is supported by the dealer agreement introduced three years before this research took place. It gave a solid structure to the relationships through the definition of norms and procedures that govern the interaction.

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It comes back over and over again to structure and communication. If the people feel that they are standing in a house that will fell, then there is no faith. So you don’t have trust. All you have to do is show them the foundation that you gave them solid concrete ground they want to move on and the only way you can do that is to make a commitment. (C21, p. 47)

Although the dealers recognize the value of the dealer agreement as the foundation for building trust, when it comes to evaluating the company’s performance, despite the many positive capabilities, like supplying the right product at the right time, or being technically adept and very supportive, the issue of being incapable of supplying spare parts timely became obvious very quickly. One dealer said, ‘‘Where we have problems with [the company] is in spare parts, it is awful. y Spare parts has never been good, now is worse’’ (C19, pp. 109–110). Another dealer corroborated this: Improving the relationship would more get into areas of aftermarket service support by sense of urgency in parts availability and dispatch, fulfilment, product availability and technical support to the dealer. The intent is there but the reality doesn’t match the intent. (C16, p. 101)

The extent of the problem is such that one missing part put 27 customers out of operation. The dealer stresses that it was not because of a poor management of his own inventories and said, ‘‘If we had 27 [the company] probably has 127’’ (C19, p. 124). There are inventory management processes that are not assisting the management efforts in building relationships, problems that arguably distress the dealers’ relationships with their own customers. The effects of this problem is illustrated by the following passage: It does two things: it potentially can impact my relationship with the end user because it introduces an inability for me to provide the solutions to the end user in a timely fashion. There are things I can do to negate that like loan equipment that I can put that etc. or other strategies to keep things going, but then that adds to my cost. (C16, p. 111)

Competence-based trust appears to be built in the episodes in which the company delivers what the customer expects. Thus, to build this type of trust, the company relies on their processes, on customer’s surveys and referrals, and on limiting its pledges to what is achievable. In contrast, the failure to deliver, which may take different forms, does not reduce trust; it is, instead, construed by the counterpart as lack of commitment.

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Performance and Justice Performance and justice are another two dimensions of commitment. Together they form the outcomes of the relationship that make the parties commit toward the continuation of the relationship. Performance can be evaluated in terms of the effectiveness and efficiency gains resulting from the relationship. Justice focuses on how the outcomes of the relationships are split. So¨llner (1999) describes performance as how much cake the parties are going to get and justice as who gets which part of the cake. Whether it be in the consumer or industrial business division, both the company and its counterparts, customers and suppliers, agree that business relationships exist because they deliver benefits for the parties. They also maintain that good relationships result in more business. For CIPG establishing a relationship implies being able to present a business proposition to the channel: ‘‘The nature of relationship has to rely on business propositions so the customer makes money out of us’’ (C1, p. 11). The interaction between the parties should be based on meaningful conversations, that is, the parties should focus on: ‘‘reviewing the business, the overall performance, the performance by category, the performance by product lines in the category, their share of the market, their share of our business’’ (C2, p. 36). The channel should reciprocate by offering value added to its customer’s base; ‘‘We don’t, as a rule of thumb agree to supply everybody y they had the right end users and they could support the end users’’ (C2, pp. 55, 57). The customers’ view coincides with that of the company. One customer recalls how they invested in building the relationship to become one of the company’s ‘‘big partners.’’ [The company] wasn’t big in the camera core business and [the customer] said we want to be a big partner so they put money behind y you know, it is all about how much product you put in the stores, how much focus you put in your catalogues, our catalogue drives our business so the more catalogue exposure they have the more sales they will have we said we are going to help to grow your business and we did. (C5, p. 72)

From the dimension of justice perspective, the company and its counterparts agree that both parties have to reap benefits. A good relationship is to be able to put good business propositions for our brand, our products to our customer so they stock and maximise ours vis-a`-vis our competitors. (C1, p. 10)

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If they are strategic to us, we work with our supplier but to grow both, ourselves and them. It is not all about [the customer], it is about both companies working together rather than just us growing and [the company] doesn’t. (C5, p. 66) Typically what happens when the relationship has improved you find increased profitability for both parties. (C22, p. 94)

Divergences emerge when sharing the margin of sales. Retailers pressures to increase their margin while the company tries to give what it considers to be fair. Eventually the company take back reduced the channel’s profit margin on a product category and the reseller announced that it was likely that the company would lose some share of their business. One of the company’s executive explains the customer’s reaction as follows: It does actually have effect on the business relationship. Their interpretation is that [the company] is less interested in their business and they stat allocating their share of mind to another supplier. (C23, p. 129)

The BISG’s objective is to build a partnering. A partnering for them is a relationship in which the counterpart reaps benefits that allow them to perform better than its competitors. This is a network approach to relationships in which each actor plays a role that has effects on the other. What I think is the definition of partnering is, this customer A also has competitors B, and C and the partner is the one here [in the network] who add enough value, so this guys [the customer] win X’s business against these two [A and B] and that to me is the definition of partnering and the ultimate relationship. y Whereas most people see relationships just between supplier and user we see it actually what are we doing to make our customer more competitive with them. (C14, pp. 26, 28)

In this regard, a dealer states as his expectations and responsibility: Our basic expectations of the manufacturer are that they provide us with a good product, appropriate in the market, a leading product, competitive prices, training, etc. and various behind the scenes support things and our responsibility in that relationship is then to succeed in marketing that product so to get good market penetration, product placement and build a reputation of that product in the town. (C16, p. 9)

Another dealer recognizes, ‘‘at this stage we are running extremely well, from our point of view as a dealer, what we are getting from [the company] at the moment is great products, great pricing.’’ Commenting further to stress the value of this situation, he adds: Traditionally [the company] had this problem when they brought out a new product, it would be so overpriced, the first 12 to 18 months you could hardly sell it, then they dropped the price and you started selling it. But this new team brings new product with a

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competitive price from day one and dealer sales sky rocketed because it is arriving at competitive price. (C19, p. 108)

This denotes that in the past the company had a tendency to keep higher profits for themselves, at least at the introductory stage of new models. The new strategy of introducing products at a competitive price suggests an increased level of justice for the dealer. One of the company’s executive envisages the company as a sales company, whose role it is to push product into the market. In this context, relationships enable the company to accomplish its role. [The company] is principally a sales company, we import and our job is to move it into the market place so we are nothing more than a conveyor into the market place so product is important but our objective is ultimately to increase our sales volume which justifies our existence. Relationships and sales are heavily linked if you have a relationship is to make sales. (C21, pp. 23–24)

This reflects on the dealers’ construction of their relationship with the company as mature, supportive, and oriented toward growing together. They are mature enough to understand that if they help to strength on those things, [the dealer’s core competences], we could make a bigger commitment and eventually they could come in and work with us in all of that and they were mature enough to accept that in the relationship and the energy and enthusiasm in business y [the company] are mature enough to accept that if they can make stronger and stronger so you can function better as a business you can pay the bills, you can have a good market presence, so you can represent them well rather than trying to control what you do. (C16, pp. 34, 43)

In evaluating the justice of sharing the benefits that result from relationships, one dealer said, ‘‘The value package is reasonable’’ (C16, p. 157), whereas a customer was more explicit: ‘‘Image and records management has been a really money saver for us. We perhaps save $500,000 per year’’ (C18, p. 14). The savings are quite considerable when taking into account that the investment in the solution was an amount equivalent to what is saved per annum. Thus, it can be said that in the case of this customer, justice is an important feature of the relationship. In the company’s relationship with their supplier, this way of thinking also applies. We can work together to get the right kind of product, the product on time and they know what our objectives are. They want us obviously to sell more. The more we sell, obviously the healthier they are. (C12, p. 36)

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One customer had a different view: he felt the company put pressure on the customer in the consumables for photocopiers. Why do you make things proprietary? Because you can control the pricing and you can control the product. And in the product itself, the only consumable you have is toner and that is the most frequently used one. We buy all our toner from our stationary supplier but he can’t supply [the company’s] toners. (C6, p. 58)

For both the CIPG and the BISG non-direct, performance is deemed as a critical condition to enable business to exist. Neither party will get involved if the relationship does not enhance the business. Acts such as better business propositions are reciprocated with increased brand exposure. The parties also seek to accompany the business intensification with a fair share of the benefits, that is the reasonable value package that one dealer made reference to. However, on the BISG direct model one customer complained about his impossibility to procure consumables, toner for instance, from alternative sources. This suggests he did not see the relationship’s benefits justly shared. Multiple Levels of Contact Flow of information is considered to be fundamental in managing relationships, particularly in the CIPG in which information needs to be shared in both directions as an executive of the company stresses, ‘‘you need to share enough information to be able to do the business y information and forecasting and that kind of level of things is an essential ingredient in doing the business’’ (C1, pp. 19–20). For this information to flow, multiple levels of contact are essential. Both the company and its counterparts agree on this. The difference is that the company has to try to open the information channels within the customer’s organization, whereas customers expect the company to provide them with access at various levels, especially at top management level. Data suggest that it is the company’s responsibility to open the information channels, customers instead will use the channels that they might find suitable to share information through depending on the levels of trust in existence. One interviewee at the company suggests that although dealing at sales representatives’ levels is necessary for the business, it is not enough. Dealing at senior management levels is crucial in progressing the relationship to higher levels. I think we have some good history of doing things at buying levels but really we have a good reason to go and see the more senior managers y we need to position ourselves as strategic partners. (C2, pp. 191, 193)

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From the perspective of a sales person, relationships with buyers are necessary for future planning, whereas the day-to-day business requires interaction within lower levels of the organization, for instance, people at more operative levels or at the shop floor. I speak to the buyers themselves for the big picture we are planning, for catalogue sales, volumes, and quantities that are required. For the day-to-day business like placing orders or following up deliveries or when the stock will be arriving, I will speak to their coordinators. (C4, p. 11)

Involvement at high levels also matters: ‘‘I will be involved in lot of these meetings, perhaps our general manger would have discussions with their senior management, and feedback for myself coming from them’’ (C4, p. 37). Customers appreciate multilevel contacts both at high and low levels of the organization. At high levels this gives them the option to solve any problems with the people in charge, whereas contacts at low levels make the relationship work. I can have at a national level very best relationships with the national manager of the company but if their sales representatives have bad relationships with our sales staff in our stores, and they doesn’t really know how my relationship is like, my sales representatives in my stores are not going to recommend the product and that affects the sales. (C22, p. 85)

The relationship with the service department should be as important as that with the sales and marketing departments. Excluding the customer’s perspective from the development of policies and procedures of the service department would result in the ineffectiveness of those policies. Examples would include refund policies, that require us to call the supplier and confirm that they approve the refund of the product and the phone number doesn’t work on the weekends, our busiest time, because they work Monday to Friday. (C22, p. 154)

The BISG sees the importance of having multilevel relationships as well. The development of multilevel contacts is seen as one of the sales people’s tasks. In my review sessions with them I will be talking about who have you met and if the answer is I haven’t seen him at all, I have met nobody, they know that it is completely unacceptable. (C8, p. 82)

Multilevel relationships would sustain the challenge of moving from being copier and printer sellers to being sellers of business solutions.

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[The company] as part of those challenges had to change its point of contact with customers from being very much the traditional purchasing officer, responsible for the office copier to being more with the IT buyer, the CIO or the IT manager. (C9, p. 36)

This is viewed as a means to spread out the relationship: To expand that relationship or deep that relationship it is that should not be just between two people within two companies, that should be expanded, so that sales rep should involve the sales manager, that sales manager could involve a senior manager with appropriate level people within the other company and then the companies feel they work well together. (C10, p. 47)

The company has itself many points of contact with the customer: sales and marketing, service, consumables, and finance. Likewise, customers have several points of contact the company needs to deal with: the decision maker, the influencer, the facilitator, and the implementer. This demands establishing and managing various relationships to avoid being dependent on only one of them while allowing the others to weaken. You need to deepen and broaden your relationships with the customer because they have a lot of touch points and I think we could see weakness and opportunities, we rely too much on a single relationship within our organization. Whilst it is fantastic between the two a lot of other parts of the organization don’t have the same level of relationships and we assume because we’ve got one point of relationship we thing we have a good relationship throughout the rest of the organization which is not necessarily true. (C16, p. 14)

Although an executive maintains that the company is a sales company with high involvement of the senior management, [t]he whole company is a sales company. [The CEO], if we want him to contact the customer and come to your meeting, he would love to do that, very happy to help. The general manager, the state managers, the sales managers, we all have target a lot of customer contact. (C10, p. 66)

Another one suggests that, as opposed to the company, one of their major competitor’s senior management team is more deeply involved with customers’ higher level employees, as well as with individual clients. What [a major competitor] do better than us is that they deal at a higher level than we do. The managing director of [that company], I see him everywhere, at the client offices, and he is in every function, he knows people and does a little individual snap store, in a presentation evening, getting awards, best shop award, etc. y It sends a very clear message when the managing director of a company comes and show you interest as an individual client, I think that is incredible powerful stuff and [the company] doesn’t do it very much. (C8, pp. 45–46)

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One customer, whom I queried specifically about his relationships with senior managers, mentions that they were good but could not remember the name of the account manager’s supervisor. This seems to show that contact between senior management and customers may not be very common. Multiple levels of contact are indeed essential to the relationships both up and downstream within the organizations. From the buyer’s perspective, it is the supplier who has to provide access to different levels within their organization, so the buyer can use such access at his/her discretion, whereas gaining access to the customer’s organization at different levels is also the supplier’s task. Although the company recognizes the importance of having multiple contacts, it appears that at senior management levels there is not as much interaction with customers as there should be. Mutual Disclosure As previously mentioned, multiple channels in relationships aim mainly to facilitate information sharing. Naude´ and Holland (1996) stress that information exchange is changing the way relationships are formed. If one partner shares information he/she is deemed as trusting the counterpart who consequently reacts by sharing his/her own information. Data of this case show that particularly at the CIPG, parties consider important the giving and receiving of information to achieve business objectives. The main concern is to be capable of putting together a joint forecast. Forecasting together with the channel increases the company’s ability to communicate their own needs earlier to its supplier. This means that the product will be received on time. To the customer, this type of forecasting commits the company to allocate the required quantities, mainly in products that are of high demand and therefore in short supply. Mutual disclosure appears to start with one party initially disclosing information, then trust starts to grow and generates a sense of obligation in the counterpart to reciprocate this type of disclosure. After we started to share more, so we were assuming more risk, we get a lot more information. Customers such as [customer X], we get their sales figures, we started to get forecasts from them y . At the moment we are just starting I would say. Our sales people will sit down with [customer X] saying month zero, here is the product, we manage the category and talk about what kind of promotional activities, then they come back to us and say how many they can sell if we do that kind of promotion, and then they do a forecast which allows us: 1) to be able to order the stock, and 2) to assure that we are able to commit to them to provide the number of quantity of units so they can actually meet their sales targets as well. (C1, pp. 46, 56)

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This initiative of sharing information also increases sales. After information starts to flow, the customer appears to be more willing to increase inventory levels. This, in turn, increases product exposure and boosts sales. With that level of confidence that become as part of the [company] business model you certainly carry more stock and start feeling more comfortable advertising the [company] range, you start looking for opportunities to feature the [company] range because you know you sell this product and not having an unexpected costly reduction of inventory. (C22, p. 25) The second thing that comes with that level of information is a similar level of information flow back. (C22, p. 27)

The mere act of exchanging information does not suffice unless the information exchanged is appropriate, relevant, and within a time span that can be used for decision-making. New products, end of life, programs and promotions, any advertising activity you might be doing, any joint plant that we might doing. So, specifically, getting their trust with key partners only. What will you doing in three months out because the next month means too many surprises. (C2, p. 50)

Although the company has progressed in its attempt to mutually disclose information with customers, information about stock availability has not been exchanged yet. On the one hand, the company does not give visibility on its stock availability to any customer because this is considered too risky and could reduce their negotiation capacity. On the other hand, most of the customers do not have the systems to provide their own inventory position on line. This is an area that still needs to be worked out. I am not convinced that we actually want the world to know how many we have in stock because then would be hard for us to continue our stock allocation program because they will know how much stock we are playing with. (C17, p. 79)

The company appears to be pleased with the level of disclosure of its inventory position. We really do have a high level of trust that has been established over the last six months and the disclosure from us is regular and complete. (C23, p. 31)

In contrast, from the customer’s perspective, there is still room for improvement in their relationships with the company. It is not at the levels we would like to be but it is becoming more integrated than it was and I feel very confident that it will become more integrated. (C22, p. 128)

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At the BISG little evidence of importance given to mutual disclosure was found. In brief, although the benefits of mutual disclosure are enormous, the levels at which it currently happens can be improved. The ultimate goal is the possibility of joint forecasting, which will require the parties to deliver and receive relevant information, as well as to supply and receive the forecast. Honesty Honesty is a dimension of trust defined as the belief that the other will be credible (Geyskens et al., 1998; Morgan & Hunt, 1994); credible in the critical information that it provides, thus enabling the counterpart to plan and act accordingly. Within the general data context, honesty is deemed important. To particular groups such as the CIPG’s senior managers and sales representatives, honesty is regarded as crucially important. However, customers themselves did not mention it as often as company members. Honesty is closely linked to the sharing of information. On the one hand, business is not possible without information; on the other hand, the sharing of information builds trust. You can’t go to a business relationship with someone and say I don’t trust this person. Then is not going to give any information y we need to have high degree of trust and that trust is built around sharing business information such as our goal is the same of their goal in terms of our brand, the positioning of their business fits the positioning of our brand, they operate at the same target segments we are targeting for our products and those kind of things. (C1, pp. 12, 20) If you are prepared to share with me your internal information on your sales, on our share of your business, and on your programs and promotions that will make more trusting, but I am prepared to be a little bit more trusting to you to build this confidence. (C2, p. 123)

Customers share this stance since they value honesty as an important feature of relationships. [An executive of the company] was very open and transparent in his dealings with us in both organizations which gradually helped us in building a plan. (C22, p. 16) We’ve got a very open and honest relationship so at anytime that we need to discuss issues and things that we need to enhance. (C5, p. 8)

Honesty is a feature that is demonstrable. Parties within a relationship have to demonstrate they are honest. They are also capable of judging how

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honest the counterpart is. Data show that company employees understand that they have to demonstrate honesty. The customer will later judge such demonstration of trust. Fundamentally, honesty is a major component in building relationships so they feel that [the company] is open and honest, but I think that we’ve got to be good at setting the right level of expectations and good at delivering against those expectations. (C15, p. 24) You need to document what you will and won’t going to do y that is really what they want you to say and then can judge you whether you break it or not. (C2, p. 74) When as an account manger I am dealing with a customer it is very vital for me to maintain that trust that I stick by my word. My word means something. y Your word should be as strong as a contract. (C15, pp. 19, 34)

Although the company does not make promises beyond its capabilities, ‘‘[the company] is very conservative with what [to] offer, they like to make commitments that they can achieve, sometimes that loses us business’’ (C21, p. 31), it may happen that they cannot fulfill every compromise made. In this case, an interviewee expresses the conflict associated with this as well as the importance of continuing to be honest. Lots of yelling from them, lots of yelling from us to our allocation and supplying people and it does create difficult conditions, but it is short term difficult decisions. Sometimes you cannot change what you have. 50 a month is all you have, you can’t say maybe will be 300 next month and you still supply 50, you must be straight and honest and say it will not change for five or six months. (C4, p. 77)

Customers appear to change their minds on requested quantities. This is not deemed as a lack of honesty. Instead it is linked to unexpected changes in the market and thus considered beyond the customer’s responsibilities. However, not paying the bills on time is considered a problem, which may raise further concerns. The market is changing so much too, we can have a huge variance with the customer saying I want a thousand units and they actually taking 2000 or the customer saying 50 and taking none. Nobody says my forecast is in blood I’ll take it y [If] they don’t pay the bills on time, because that escalates lots of internal discussions and just leads to show that maybe they haven’t got a good business infrastructure behind them. (C2, pp. 107, 127)

All in all, honesty appears to be a valued feature of business relationships for both the company and its partners. To sum up, honesty is deemed as a crucial factor in building relationships. It is, like other features of the company’s relationships, closely linked to information sharing and therefore to the company’s capabilities of

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conducting business. Honesty and competence are constantly evaluated as the parties make pledges that later on need to be conformed to. Benevolence Benevolence is a third dimension of trust defined as the belief that one party will act in a manner that is also beneficial to the other party (Ganesan, 1994; Selnes & Gønhaug, 2000). To act in a manner that is also beneficial to the other party, the first task is to know what their needs and interests are as one customer suggests: Someone at his level [a senior executive of the company] is quite important to have available, and in meetings he never tries to give all the answers, he listens, he is quite polite and then comes up with solutions. So a lot of companies love their brands and push their brands, [he] sits back and listens what needs to be done and comes up with what he can give for your business. (C5, p. 201)

As well as listening first and then making compromises, that which matters is being able to keep that promise, to show care for the customer’s interest. You don’t want to discard these relationships easily because they worth a lot, even in terms of stress, even in monetary terms and [the company] is that sort of company, we screw up, we will go to great links in financial pain to sort it out. (C8, p. 63)

As sharing information is a valued feature of relationships, not disseminating that information to others is construed as taking into consideration the partner’s interests. Thus, if a customer provides information from a competitor, this decreases the level of trust, even though it can be valuable information. We build trust with our suppliers because we don’t share information outside, we keep everything close to our heart, just as they do, and we work with our supplier to try to grow them not to try to feed their information to the competitors. (C5, p. 66) If you gave me information from the competitor, it indicates me that you are going to leak my information so, I am more hesitant. (C2, p. 123) If the dealer exposes competitor’s price you also think they are exposing your information but they don’t expose specific details but they do paint a basic map in which you fill in the blanks which is ok. (C3, p. 135)

In times of short supply, if the customer cannot obtain all the products that it requires but the competitor appears to do so, this is deemed as an act that indicates low levels of supplier’s benevolence.

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If I couldn’t get stock off them and my competitors would that would damage the relationship. (C5, p. 103)

The dealer agreement provides the grounds to build trust-benevolence too. Both the company and the dealers consider it to be fair. [The dealer agreement] is probably the fairest contract I’ve ever seen. It is a two way contract, they get what they need but allows us to get what we need. Many manufacturers’ contracts are all about what they need and we just have to take it, it is not negotiable and that is why you can’t sign it. That is why you can’t commit because it exposes you too much. (C20, p. 96) One of the great things we’ve done since [one executive of the company] put the terms together is really establish a situation to take care of the dealers’ profitability, and if a transaction comes out regarding a machine installation that isn’t going to be profitable for that dealer, we will simply say to the direct sales force no we can’t install that or we will tell the dealer not to install that. (C13, p. 95)

However, not all interviewees agree that the company always takes into consideration the other’s interests. One customer draws attention to the fact that, in this particular industry, a common practice is to negotiate the price of the equipment but not the costs of the maintenance agreement, which are normally part of the deal. This is a practice used to intentionally hide information and take advantage of the customer, which is of course detrimental to the customer’s interests, as a customer states: The industry has hidden all the other things and the customer realise is signing the contract and paying x cents for toner and stuff like that, I think the industry takes advantage of that buyers who are not that clever because of the way the whole service is structured. (C6, p. 106)

In the whole context, those who are most concerned with benevolence are the customers. Companies that show benevolence will stay with partners from whom long-term benefits are expected instead of taking short-term alternatives (Morgan & Hunt, 1994). The dealer agreement provides to the customers a long-term assurance. In brief, actions that are construed as demonstrations of benevolence are listening to the customer, making one’s pledge, keeping one’s word, and not disclosing information to competitors. Social Distance Social distance is related to the familiarity with each other’s ways of working (Ford, 1980). New people coming in or established people leaving the company or the counterparts’ company potentially increase or reduce social distance. For instance, the recent appointment of a senior executive, who

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already had relationships with some customers, is considered an action that made the relationship stronger. Likewise, losing people who had relationships established with customers is believed to increase social distance unless there is a visible replacement who has previously been involved in the relationship, as the next passage illustrates: I had a very good relationship with my account manager and the replace[ment] for [the new executive] so it made [the company] stronger for me rather than weaker for [the competitor]. It hasn’t changed my relationship with [the competitor] because from the two people that actually reported to him, one actually replaced him and I had quite a good relationship. (C5, p. 177)

However, the company also hired the person mentioned as a possible substitute. This then created a different reaction, since it was not a third one in the string. He actually has gone to [the company] as well. Now he works for [the company] y So I don’t know what will happen. Relationships are very important but [the competitor] has a lot to do with relationships. (C5, pp. 183, 185)

Changes in personnel always produce changes in relationships; they bring new expectations and raise concerns within the other party. The incomer has to learn how to deal with the other party and be consistent with the customers’ expectations. I think whenever there is a change in management there is certain impurity where you are more sensitive to the deals and if your initials dealings are consistent with your ongoing relationship then you become comfortable and the relationship continues on the path that have always being. If your initial dealings indicate a change for the worse then that relationship can take a couple of back steps very quickly. (C22, p. 73) I am not saying that someone else who takes on the account won’t do a good job, it just means that they will have to re-establish themselves as part of the relationship and learning the account. All that has taken five years to learn. (C15, p. 79) They didn’t understand our business. They couldn’t because they didn’t have enough time with us. Forcing changes across, and as soon as that happens the relationship starts taking backward steps because there is no longer a two way stream, this is a one-way stream and when you have someone who doesn’t understand your business, the relationship is not in the right direction and that has some business implications. (C22, p. 78)

On the contrary, having to deal with a new person is an opportunity for improvement in which there is nothing else than the brand’s reputation and an expectation of what will happen.

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The board is completely clean for him, and completely clean for me but your first board of course will be your brand, the quality of your brand and what that represents, as you start dealing with the new person. (C4, p. 92)

If the counterpart feels uncomfortable with the new person, even before knowing if the situation will get better, a degree of resistance or opposition will occur on the grounds that the way the company conducts business is different to what the new person wants to implement. This was the case when a new executive was appointed to manage the relationships with dealers. When I would come to [the company] and I was introducing the dealer agreements, they were a number of people who didn’t want to enter into a dealer agreement signed, they said a hand shake should be good enough. That is because of the way their relationships have been doing for 20 years. (C21, p. 109) From the old guard to the new guard at [the company], the old guard was, everything was on handshake everything was agreed, slap on the back and a handshake and it was friendly but not very professional in our dealing. Today everything is by the book, a signed agreement, far more professional. (C16, p. 13)

Changes in personnel affect social distance and, therefore, the quality of relationships. This can be for better or for worse. As Bendapudi and Leone (2002) suggest, there is a relationship between the company and the customer and another relationship between the employee and the customer. Thus, each time there is a change in personnel, it changes the second type of relationships and potentially the first type too. On the one hand, such changes initially set the relationship back and raise the counterpart’s expectations; there is a learning process to go through. On the other hand, it allows an opportunity for improvement. Instrumental Inputs to the Relationship Instrumental inputs to the relationships are demonstrations of commitment through tangible inputs. Instrumental inputs are those physical or human resources that have the purpose of better serving the counterpart’s needs. Instrumental inputs, although perceived as purely calculative, have the benefit of raising switching costs and therefore keep the relationship going (Geyskens et al., 1996; So¨llner, 1999). Interviewees at the lower levels in the organization, that is, salespeople, appear to be the least concerned with instrumental inputs, arguably because of the importance they assign to personal interaction in building and maintaining relationships. Conversely, senior managers are the most concerned in the whole group. Likewise, it can be argued that this is related to their views regarding other less tangible features of relationships.

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Within the CIPG, the company’s instrumental inputs to the relationship are limited to the appointment of a person to look after a customer and to some special deals related to stock allocation. Customers are expected to demonstrate commitment toward the relationship through keeping stock on hand. However, if at any moment the customer ends up with excess inventory, the company considers this to be the customer’s responsibility. To me we sold the product in good faith, so they must sale it and that is part of their commitment. y They are in business to make as much money as they can and they got a make the right business to do that. y We might sit down and say, the cost for us not having moved it is great so we can talk [the customer] and do a joint promotion for that whole product. (C1, pp. 93, 100)

In the BISG, the decision of buying a machine is deemed as a customer’s instrumental input. Once the equipment is sold, this keeps the companies tied through the needs for servicing and use of consumables. This is what Sharma et al. (2001) call locked in commitment. One customer expresses dislike of this situation: I personally hate when you have a machine and you try to lock people in the consumables because I want independence I want to have the flexibility to buy the consumables totally separate to the manufacturer or buy from the manufacturer but I make that call, I don’t want to be locked in, say if I buy a [company’s] copier I have to use [company’s] paper because this is the game of monopolization and you don’t know what are you paying for. (C8, p. 119)

The company instead sees great value in the opportunity to keep the relationship going that servicing provides. What we’ve got is a product that needs maintenance or needs occasional repair which sold with a service contract will maintain a relationship with at least the users of the device to fix it, maintain it. So we’ve got very strong ability to be in front of the customer or in contact with the customer very frequently. (C9, p. 88)

Moreover, the company is prepared to assign a person exclusively to a customer to keep the equipment properly serviced: For example to one customer who is resident in one complete building, for that customer to actually delivering the service levels, we will put a dedicated person in that building to service to ensure that we are delivering what we committed to. (C10, p. 143)

If the equipment works so well that the level of interaction decreases, the perceived level of commitment within the relationship can also decrease. In my experience you can always have a stronger relationship when the customer is having a problem and you resolve it than with the customer who has never had a problem in the first place. (C9, p. 90)

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In their relationship with dealers, the dealer agreement is the company’s instrumental input to the relationships. It provides structure to the relationships, as well as defined the dealers’ territory boundaries. As a result, one dealer decided to exclusively trade the company’s brand in their core product areas. Going exclusive is an instrumental input of the dealer. The reasons why we have made such a commitment to [the company] as an exclusive in the core product areas are the dealer policy manual and the dealer contract. It has given us enough commitment to minimise the exposure there. (C16, p. 93)

Even though there is a system for CRM under development, the interviewees did not mention any other instrumental inputs to demonstrate commitment. Such a system could be deemed as a company’s instrumental input; arguably, with the use of the system, it is possible to have the necessary information to keep contact with customers even when the equipment runs smoothly. Cultural Distance Cultural distance refers to the differences in norms, values, and working methods between the parties (Ford, 1980). On the basis of their experiences during interaction, people construe the counterparts’ working methods from which they evaluate both similarities and differences. As with social distance, cultural distance may increase or decrease with time, potentially changing the parties’ perception of the quality of relationships. The company’s employees used to keep information to themselves; as a result they did not get any information either. This dynamic of not giving makes the relationship distant and limited. Yes, we have more history, more time to develop, if you look at [the company] as an example, we have never ever met with their product management team we only met with the front of shop sales team. As a result they’ve got a culture of doing the product management in isolation. (C22, p. 132) They kept all this information to themselves before, but you can’t do business without seeing all the information. (C5, p. 21) There were certain individuals at [the company] that thought that [the customer] is a very tough business group. That this customer was demanding this customer was unlikely to get the quality product that we provide. (C3, p. 39)

When information started to flow and more interaction happened, both the company and their customers changed their views of the other, and thus, cultural distance is reduced.

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They actually make it visible for us to know what their plans are and that is why we have a good relationship. (C5, p. 22) We are taking now our first steps and having some preliminary meetings and some preliminary discussions. (C22, p. 134)

At BISG the dealer agreement was mainly regarded as a cause of changes in social distance because of its association with the appointment of one senior executive to the company. However, after the dealer agreement was in place for a number of years it made the company’s procedures and working methods very clear, thus enabling the reduction of cultural distance. It was affecting a cultural change saying we used to do it that way but this is the way we will do now and show them the reasons and the value that they get for working now. (C21, p. 19)

Product Quality Product and service quality are determinants of satisfaction with the relationship (Swan & Combs, 1996). Customers appear to be greatly concerned about the quality of the product, as this is a qualifying criterion to be in business. The company pictures itself as being in the high-quality segment of the market, thus gives high importance to the product quality. One interviewee observed that, although important, relationships do not replace the need for high product quality: ‘‘Relationship is very important but I don’t think it outweighs product and price and being competitive in the market’’ (C4, p. 22). A customer who shares this view stresses that without an adequate product quality the value of relationships does not exist: Even though those guys might have a good relationship with me, if the product doesn’t have a good relationship with the end user that comes back far in a really big way. They have to make sure that the expectations that they build are maintained. (C6, p. 156)

Product quality appears to be attached to the brand image, thus providing necessary grounds to build trust; ‘‘The market research that is being done on the brand indicates that our brand inspires trust in the customer. They feel the product is quality product that fits for purpose’’ (C11, p. 22). In the same vein a dealer states, ‘‘Our basic expectations of the manufacturer are that they provide us with a good product, appropriate in the market, a leading product, competitive prices, training, etc’’ (C16, p. 9). The dealer illustrated

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this by recounting the reasons why they changed from another brand to the customer’s brand: We didn’t change because we chose to change we changed because the product of the company went to a point where commercially didn’t make sense, that started to impact our ability to make good business with our customers. (C16, p. 133)

The company introduced new technology that improved the reliability of the product: ‘‘Within the industry we generally had one technician per 100 machines but we now have one technician per 300 machines so the product is becoming a lot more reliable’’ (C13, p. 111). On the contrary, a customer did not express that enthusiasm. We have a brand new [company’s] copier, multifunction machine that is six months old but the lid come a bit loose. Everything has got sensors in that, but it still breaks, paper still jams, you have to open it, etc. It is not different to what used to be five years ago. (C6, p. 112)

In brief, product quality plays an important role making the business possible in the first instance and then supporting the development of longterm relationships. However, contrary to the company’s beliefs, at least one customer thinks that the product has not improved its quality as a result of the technological innovations and that its use still causes many problems. Summarizing the Features of Relationships Various aspects of relationships mentioned by the interviewees are described in the previous paragraphs in descending order from most to least frequent. On account of the diversity of the informants (i.e., they belong to different levels in the organization’s structure, to different business groups, some are company employees, others are customers, and suppliers), data have been analyzed as a whole, as separated groups and by hierarchies. This description aims to represent the participants’ common grounds regarding the most desired features of business-to-business relationships in dealing with the focal company. However, if a group diverged from the whole this is mentioned in the report. A graphical representation of these most desired features of relationships is provided in Fig. 9. Fig. 9 strives to provide a general map of the interviewees’ views on relationships. The arrows suggest connection between constructs but are not intended to represent or delineate a causal model. Each feature is connected to theoretical constructs identifiable within contemporary knowledge. The thickest boxes aim to display those features mentioned more often and the thinnest those who are mentioned the least,

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Benevolence

Honesty

Competence

Product Quality

Attitudinal Inputs Trust

Instrumental

Social

Performance

Cultural Distance

Commitment

Outputs Justice

Technological

Relationship Features

Geographical

Formal Adaptation Informal

Bonds

Social

Structural

Satisfaction

Information Sharing

Economic Non Economic

Economic

Mutual Disclosure

Multi-Contact

Fig. 9. Constructs of Business Relationships Case Study D.

as organized in Table 10. A dotted line represents the concepts that were seldom mentioned during the data collection period to suggest their relative absence in data but presence in theory. Trust is of paramount importance in the relationships of the company. Trust influences the quantity and quality of information shared by the parties, denoting a kind of bi-directional reciprocity: I trust, therefore I give information; I receive information, therefore I trust. Nevertheless, information leaking, that is, divulging information to the competitor, appears to decrease trust. Among these features, the outcome of relationships, in terms of both their performance and justice, is an important dimension of commitment. It also functions as attitudinal inputs toward the continuation of relationships but not as much as instrumental inputs, other than increased inventory holdings as a result of better information sharing. Likewise social bonds are important but not that much emphasis is put on structural bonds. This can be construed as: we do have relationships because that is the way to develop our business (performance). We demonstrate to our partners that they are

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important (attitudinal commitment), we interact with them even outside the business environment (social bonds) and care about a fair share of benefits (justice). However, the characteristics of the industry, that is, nonexclusive multi-channels permanently changing, prevent from allocating exclusive resources to a particular relationship and therefore from forging structural bonds. Finally, changes in personnel may increase or decrease distance, both social and cultural, potentially affecting other features of relationships, such as social bonds, and eventually trust and commitment. Adequate product quality plays an important role as part of the customer’s value proposition.

CROSS-CASE ANALYSIS AND CONCLUSIONS Drawing on extant literature, a model composed of five major constructs and their subconstructs to portray the structure of relationships is proposed: trust, commitment, satisfaction, bonds, and distance. The model is reproduced in Fig. 10. Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Satisfaction

Economic

NonEconomic

Economic

Structural

Fig. 10.

Theoretical Constructs of Business Relationships.

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Relying on this model, the most desired features of relationships in each case study are depicted within their individual reports. Then, a graphical representation of those features of relationships differentiates between more or less desired features of relationships, using different weights to the boxes of each dimension; the thicker, the most often mentioned, and the thinner, the less often mentioned. Dimensions seldom mentioned by participants of the research are represented with dotted lines. Although there is a casespecific graphical representation for the shape of relationships, all have the same basic model embedded and therefore are comparable. The same taxonomy is used to code data of all case studies; thus, the graphical representations of all cases studies look alike. The models of three case studies contain all five major constructs initially proposed, but not that of case study D, to which a construct called ‘‘information sharing’’ is added. As relationships are not only developed by the activities within the company but are also influenced by third parties that form part of the company’s extended network (as well as the social interaction of members of the company), it is not expected that the most desired features of business relationships are the same for all companies. Even the same constructs have different importance for different companies. Interviewees mentioned some dimensions more often than others depending on the context under discussion. It is important to reiterate here that participants of the research did not necessarily use the precise words of the contemporary taxonomy that has been used all through this research. Parts of text that were coded using that taxonomy are cited as if participants mention a particular dimension of business relationships features. This section discusses the theoretical model illustrated in Fig. 10 on the basis of the evidence of the case studies. Four groups of relationship’s features are defined according to their importance within the transcripts of each case study. As explained in the methodology section, the relative importance of a particular feature is associated with the frequency by which it was mentioned by the interviewees. Table 11 aims to illustrate the relative importance that informants conferred to particular dimensions of constructs of relationship in each case study. It will be used for the discussion in the next section.

First Place Desired Relationship Features A number of dimensions of the constructs that were initially defined as able to describe desired features of business relationships, were brought up by the

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Table 11.

Features of Relationships by Relevance and Case Study.

Features of Relationships Construct

Dimension

Relative Position of Importance Subdimension

Benevolence Trust

Second

Third

B

A, D

C

B, C, D

A

Honesty Competence

Commitment

First

A, D

B, C

Specific inputs

Attitudinal Instrumental

C

A

B, C

Relationship outputs

Performance

D

C

A, B

C

A

B, D

A, B, C, D

A, B

C, D

A, B

D

Economic

B

A, C, D

Non-economic

B

A, C, D

B

C

A, D

C

A, D

Justice Formal

Adaptations

Satisfaction

Informal

C

Economic Bonds

Structural Social Geographical

B A, B, C, D B

A, C, D

Technological Distance

Information sharing

Rarely mentioned

Cultural

A, B, C, D C

B

A, D

B

A, D

Social

C

Multi-contact

D

A, B, C

Mutual disclosure

D

A, B, C

informants. Attitudinal inputs toward the relationship continuation, a dimension of commitment, and social bonds are the most commonly mentioned. Both dimensions are rooted in the informants’ views as elements that good relationships must have. Nevertheless, senior executives, particularly within case study D, assume that sales people only see the social dimension of business-tobusiness relationships. The case study report argues that sales people’s beliefs regarding these social dimensions of relationships are not very different from senior staff’s beliefs. Consequently it can be said that both attitudinal inputs and social bonds are the most desired features of relationships.

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Trust competence is in the first group of relative importance for two case studies. For case study A, the focal company works in a product dominated industrial sector in which the seller’s technical expertise to design and produce is deemed as critical to gaining business. For case study D competence-based trust is believed critical because of the continuous introduction of new models about which customers seek advice before making purchase decisions.

Second Place Desired Relationship Features Similarly to the first group, there are some dimensions of business relationships that fall into this group. For instance, trust competence for case study B and case study C fell into the second group of relative importance. Within case study B, competence is demonstrated through the proper management of service providers, mainly transport providers. In doing this, the focal company guarantees to its customers the availability of their product at the correct place, cost, and time. Because the product is a not-easily-differentiable-commodity, the company’s expertise in providing the service is what builds trust. For case study C, as opposed to the other three, the recurrent theme was lack of trust competence because of the temporal incapability that the focal company experienced in serving market needs. Thus, that dimension of trust eroded, jeopardizing the relationship. This denotes how important trust competence is in building relationships. Case studies A and D share another dimension of trust at this level, namely, benevolence. For case study A, benevolence emerged as a theme because of the company’s aims to act more relationally oriented than is the norm for their industrial group. This is consistent with the features that they propose of mutuality and empathy as a demonstration to the counterpart that the company might be trustworthy. Mutuality and empathy aim to build trust in early stages of the relationship when the counterpart has no previous experience to foster the belief that the company will act in a manner that is beneficial to the other. Selnes and Gønhaug (2000) call this benevolence. To participants in case study D, benevolence is part of the company’s business proposition, in which both the company and the sales channel have to make profits out of the relationship, otherwise no business is possible. Case study D points to a conceptual difference between trust benevolence and the justice dimension of commitment, which is concerned with who gets how much of the cake (So¨llner, 1999). Justice does not appear to be part of the desirable features of relationships of case study D, although benevolence is.

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Thus, a relationship can be built on trust benevolence but not necessarily justice. In case study D the focal company acts in a manner that is beneficial to the channel; the company cares about the other’s profits. Nevertheless, it does not mean that the size of each piece of the cake has to be similar. Trust honesty in this group is a dimension that concerns the three companies B, C, and D, but not A, in which it appears to be relegated to a third place. For the participants of all case studies, including A, honesty is regarded as a must. If this dimension is not within the first group of features and appears to have reduced importance, it is a consequence of having being surpassed by other dimensions that were mentioned more often, but not because any company dismissed the value of being honest. Overall, informants suggest that in the absence of honesty, relationships cannot even start to build up.

Third Place Desired Relationship Features There are in this group various dimensions shared by two companies or more, one of these being instrumental inputs toward relationship continuation, a dimension of commitment. Instrumental inputs, as opposed to attitudinal inputs, require the deployment of tangible resources to demonstrate the company’s willingness to continue with the relationship; most of those resources, once in place, may not be redeployed. Thus, the motivation to assign scarce resources to a particular relationship varies from case study to case study. Instrumental inputs appear to be more desirable within case study C, than within case study A and finally within case studies B and D. It does, indeed, have its logic. The focal company in case study C is a large manufacturer, which has three major customers that account for more than half of the company’s capacity. Each time the company makes investments to better serve one of these three customers, these can be deemed as instrumental inputs toward the relationship continuation. For instance the software that the company is launching to permit its customers to electronically place orders commenced its application with one of those three major customers. It will continue with the other two and finally will make this available to all its customers. Another example of the importance of instrumental inputs within case study C relates to the need to increase capacity of the aluminum plant, which is construed as a decision that will impact on the satisfaction of their three major customers. Thus if the company decides to make the investment, from the relationship point of view, it will be seen as an instrumental input to maintain that relationship.

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The new relational approach toward business interaction that the focal company has within case study A caused the interviewees to remark on a number of initiatives that have recently been put in place. These include even minor investments such as the appointment of key account managers or software to recognize customers at their call centre. As a result, instrumental inputs have become regarded as important. Other companies, like those participating in case study D, have seen those initiatives for long time now but did not emphasize them. Thus, within case study A, even though the resources specifically allocated were only few, they have been repeatedly mentioned. Within case study B, there is an important investment in a CRM system that was made to establish a link with their customers. Despite its importance, it was not very much recalled by informants. Other themes instead surpassed its importance, making the dimension of instrumental inputs seem less relevant than others. Actually, most company members have not started using the system yet, although they recognize its potential value. In sum, instrumental inputs toward relationship continuation is an important dimension of the four case studies. It reached different levels of importance because of the particular circumstances within each case study. Performance exhibits different degrees of importance across the case studies. In case study D, it was mentioned most often. For case study D performance, how much cake results out of the relationship is a primary concern, particularly to the end consumer division of the business in which both the company and the channel only value their relationship if it contributes to increasing business. For the other three case studies, performance is important but not to the same extent as case study D. For instance, for the customers of the can manufacturer, the cans are important but not the business itself. Formal and informal adaptations are two dimensions of commitment found among the third place desired features for case studies A and B. For case study C, informal adaptations are mentioned slightly more often as a result of the capacity constraints of the aluminum plant that led the parties to adapt to make it possible to continue working together. In the same way, for case study A adaptations are regarded as occasionally bending the rules to suit particular customers, that is the parties react each time a problem occurs demonstrating commitment to the other by doing things beyond the norms that would not be done for any other customer. For case study B, adaptations are regarded as flexibility, that is, having the capability to adapt to changes in customer’s needs, predominantly changes in volume and delivery schedules. In general, within these three case studies, adaptations emerged as something that parties do to react to in special circumstances whether or not they are within the terms of the contract.

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Conversely, within case study D, adaptations are rarely mentioned. However, within the BISG dealer channel, it stands out in the yearly modifications they make to the dealer agreement. These modifications result from observing necessary improvements during the year. Thus, they can be regarded as formal adaptations to ensure continuity of relationships with dealers. Other forms of adaptation are not mentioned very often. Last in the third group are social and cultural distance, although those dimensions are within the first group for case study C. Social distance recurrently appeared because of a number of changes in personnel that the focal company had recently experienced, and cultural distance became an issue because of the pressure that one major customer applied regarding the need to increase capacity and the time elapsed to make the decision, which the company construed as the difference between being a public or a private organization for making investment decisions. For case study B, geographical distance should be added as an important dimension. The reason why geographical distance is relevant is that it relies on the global nature of the business of the focal company; it also connects to cultural distance, which is perceived to exist mostly because of language barriers between the company and its overseas customers or suppliers. Finally, social distance appeared because some counterparts of the company do not have high levels of education in financial management and therefore are not believed to understand sophisticated trading tools that the company uses to take positions in the market. Within case study A, cultural distance is prevalent because of the product orientation that most of the partners of the company have, which is opposed to the company’s relational orientation endeavors. For case study D, changes in personnel not only produced changes in social distance, they also produced changes in cultural distance through reducing social distance, which led the counterparts to redefine their concept of the company. Hence cultural distance was also reduced. In general both social and cultural distance appear to be associated. The size of the gap affects the quality of relationships. In contrast, there appears to be no evidence of technological distance among the concerns of the informants. Drawing on the existing literature, economic and non-economic satisfaction are proposed as features of relationships. Throughout the research, interviewees make very few specific mentions of satisfaction. They are noticeable only within case study B in which the interviewees specifically address the point of being happy with the customer and making the customer happy. The other three case studies do not provide sufficient

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evidence to consider satisfaction a feature of relationships. Hence, it is proposed moving economic and non-economic satisfaction from desired features of relationships to outcomes of high-quality relationship.

The Role of Information Sharing The importance of sharing information between parties is prominent only within case study D in which it is regarded as a two-dimension construct comprising mutual disclosure and multi-contact. Both dimensions are defined as nodes to code documents in all four case studies. In the first three case studies, references regarding multi-contact are more connected to the establishment of relationships at various levels with the objective of being less dependent on a sole contact (who in the event of leaving the company could jeopardize the relationships between the companies), than to create multiple channels through which more abundant information could easily flow, as is suggested within case study D. With reference to mutual disclosure, the type of information sought varied from learning about the customer, for example as how they work, who they are, and what they buy, as indicated by informants within case study A, to be able to give a bit more open communication in case study B, or to the extent that the parties were pursuing an open book relationships in which even the costs would be disclosed, as was the intention within case study C. Nevertheless, intentions to disclose market information are hardly mentioned. The evidence in case study D suggests that appropriate amounts of ‘‘meaningful’’ shared information by the parties led to improved relationships, hence improved business performance. As illustrated in the report of case study D, the dynamics of sharing information permitted the parties a significant growth in business, that is, sales through the channel. It reinforces the overall relationship and eventually leads to further increments of information flows instead of limiting them. Drawing on the evidence collected in case study D and on information that is in the public domain, for example, Dell Computer’s Direct Model (Magretta, 1998), it is proposed that information sharing forms part of desired features of relationships. It is a two-dimension construct composed of (1) multi-contact, which aims to establish various points of contact between the parties that make the flow of information more intensive and smoother, and (2) mutual disclosure, which describes the parties’ willingness to exchange meaningful information that ultimately leads to improved business performance.

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The Role of Product Quality Product quality manifested as an important element of business relationships, particularly within case study D. On the focal company side product quality is regarded as something that distinguishes them from competitors; as something that is a must to permit relationships to become established. One sales representative stressed that relationships do not replace the quality of the product. Various customers of the company mention the superior quality of the product as a feature that makes the business possible. However, one industrial customer regards the quality of the product as similar to others in the industry and the entire industrial sector’s product quality together as average but not outstanding. Within case study C problems in product quality are mentioned as the kind of episode that produces interaction. If there is a problem of quality, the customer reacts and makes claims. It can, according to the sellers, affect the relationships if the quality problems are recurrent. Otherwise, it is deemed a normal part of the daily interaction. Within case studies A and B, product quality has seldom been mentioned. Drawing on the evidence of case studies C and D, this study suggests that in the same way that relationships are not a substitute for quality, quality does not replace the value of relationships but forms part of the grounds that make it possible for relationships to grow. Product quality is part of the customer value proposition but not a feature of business-to-business relationships.

In Conclusion The use of the contemporary taxonomy for coding the information, as well as for reporting the cases studies has permitted comparison of apparently dissimilar desired features of relationships. Evidence shows that (1) five constructs, trust, commitment, bonds, distance, and information sharing, can be used to describe various business-to-business relationships. (2) Each one of these constructs has itself a number of dimensions, which vary in relative importance among the case studies that form part of this research. (3) The relative importance of each dimension is context dependent. Hence, there appears to be no reason to claim that one construct is more important than any other. In regard to satisfaction, it is proposed to reposition this construct from a desired feature to an outcome of quality business relationships. Quality relationships are thus not those comprised by specific constructs, they are instead those relationships in which one or more participants

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experience features of relationships that are most desirable, within the context in which the relationship exists. It can be argued that mutuality and empathy, dimensions suggested in the context of case study A, play a role in increasing trust benevolence and reducing social and cultural distance, during the process of building relationships, particularly at early stages. Likewise, cooperation, which from the interviewees’ perspective was finding solutions together, as well as being successful together, can be deemed as the outcome of having built a relationship instead of a feature of it. Cooperation, as mentioned in case study A, equates to the stage named commitment in stages theory taxonomy (Scanzoni, 1979). Overall, the group of constructs needed customization to the specific circumstances of each company before it could be used to describe and later to analyze business relationships. By ‘‘customization’’ this study means finding out which dimensions are more desirable for a particular company, because those will be the dimensions most likely to be significantly affected while interaction occurs. As a result of merging the evidence of four case studies and the contemporary taxonomy presented in literature review, this paper proposes a model, illustrated in Fig. 11. Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Bonds

Information Sharing

Economic

Mutual Disclosure

Social

Multi-Contact

Structural

Fig. 11.

Business-to-Business Relationships Features.

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171

The model is appropriate for describing the features of business-tobusiness relationships of a focal company at any moment in time. On account of the dynamic nature of business relationships, its purpose is to portray which dimensions of the proposed constructs are more important at a given moment. Having this map available would facilitate analyzing the dynamics of interaction between companies. Within the group of constructs satisfaction has been removed and information sharing added. It does not denote that satisfaction does not count in business-to-business relationship. Satisfaction is deemed as a potential outcome of relationships and not as a feature. The arrows connecting the constructs are dotted and bi-directional denoting a possible but not always existing relation between the constructs. Also, contemporary knowledge suggests, and sometimes tests, that one feature of relationships might lead to another, or vice-versa. For example trust leads to commitment or commitment builds trust. It depends on the context, this paper argues.

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CHAPTER 4 UNDERSTANDING AND MODELING THE DYNAMICS OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann ABSTRACT Relationships are socially constructed by companies in interaction. This study explains the dynamic character of business-to-business relationships with the aid of rules theory, a theory borrowed from the communications field. Two forms of rules are identified: constitutive rules guide the interpretation of the other’s acts, and regulative rules guide the appropriate response to the interpreted act. Rules theory asserts that companies act as if applying these rules. Relationships provide not only the context in which the parties’ acts are performed but are also the result of such acts. Thus, relationships are potentially reshaped each time one party performs an act and the other party gives meaning to that act and reacts.

INTRODUCTION This paper is the second of three in this volume. This paper is based on the same research described in the previous one. However, this paper addresses Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 179–326 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016007

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the processes that explain relationship changes over time. That is, the focus here is to understand and model the dynamics of business relationships. For parsimony, no reference is made to the research method unless its discussion is specific to the dynamics of relationships. The rest of this paper consists of three additional parts: literature review, individual case study reports, and cross-case analysis and conclusions.

LITERATURE REVIEW Business relationships have been extensively studied, both in business and in academic literature. Among the numerous studies, a series of perspectives on the topic are presented. One perspective focuses on the evolution of relationships over time. Such evolution is commonly described in two ways: (1) stages theory, which sees relationship evolution as a sequential path where the parties become closer and build rapport until they either reach a level of commitment (Dwyer, Schurr, & Oh, 1987; Ford, 1980) or the relationship dissolves; and (2) states theory, which describes relationships not as evolutionary but as exhibiting potential for dramatic change from one state to another, in which both commitment and closeness fluctuate over time (Ha˚kansson & Snehota, 1995c; Turnbull, Ford, & Cunningham, 1996). Batonda and Perry (2003, p. 14), focusing on network development, contribute to the field by comparing the stages and states theories. They propose the addition of other phases called dormant and reactivation. Another subset of relationship researchers see business relationships as dyads within networks (Anderson, Ha˚kansson, & Johanson, 1994), or as complex groups of interdependent companies assembling networks through their acts (Axelsson & Easton, 1992; Holmlund & To¨rnroos, 1997; Mo¨ller & Halinen, 1999; Spekman, 1996). Within the network stream of thought, a number of researchers focus on the effects that particular acts cause to the structure of relationships. Olkkonen, Tikkanen, and Alajoutsija¨rvi (2000) propose that business relationships result as a consequence of interlinked acts and episodes that are contextually interpreted. Previous studies suggest that business relationships evolve as a result of interpersonal communication in a particular environment (Duck, 1976) and that interaction is influenced by previous experiences of participants and their evaluation of their relationship position (Ford, McDowell, & Tomkins, 1996). This section presents a review of the relevant part of existing knowledge to the research objectives. First, a description of the fundamentals on which relationships have been studied is presented, these being transaction costs

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theory and social exchange theory. Secondly, the literature focusing on the aforementioned perspectives is organized through two categories: relationships as stages or states evolving over time, and the network perspective of relationships, including the view of relationships as social constructions. The view of relationships as social constructions resulting from interaction has led this review and therefore this research to put forward a point of view entirely new to the field called Rules theory. This theory offers an interpretive framework to understand and assign meaning to others’ actions (Cronen, Pearce, & Harris, 1979). Finally, this section proposes that rules theory provides an appropriate technology to explain business interaction as if the parties apply sets of rules that give meaning and guide action.

LESSONS FROM TRANSACTION COSTS THEORY Transaction costs theory addresses two aspects of relationships: first, whether the exchange is discrete or relational, and second, if relational, whether the relationship will be kept at arm’s length or the relationship will be an Obligation Contractual Relationship.

Discrete and Relational Exchange The costs and the benefits experienced by the parties determine whether an exchange will be discrete or relational. If benefits outweigh costs, exchange tends to be relational. To assist in defining whether exchange is discrete or relational, Macneil (1980) suggests that situational and process characteristics be assessed. Situational characteristics include timing of exchange, number of parties involved, obligations, and expectations of the relationship. Process characteristics include the extent of personal relationships, contractual solidarity, transferability, process of planning, measurement and specificity, power, and division of benefits and burdens (Dwyer et al., 1987; Macneil, 1980). Discrete transactions are characterized by short-term exchanges between two parties whose expectations and obligations originate from generally accepted norms and rules. On the contrary, relational exchange typically involves more than two parties in an ongoing exchange in which both obligations and expectations are higher and adapted through time. Likewise, for relational exchange, the processes are expected to reflect joint planning and effort, cooperation, and more attention to the outcomes and

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the interests of both parties than to the processes of discrete transactions in which each party acts on its own interests. Thibaut and Kelley (1959) state that interaction produces rewards and costs. The better the reward-cost position, the better the relationship. Thus, to improve the position, costs should decrease or rewards increase. Costs are the sacrifices that have to be made to keep the relationship; imbalance of power between the parties tends to increase the perceived costs involved. Among the rewards are (1) the perceived similarities, (2) the level of specific abilities possessed, (3) the parties’ skills to keep costs down, and (4) complementary needs, that is, the capability of one party to do something for the other that the other cannot do by itself. For rewards to exist, willingness must accompany the person’s capability to perform the task. As a result of the interaction, situational characteristics change and lead some transactions to move toward relational exchange. Process characteristics also change. Thibaut and Kelley’s (1959) proposition sees relationship evolution as the result of a positive evaluation of costs and rewards. The governance of the relational exchange would depend on the complexity and criticality of the interaction. Complex governance mechanisms should operate within an OCR, whereas simple relationships can remain at arm’s length.

Arm’s Length or Obligation Contractual Relationship If the characteristics of exchange are such that all possible outcomes can be anticipated, a contract is the governance mechanism and the exchange is regarded as Arm’s Length Contractual Relation (ACR). Conversely, in circumstances in which not everything can be predicted, a contract does not suffice. The exchange is regarded as an OCR and depends on the mutual trust of the parties (Sako, 1992). Two critical characteristics distinguish ACR from OCR. The first is goodwill trust, which Sako (1992, p. 10) defines as ‘‘a feeling that trading partners possess a moral commitment to maintain a trading relationship. It may manifest in not taking unfair advantage of one’s circumstances.’’ Goodwill trust exists in OCR but not in ACR. Subramani and Venkatram (2003) argue that where power asymmetries exist in favor of the customer, the supplier chooses to work either at ACR, or, to get closer to the retailer, at OCR. The second distinguishing characteristic is the time span for reciprocity. For ACR, reciprocity happens while the contract exists, whereas for OCR, reciprocity takes place in the long term.

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This literature presents a basic description of key characteristics of business relationships. However, it does not address the dynamic process of building such relationships. Research into social exchange theory, as developed by Thibaut and Kelley (1959) as well as by French and Raven (1959), Lipset (1976), and Scanzoni (1979), provides grounds to study the process by which relationships appear to be built.

LESSONS FROM SOCIAL EXCHANGE THEORY Social exchange theory provides a basis for understanding the evolution of relationships. It is used in studies of business relationships (Anderson & Narus, 1990; Crosby, Evans, & Cowles, 1990; Dwyer et al., 1987; Ganesan, 1994). Authors, who address the theme of how relationships evolve, use principally the marriages and affairs metaphor (Dwyer et al., 1987; Scanzoni, 1979) and lately a dancing metaphor (Wilkinson & Young, 1994; Wilkinson, Young, Welch, & Welch, 1998) as an aid to portray the manner in which this process occurs.

Building Relationships, Marriages, and Dancing Metaphors Drawing on the marriages and affairs metaphor, Scanzoni (1979) suggests that the first and subsequent transactions create an environment that leads parties to engagement and on to happy marriage. Dwyer et al. (1987) contribute by arguing that the future of the marriage depends on the degree of interdependence of the parties, as well as on their willingness to build and preserve the relationship. If both parties seek to build a relationship, their evaluations of the interaction will be more positive; thus, the relationship will develop smoothly and quickly. On the contrary, if either party has less interest than the other in the relationship, the grounds for its development will not be the most fruitful. In the extreme case of neither party being interested in building or preserving the relationship, only discrete transactions should be expected. If there is no goodwill trust, there are no grounds to germinate a relationship (Sako, 1992). Business relationships take place in one of four scenarios: the best and most desirable one is when both buyer and seller are motivated to invest in the building and maintenance of the relationship; one in which the buyer has the motivation to invest in the relationship but the seller does not (that relationship will be sustained by the buyer and is regarded as a seller’s

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market); a third scenario with the opposite situation, that is, the seller is motivated to invest but not the buyer, therefore the seller sustains the relationship in a buyer’s market; and finally, the situation in which neither the buyer nor the seller have motivation to invest in the relationship (Dwyer et al., 1987). As an alternative to the marriages and affairs metaphor, Wilkinson and Young (1994) propose a dancing metaphor in which business relationships are like a dancing party where the characteristics of business relationships progress through interaction as the dancing skills of people improve through dancing. Arguably both the marriages and affairs and the dancing metaphor are complementary instead of alternative in explaining business relationships. The next section examines the perspective that sees relationships as evolving in time using both marriages and affairs and dancing metaphors.

The Stages Theory Dwyer et al. (1987), building on conceptual foundations and empirical evidence, propose a five-step model of relationship development: (1) awareness, (2) exploration, (3) expansion, (4) commitment, and (5) dissolution. Their model offers a helpful and structured route to follow in understanding and explaining how relationships may develop. However, it is not clear how the constructs of each step can be operationalized for further evaluation of the relationship. Ford (1980, 1998) offers another explanation to relationship development, but it is not entirely different. He proposes five sequential stages in the buyer–seller relationship progression: (1) a prerelationship stage characterized by high inertia in seeking new source of supplies; (2) the exploratory stage, where potential suppliers initiate contact to negotiate; (3) the developing stage, which occurs as deliveries of continuously purchased products increase; (4) the stable stage, characterized by the mutual importance companies have to each other; and (5) the final stage, in which the parties know each other’s ways of doing business, thus stable markets endure for a long time. In each one of these stages, features of relationships such as experience, uncertainty, distance, commitment, and adaptations change. Wilkinson et al. (1998) suggest four steps to their dancing metaphor: (1) getting people to the party, (2) let’s dance, (3) the outcomes, and (4) do it again or a different dance party? Fig. 1 shows a combination of these propositions.

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Dissolution Trust and Commitment

Expansion Developing Stage The outcomes Exploratory Stage Let’s Dance Investment of time for learning & distance reduction No routines or commitment

Awareness Pre-relationship Stage Getting People to the Party • What will we both get? • How much investment? • What learning? • Trust?

Intensive mutual learning building trust through investment & informal adaptation

Commitment Stable Stage Do it again Routine and institutionalization

• Attraction • Communication and bargaining • Power and justice • Norm development • Expectations development

Time

Fig. 1. The Development of Buyer–Seller Relationships. Source: Original inspired by Dwyer et al. (1987), Ford (1980, 1998), Scanzoni (1979), and Wilkinson et al. (1998).

The following is a description of relationship evolution that integrates the views of these authors.

Awareness One party identifies the other as a potential business partner. For Dwyer et al. (1987), this is the initial courtship where interaction has not happened yet. Wilkinson et al. (1998) regard it as drawing the invitation list where selecting the right guests presents a difficulty. The other person has to have a similar desire whether it is to initiate an affair or to attend the party, thus consenting to the first exchange. In business interaction, previous exchange experiences may influence the parties’ impressions of the first events and therefore their motivation to continue interacting. Parties ask themselves questions like, What would I get from the relationship? What does the other party want to get? How much money, time, and effort do we have to invest in learning how to deal with this new counterpart? Ford (1998) argues that this stage is characterized for having no trust, no commitment, and considerable distance between the parties.

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Companies may seek to build relationships for many reasons; for instance, buyers may look for new suppliers because their requirements may have changed, their purchasing and sourcing policies may have changed, or they need to replace an old supplier after an evaluation of its performance. These various drivers to seek for a new relationship are frequently ignored by the other party, and therefore, the interactions do not always lead to long-term stable relationships. Exploration Exploration is the searching phase in the relational exchange. High levels of uncertainty characterize this step. The parties still act in isolation in their attempts to move forward in developing the relationship. Depending on the degree of uncertainty, the criticality of the product or service, and the past experiences of the parties, this phase will take more or less time. Once the people at the party start to learn how to dance together, their performance improves. If the other person follows well, they may attempt to move on to more complicated steps. However, the interest in continuing dancing must be mutual (Wilkinson et al., 1998). There is so much to learn from and about each other at this stage. The experience in the relationship is still marginal and considerable management investment is necessary. This makes costs appear very high, whereas benefits are still uncertain. Because of the lack of trust and commitment, parties will have doubts and concerns regarding the others’ intentions. Scanzoni (1979) suggests that the exploration stage has five substages: (1) attraction, (2) communication and bargaining, (3) development and exercise of power, (4) norm development, and (5) expectations development. Attraction is the beginning of this phase. More rewards than costs are expected. Communication and bargaining occur because the parties see that potential rewards are big enough that they warrant the allocation of resources to negotiate and improve the deal. Reciprocal disclosure makes the transit through this step easier. Power and justice suggests that whenever there is an imbalance of power, the application of power is sanctioned only if the powerful party dominates the other party by providing sufficient rewards to lead that party to voluntary compliance. Instead, if insufficient rewards are provided, the less powerful party may perceive the application of power as unfair, and, at this early stage of the relationship, this leads to the ending of the relationship. As far as norm development is concerned, norms are the required behaviors that underpin and enable the construction of the relationship. Some norms exist before the relationship and other norms are agreed upon during this stage.

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Drawing on cognitive and script theory, Leigh and Rethans (1984) argue that counterparts rely on scripts that guide their respective thinking and behavior during interaction. Scripts potentially determine the conduct and outcome of sales encounters and have influence in the evaluation of the interaction. Leigh and Rethans conclude that knowledge of cognitive scripts is highly useful in developing and transmitting efficient selling and purchasing programs. Scripts play two roles. The first one is that they drive the information process, leading the individual to react to certain stimuli. The second role is that scripts represent normative structures that generate expectations, thus influencing behavior. Therefore preexisting norms are observed during the relational exchange. The fifth and last substage, expectations development, can be better understood with the help of two important concepts: trust and bargaining. Trust is itself a complex construct, discussed in depth in Chapter 3. However, trust’s relevance here relates to the effects that it has in the other party’s attitudes toward communication and bargaining. Schurr and Ozanne (1985) report that when the buyer believes the seller is trustworthy, this stimulates more favorable attitudes toward communication and bargaining behavior, and even toward loyalty. In the same manner, with high levels of trust, expectations develop more favorably, whereas parties’ bargaining stance has less influence on relationship development. Expansion In this step, benefits grow at the same time as the partners’ interdependence increases. The five substeps that Scanzoni (1979) proposes for the exploration step may also apply. Trust and satisfaction are higher and, consequently, the parties assume more risk (Dwyer et al., 1987). Mutual attractiveness increases; thus, the partners are more likely to commit to ‘‘marriage.’’ In the same sense, the dance party progresses sufficiently to encourage participants to try new music and other types of dances and to seek and discover a broader set of possibilities (Wilkinson & Young, 1994). This is the stage in which business grows and the relationship develops in a positive way. There is intense mutual learning; uncertainty decreases as more interaction occurs. Investments in processes and personal training are made to adapt to the other’s needs. Commitment also grows. However, the pace of development of the relationship could slow down or even go backwards for a number of reasons (Ford, 1998). At the early stages of the relationship, the parties are unaware of the other’s identity; they can only evaluate each other’s intentions by relying on their own experience and reacting accordingly. Thibaut and Kelley (1959)

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posit that the first impressions carry a heavy weight in the further development of the relationships and may represent the difference between ending or the continuation of a relationship. Commitment Commitment is the most advanced stage in the relationship, the honeymoon in which longer term loyalty may be expected as a natural consequence. This is the promise, commonly not expressed, that the parties make to continue with the relationship (Dwyer et al., 1987). In the dance party, the couple is in heaven, all is happiness. The benefits of the relationship are widely appreciated (Wilkinson & Young, 1994). The time that elapses to arrive to this stage differs widely from case to case. It depends on the learning and investment requirements to deal with the other party. At this stage, companies have already learnt to deal with one another; standard operating procedures and norms of conduct and trust have been established. Low cost and very little managerial involvement is necessary to handle the relationship (Ford, 1998). Commitment, as trust, is a key construct to understanding relationships as discussed in Chapter 3. However, Scanzoni’s (1979) criteria to assess commitment – inputs, durability, and consistency – should be mentioned. Inputs are the economic, communicational, and emotional resources that parties put into the relationship. Durability is the expectation of a continued mutually beneficial relationship that leads parties to bond with one another and encourages their continuous investment in the relationship (Dwyer et al., 1987). Finally, consistency indicates the level of fluctuation in the partners’ inputs into the relationship. The more consistent the inputs are, the higher the levels of predictability for the partner’s actions. Consistency reduces uncertainty. In the commitment stage, the parties connect resources with the intention to maintain and continue the relationship. Because of the dynamic character of the relationship, the environment is permanently changing and different forces can act to damage it. These forces extend from common problems within the exchange, or changes regarding the people in charge, to competitors’ actions. If commitment is not present, this may lead to the ending of the relationship (Dwyer et al., 1987). Dissolution Dissolution may happen at any moment or stage of the relationship. What is more, most exchanges never move on to the next step and terminate even before entering the exploration phase. Dissolution may also occur in the

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commitment stage. Little is known about disengagement. Dwyer et al. (1987) suggest it starts unilaterally. However, they do not explain the process of disengagement itself. Thibaut and Kelley (1959) note that the reward-cost position is permanently assessed. It may determine decisions that one party makes. For instance, being at the commitment stage, the buyer requests a wider range of products causing the supplier’s profits to reduce, or, the supplier delivers according to its own production schedule causing inconvenience to the buyer. The costs are perceived as higher; this changes the reward-cost position, and therefore, the relationship ends or moves backwards to a less desirable stage. One party’s action that affects the other’s perceived costs or rewards tends to reduce commitment, which has adverse consequences on the relationship (Ford, 1998).

The States Theory Whether it be marriages and affairs or dancing parties, the previously described process is a sequential view of relationship development, known as the stages theory. Its main focus is on dyadic interaction between one party and another where commitment and interdependency gradually increase over long periods. Alternatively, the advocates of states theory argue that business relationships do not evolve through predetermined sequential and incremental irreversible stages but in unpredictable states moving backwards and forwards through time. According to states theory, actors involved in business relationships move between the start and the end points at a sort of random pace (Ha˚kansson & Snehota, 1995c; Turnbull et al., 1996). Another argument against stages theory is its structured mode of development, which business networks rarely follow. Business relationships are deemed as networks because of the many actors and interests involved in the interaction. Therefore, the evolution of business relationships is much more complex than the stages theory dyadic approach suggests (Anderson et al., 1994). Batonda and Perry (2003) compare the stages and states theories, concluding that networks do not evolve in an orderly progression of phases over time. Evolution is instead unpredictable through a process that is complex, interactive, and frequently nonlinear. However, there is no consensus about which approach – stages or states – better describes how networks grow. Batonda and Perry argue that business relationships are not always successful in progressing, nor do they always die. Relationships can

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experience premature termination or become stagnant. From that stagnation, relationships can be reactivated to meet new environmental conditions. Batonda and Perry’s (2003) research outcome is a six-phase model, which includes Ford’s (1980) five phases of stages theory plus a dormant and reactivation phase from which the relationship can be recovered. The model also fits states theory, in which the relationship may evolve either sequentially and randomly.

RELATIONSHIPS AS NETWORKS A theory that aspires to progress beyond the dyadic methodology to business relationships is the network approach. This approach studies business relationships as a series of actors whose interaction is embedded in complex networks. Turnbull et al. (1996) argue that business relationships are the result of constant interaction taking place within and throughout a complex network of companies. Business relationships cannot be completely explained in isolation; acts of one party have consequences on their counterparts as well as on other members of their extended network. Anderson et al. (1994) accentuate the network context interrelations in which partners interact, as opposed to the theory whereby relationships develop in a vacuum. As interactions acquire meaning with reference to the relationships within which they are performed, relationships are better understood in relation to the wider network (Ha˚kansson & Ford, 2002). Brito (2001) argues that the network approach underwriting the study of business relationships provides a more comprehensive understanding than the simplistic explanation of cooperation as a contractual and legal intercorporate connection, whereas Olkkonen et al. (2000) stress that the aims of the network approach are to make sense of interaction in business markets in which organizations are connected in complex business relationships. Ha˚kansson and Snehota (1995b), in the same way, assert that relationships are interconnected in wider networks that are themselves composed of relationships.

Network Scope Progressing beyond the dyad in studying business relationships brings up the need to define the scope of the network under examination. Any company at any time relates to several actors with whom it maintains different types of interactions, potentially forming relationships. There are a number of

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propositions to define the network scope. Peck, Payne, Christopher, and Clark (1999) propose the model of the Core Firm and its Partnerships, in which the company has interaction with suppliers (supplier partnerships); interaction with customers (customer partnerships); interaction with regulation authorities, competitors, and strategic alliances (external partnerships); and within the same organization with employees, between departments or business units (internal partnerships). Hunt and Morgan (1994) point out the existence of four groups: supplier partnerships, which include goods suppliers and service providers; lateral partnerships, which consist of competitors, nonprofit organizations, and governments; buyer partnerships, comprising final consumers and intermediate customers; and internal partnerships, containing functional departments, employees, and business units. This research focuses on the relationships occurring within the supply chain (i.e., supplier and customer partnerships). Nevertheless, in a network setting, lateral and internal partnerships cannot be ignored. As Anderson et al. (1994) suggest, business networks can be described from the perspective of a focal firm interacting with a focal party, both at the same time connected to other parties. These parties can be other suppliers or customers who directly or indirectly exchange with either of the focal parties the same or different product or service. Each conjunction of two companies forms a dyadic relationship embedded in an extended network of interconnected suppliers and customers. Accordingly, networks are formed by interconnected dyads (Kelley & Thibaut, 1978). This concept implies that networks can extend endlessly, which can make the network gigantic and unintelligible, and therefore not amenable to analysis. Campbell and Wilson (1996) regard networks as an amorphous concept. It is arbitrary to say where a network ends or begins. Ha˚kansson and Snehota (1995c) suggest that the boundaries of a network will always be arbitrarily defined and can change overtime. However, the themes and managerial topics change for different levels in which the network is considered; thus, the use of guidelines to define the scope of analysis is necessary. Mo¨ller and Halinen (1999) propose a conceptualization of networks that identifies four network forms in which the managerial capabilities of a company can be focused: (1) industries as networks – network visioning, in which the focus is on creating valid views of the network and its potential evolution; (2) firms in network – net management, in which the focus is on the company’s capabilities to mobilize and coordinate resources and activities with other actors in the network; (3) relationship portfolios – portfolio management, in which the focus is on the company’s competence to manage portfolios of suppliers and customers; and (4) exchange

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relationships – relationship management, in which the focus is on the company’s competence to handle and evaluate individual exchange relationships. Ford et al. (1996) analyze the effects of one party’s position at the four levels as within the network, on the relationship portfolio, on the relationship, and in the relationship. Ritter and Gemu¨nden (2003) draw on these contributions to propose a framework in which they connect those various levels of network analysis in three: (1) management levels of analysis, what people do at different levels, individual, group, organization, and cluster; (2) interorganizational levels of analysis, processes at different levels, episode, dyad, portfolio, net, and network; and (3) output levels of analysis, what the inputs and processes deliver. Nevertheless, the model is currently at a conceptual stage and does not sufficiently explain the management of business relationships.

Network Structure Ha˚kansson and Ford (2002) define network structure as a combination of nodes related to each other by threads, in which a node represents a business unit, for example, a company acting as a buyer or supplier, the threads being the relationships between them. Interaction between companies develops the thread and thus its strength and the heaviness of the network. The structure of networks is also defined by the degree of connectedness and interdependence between companies. Each company occupies a network position, which depends on others who are part of its network, and the characteristics of the relationships that they maintain. Connectedness No focal relationship can be thought of in isolation. All are affected by episodes occurring within other relationships of the counterpart (Easton, 1992). The degree of connectedness is represented by the dependence that one party has on the exchanges of the other (Cook & Emerson, 1978). The basis of connection in relationships is activity. Activities involve transfers of resources from one group to another. Two companies can connect positively or negatively (Smith & LaageHellman, 1992). Positive or negative connections are influenced by the parties’ perceptions of the activities taking place in the network. These perceptions can change during time. The companies, as well, can be directly or indirectly connected (Anderson et al., 1994). The firm’s identity is based

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on how (positively or negatively), and with whom (directly of indirectly), it connects (Ha˚kansson & Snehota, 1989). Interdependence Resource dependence theory states that organizations acquire resources by interacting with their social environment (Pfeffer & Salancik, 1978). In the same vein, Holmlund and To¨rnroos (1997) stress that although a company might develop some resources internally, most resources are obtained through interaction with other companies. Interdependence between companies can result from the need to generate resources from other companies, from the need to use each other’s skills, the need to acquire some of each other’s ability, or from the wish to develop the company’s own knowledge through interaction (Turnbull et al., 1996). Network Position Ha˚kansson and Johanson (1992) define network position as the role that a company plays with reference to other companies to which it directly or indirectly relates. Network position is determined by the portfolio of relationships that a company maintains. It brings together a series of obligations and rights that result from the resources that the company contributes to the network (Turnbull et al., 1996).

Network Management Drawing on the notions of connectedness, interdependence, and network position, Ha˚kansson and Snehota (1995b) propose a two-dimension model for managing business relationships in networks. They describe business relationships in two dimensions: substance and function. The substance of a relationship concerns what the relationship affects, and the functions of business relationships concern those who are affected. Business relationships have three essential components: actors, activities, and resources. Actors control activities and resources. Activities occur when one or more actors use or create resources. Resources are required for transformation or combination performed by actors. For instance, to put a digital camera on a retailer’s shelf, there will be actors involved at various levels, from the buyer to the manufacturer, through the account manager, and a number of people within and outside the seller’s organization. These actors will perform a series of activities, such as placing orders, dispatching, sending requisitions, and quotations, to mention a few. To perform those activities, it will be

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necessary to assign financial, physical, and human resources. Economic exchanges between actors such as these constitute the links of the network (Axelsson & Easton, 1992). Substance Substance comprises three layers (Ha˚kansson & Snehota, 1995b): (1) activity layer, that is, relationships are built on activities that connect the parties (i.e., activity links); (2) resource layer, that is, the connection of resource elements needed and controlled by two companies forming resource ties; and (3) actor layer in which actors in the network connect forming actor bonds. The relative importance of the three layers affects relationships. Functions Networks perform three different functions: (1) functions for the dyad, which are the effects on the dyad itself; (2) functions for the individual company, which are the effects that the relationship has on each of the two companies; and (3) functions for third parties, which are the effects produced on other relationships. Functions on the dyad are also regarded as primary functions to create value. The activities in the primary function adapt through time to improve efficiency. Parties may also learn from others how to cooperate to enhance mutual benefits. Functions for third parties are secondary functions that cause business relationships to build business networks formed by dyads (Anderson et al., 1994; Kelley & Thibaut, 1978). Network Identity Anderson et al. (1994) argue that the actors involved, the activities performed, and the resources used develop the network identity. It signals to others the characteristics of the firm’s competence, that is, the firm’s capabilities to perform certain activities, and the resources that it owns. The network identity determines to what extent a firm is seen as a potential exchange partner that will add value to the partner’s current activities and network. Anderson et al. describe the network identity of a firm as being attractive or repulsive as an exchange partner. As suggested by Anderson et al. (1994), actors evaluate whether to assign resources and cooperate in network activities by comparing the anticipated effects of their actions on their network identity. The expected outcome is evaluated on the basis of Thibaut and Kelley’s (1959) theory of interpersonal relations and group functioning in which existing levels of outcome, comparison level (CL), are contrasted with an alternative expected outcome of a new or replacement relationship, alternative comparison level

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(CLalt). Two constructs capture the focal relationship connectedness: (1) anticipated constructive or positive effects on network identity, and (2) anticipated deleterious or negative effects on network identity. Anticipated Constructive Effects on Network Identity Anticipated constructive effects on network identity reflect the perception of the focal firm that engaging in an exchange episode will have an advantageous effect on its network identity. Three aspects influence this perception: (a) anticipated resource transferability, or how and where the experiences are transferable; (b) anticipated activity complementarity, or the value of the outcomes in other relationships; and (c) anticipated actor relationship generalizability, or the possibility that cooperation with certain actors may have broader implications with other actors. On this point, Hill (1990) observes that when one firm cooperates with another firm in ways that are visible for other actors, the firm signals its capability of having cooperative relationships. Firms would prefer relationships with companies that indicate anticipated constructive effects on their own network identities. Anticipated Deleterious Effects on Network Identity Anticipated deleterious effects on network identity reflect the perception of the focal firm that engaging in an exchange episode will have negative, damaging, or, otherwise harmful effects on its network identity. Three aspects also influence this perception: (a) anticipated resource particularity, or the potential problem of using resources in more than one relationship; (b) anticipated active irreconcilability, or the difficulty of integrating activities in different relationships; and (c) anticipated actor relationship incompatibility, or the unwanted baggage that may come from engaging in a focal relationship. This should lead firms to avoid relationships with companies that indicate potential negative effects on their own network identity. Engaging in a business relationship has effects not only within the dyad but also on the network identity of the firm. Anticipated constructive effects on network identity and anticipated deleterious effects on network identity are not two ends of a continuum, they are instead two separate constructs that may fluctuate from one relationship to another. This model contributes to understanding the dynamic management of business relationships. A problem can be identified though. A critical supposition that appears to exist is that managers have identified their network position. Campbell and Wilson (1996) posit that managers’ mental conceptualizations of their competitive position extend only to dyadic or triadic relationships but generally not beyond them.

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Relationships on Network Layers Holmlund and To¨rnroos (1997) conceptualize relationships as the core aspect that connects actors, resources, and activities. On that basis, they propose a model of three business network layers and three dimensions of relationships. Network layers are (1) production network layer, formed by a set of identifiable firm actors; (2) resource network layer, formed by identifiable resource actors; and (3) social network layer, formed by connected human actors. Dimensions of relationships are (1) structural, (2) economic, and (3) social. Each of these dimensions contains a number of core features of relationships. The structural dimension holds links, ties, connections, and institutional bonds as core relational concepts; the economic dimension includes investments and economic bonds, and the social dimension includes commitment, trust, atmosphere, attraction, and social bonds. In later work, Holmlund (2001) presents the Dimensions and Domains (D&D) model. This includes three dimensions, technical, social, and economic, and two domains, process and outcome. A combination of dimension and domain provides a space that has its own particular attributes in which the quality of relationships can be assessed. Ford, Gadde, Ha˚kansson, and Snehota (2003) identify three additional perspectives on relationships: (1) the relationship as a device, (2) the relationship as an asset, and (3) the relationship as a problem.

Relationship as a Device According to this view, the supplier’s abilities complement the buyer’s needs and uncertainties or vice versa. As a result, the relationship might be a way to increase efficiency, assist innovation, or be used to influence the way other companies operate. Using relationships as a device to influence customers and suppliers draws on the dependency of one actor upon another, which is a function of two variables: resource utility and resource scarcity. Applying these variables to the exchange relationship between a buyer (firm A) and a supplier (firm B), the buyer’s utility function refers to the extent to which its goal(s) or motivational investment(s) is mediated by the supplier. Logically, the opposite formulation would apply to the supplier’s utility function (Emerson, 1962). On the contrary, the degree of scarcity from the buyer’s perspective relates to the extent to which firm A can achieve its goals outside of the A–B relation. Scarcity is determined by the extent to which there exists a firm C, D, or E that can substitute B in meeting A’s needs.

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Relationship as an Asset Companies can only gain access to each other’s assets through relationships. This turns relationships into the most important asset of a company. Relationships result from the interaction and involvement of the parties. The benefits that might be experienced depend on the degree that the parties are prepared to actively react, adapt, learn, and invest. The five-stage evolutionary model of relationships (Ford, 1980, 1998) views relationships as assets of the organizations. However, as Batonda and Perry (2003) state, the lack of consensus in the problem of whether stages or states theory better describe the evolution of business networks imposes a problem on looking at relationships as an asset because relationship value cannot be easily explained from a states theory perspective. Relationship as a Problem Five aspects can lead a relationship to be a burden to the company (Ha˚kansson & Snehota, 1998): (1) relationships cannot be controlled; (2) the future of relationships is unclear, while their past depends on the interpretation that is given to the interaction; (3) relationships demand time and effort; (4) relationships denote choice, in that preference for one leads to the exclusion of others; and (5) the development of relationships between two parties is an inducement to develop relationships with other parties. A balanced management of the three facets of relationship is particularly important given that all these aspects exist simultaneously.

Network Management Abridged The main trends in the network approach to business relationships’ management are discussed in the previous section. Overall, the review identifies three key characteristics of networks. These are connectedness, interdependence, and network position. Relationships within networks also feature activity links, resource ties, and actor bonds. To define the scope of the network, propositions vary through first-, second-, and third-order functions; network layers; or facets of relationships. Research focusing at features of relationships and the scope of the network together intends to explain the management of business relationships in network contexts. The previously appointed perspectives of relationships are in general focused on the structure of relationship. Their contribution works to provide relationship snapshots, but this tells little about the processes by which such

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structure takes place, which raises the first research question: How can the dynamics of business-to-business relationships be described and explained?

Relationships as Social Constructions Among the contributions to the network approach, a number of authors view business relationships as social constructions that result from the effects of particular acts occurring in the ongoing interaction between two or more parties, their past experiences, their perception of the present situation, and their expectations of the future (Alajoutsija¨rvi, Mo¨ller, & Ta¨htinen, 2000; Ford et al., 1996; Ha˚kansson & Ford, 2002; Ha˚kansson & Snehota, 1995c). Ford and McDowell (1999) suggest that actions have effects that result from the evaluation performed by participants. Some of these effects may be valued positively and others negatively. They observe that managers behave in a particular way in a relationship, seeking to achieve specific effects. Some effects of their acts are intended and foreseen, whereas others are neither foreseen nor intended. Managers appear to be influenced by the current state of the relationship and the possible effects that relationship actions would have on the wider network in which the company functions. In other work, Ford et al. (1996) suggests that interaction within a relationship is influenced by the relationship state, the previous experiences of the participants, the effects of the acts that participants in the relationship can predict, their personal beliefs, and the value that participants consider relationships have on the overall business performance. However, Batonda and Perry (2003) warn about the complexity of the process that makes the outcomes difficult to predict. The development of relationships is reflected in the features that such relationships acquire. Ha˚kansson and Snehota (1995a) propose that when two related actors mutually acquire meaning in their reciprocal acts and interpretations, bonds start to form. Just as the role of relationships in the evaluation and comprehension of messages in personal settings is considerable, so it is in business contexts (Duck, 1976). Actors are a product of their bonds, while their actions develop bonds. Actors transfer from other relationships norms and rules of behavior that are generated in past experiences and socialization. Thus, their interpretations of the other’s acts are influenced by their position in the network. Ford et al. (1996) state that companies gain knowledge of methods and procedures (including knowledge of each other’s behavior), thus building up the broader context within which relationships occur. Individuals participate in episodes drawing on

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the norms and rules of behavior that they construe from previous experiences within the relationship and elsewhere. Ha˚kansson and Ford (2002) suggest five factors that influence the actors’ reactions, and therefore relationship development: (1) previous acts that have happened within the relationship, (2) knowledge that the parties gain through other relationships, (3) current episodes within the relationship and in other relationships the parties are involved in, (4) expectations of the parties regarding the future, and (5) episodes occurring in the extended network in which the parties are not directly involved. Interactions between companies are a series of acts and counteracts that affect the parties’ behaviors while creating interdependency. The outcome of the interaction depends not only on the performed acts but also on the previous actions and reactions of third parties connected to the dyad (Ha˚kansson & Snehota, 1995b). This formulation indicates that business relationships embedded in networks develop as a result of reciprocal acts that parties figure out and coordinate, not only on the basis of the current state of the dyadic relationship but also on their past experiences inside an extended network, as well as in relation to their expectations of the future. Mo¨ller and Wilson (1995) regard coordination as the creation of control mechanisms that facilitate exchange processes. It can be argued that such mechanisms will widely differ from relationship to relationship on account of the several factors that appear to operate within business relationships. Communication There is a connection between these views of the development of relationships and the role that communication plays in them. Duck (1976) proposes that business relationships evolve as a result of interpersonal communication in a particular context. Olkkonen et al. (2000) argue that business networks evolve as a result of interpersonal communication within dyads. Communication flows in cognitive and communicative processes through structures formed by collective actors. The communication processes affect the features of the relationship and the structure of the network while being influenced by the network structure as well as by the relationship. Anderson and Narus (1990) regard communication as the sharing of meaningful information between two firms, whether formal or informal. Alajoutsija¨rvi et al. (2000), drawing on the work of Key (1980), take a more broad meaning of the concept stating that communication comprises all the forms of contact, including written and verbal communication, and interaction. Alajoutsija¨rvi et al. also regard silence as communicative because parties can give meaning to it.

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Olkkonen et al. (2000) develop a conceptual model for understanding the role of communication in business networks. Olkkonen et al. call ‘‘acts’’ the string of interactions, which, with ‘‘episodes,’’ represent the content of exchange. The meaning to the interaction is given within contextual considerations in which relationships, the connected network, and the macro environment are included. Performance, bonds, and atmosphere represent the outcomes of such communication. This model presents a framework that views relationships as dynamic and socially constructed, in which the meaning of exchanged communication, in its broadest sense, is given in the context of the relationship. Such meaning-filled communication promotes the development of the relationship. In the service marketing arena, Liljander and Strandvik (1996) follow the same trail proposing that a relationship is composed of a number of episodes. Episodes are sets of interactions that are reliant on the participants’ judgment. All in all, this social constructionist slant opens a new edge for research in which both relationship substance and functions can take on different forms subject to the network participants’ judgment, the current nature of the relationship, and the expectations of future interaction, which brings up the second research question: How are action and reaction coordinated? Following this stream of thought, in the next section, rules theory provides an appropriate methodology for understanding intercompany interaction, as if the parties apply sets of rules that give meaning and guide action.

RULES THEORY Rules theory offers an interpretive framework for understanding and assigning meaning to others’ actions. W. Barnett Pearce, Vernon E. Cronen, and Linda M. Harris introduced the theory of rules in the late 1970s based on their observations that language creates, confirms, and potentially changes the social environment in which people participate. They go further to state that people create their social world in language. Rules theory adopts a social constructionist perspective grounded in the language philosophy of the German philosopher Ludwig Wittgenstein, in systems theory, and in logical algebra. Pearce and Cronen (1980) and later Cronen, Pearce, and Harris (1982a) delineate the theory of Coordinated Management of Meaning (CMM). Rose (1988) calls it the Coordinated Management of Meaning Theory of Rules, and Buttle (1998) Rules theory, both portraying the same theory. This paper calls it rules theory. The next section presents the most relevant

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aspects of the theory that relate to this research with the necessary changes to apply rules theory to the business-to-business relationships arena.

Definition Cronen et al. (1982a) and Pearce and Cronen (1980) define management of meaning in terms of interpersonal rules for meaning and action. People process and make meaning from the actions of others, which leads to further actions. Meaning and action are interpreted within and among several hierarchical levels. Rose (1988) asserts that the Coordinated Management of Meaning Theory of Rules focuses on context and the active interaction between meaning and episodes. In their elucidation of the theory, Pearce and Cronen (1980) use a theatrical metaphor. They suggest that a play is like a large space picture with indistinct and distant boundaries composed of clusters, which may be isolated, contiguous, lightened, or in darkness. For a person observing from outside, a mixture of clusters as such seems to be a senseless combination of incompatible materials. This picture also contains people who know it is important to be part of the play but they do not know what play is being produced. Moreover, the play does not have a director. In this environment, each conversation is a complex interconnected series of events where each participant is affected by and affects the others. A business network is like the director-less play, in that the clusters may be companies or departments within the companies which may appear to be isolated but do not work in isolation, they are always part of a network. The actors are people working for those companies. They may understand the relevance of the play but some of them do not know what play is being produced either. In these circumstances, for a network to operate, participants need to give meaning and understand each others’ actions. Otherwise interaction, like in the theatrical metaphor, will result in a senseless combination of incompatible materials, the expected outcome of which will be far from satisfactory to the parts.

Fundamentals From a social constructionist view, rules theory helps people outside a system understanding meaning and action of people within a system. It does so by detailing the processes that those people use to describe the world in which they live (Buttle, 1998). From the perspective of

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understanding business relationships, it should help not only the researcher but also the actors in the system to comprehend the meaning of their own actions and their consequences. Rules theory differentiates between two aspects of the communication process: structure and action. Structure organizes meaning and acts; the sequence of jointly produced behaviors are called actions. Structure and action are in constant emergence and tension. The structure and action of two or more persons constitute a system (Cronen, Pearce, & Tomm, 1985). For rules theory, persons are embedded in multiple open systems, in which constructs of social reality are built up through communication exchange and ongoing episodes between the parties. Rules theory also acknowledges the relevance of persons as individuals and their personal biographies. This view of being whole and part at the same time has grounds in Koestler’s (1967) concept of holon derived from the Greek holos, whole, and the suffix -on, part. Rules theory conceives persons as holons within larger interpersonal systems. Owing to its grounding on language philosophy and mathematical parentage, rules theory is a means to see some of the structures in which all creation hangs together, a key to a world beyond ordinary description. As Spencer-Brown (1972) stresses, mathematical sciences attempt to reveal certain facts about common experience or perceptions from the inside world to the world outside. Wheeler (1998), drawing on the work of Pearce (1989), states that rules theory relies on three basic processes in interaction: coherence, which depicts how meaning is accomplished; coordination, which acknowledges the existence of rules that people’s behavior follows; and mystery, which portrays feelings or other experiences that, although not expressed, contribute to the interaction. In other words, stories told, stories lived, and stories unexpressed. For the purposes of this research, three elements can be used to summarize rules theory: (1) the levels of context, which provide the frames of reference for understanding the meanings of action; (2) the rules that appear to apply for the interpretation and further action; and (3) the consequences or outcomes of the interpretation and reaction in the system, (i.e., reinforcement or adjustment).

Hierarchical Levels of Context The interpretation of an expression depends on the context of its performance. The speaker cannot know the hearer’s interpretation; the speaker

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can only interpret the hearer’s response. Cronen, Johnson, and Lannamann (1982b) stress the level of agreement achieved among scholars in accepting that a message is given meaning by reference to the context in which it appears. In the same way in giving meaning to interaction in business relationships, the context in which the interaction is produced needs to be taken into consideration. Business-to-business relationships are the result of dyadic interlinked events and episodes embedded in complex networks. The social reality of business relationships is dynamically constructed through multiple events and exchanges of reciprocal messages between two or more companies embedded in multiple interacting systems. Such exchanges provide at the same time the context for interpretation and the meaning to the interaction. While managing relationships, the interpretation of one party’s behavior may differ depending on the context in which meaning is given, conditioning the reaction of the other party. Acts and episodes acquire meaning according to the different hierarchically ordered levels of context within the social reality being described. Social meanings are hierarchically organized in a way that one level is a context for interpreting another. There is mutual interdependence between hierarchical levels of context. One level of context can be understood by reference to another higher level of context. Meaning of actions varies according to the context where the interpretation was made. Actions may be interpreted at various levels of context. The hierarchical levels of context depend on the interactional settings. The number and nature of embedded levels of context is not fixed but depends on the nature of the interaction being studied. The levels of context exist only while social systems are in interaction (Buttle, 1998; Cronen et al., 1985; Pearce, 1989). Literature on rules theory, whether theoretical or applied, mentions from four to seven levels of context adjusting both the number and the categorization to the specific application. A list of the names given to hierarchically organized levels of context, from basic to complex, is taken from Buttle (1994, 1998), Cronen (2001), Cronen et al. (1982b, 1982a), Cronen et al. (1985), Harris (1980), Pearce and Cronen (1980), and Pearce and Pearce (2000), resulting in the following 15: Raw sensory data, Content, Constructions, Constructions Systems, Speech Acts, Episodes, Master Contracts, Relationships, Life-Scripts, Autobiography, Self, Family Myth, Archetypes, Cultural Patterns, and Truth. Grouping the contexts, explicating seven is possible, which, once adapted to the businessto-business relationships arena, would be eight. This is indeed an ideal representation that sides with the reasons Cronen et al. (1982a, p. 72)

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suggest, as not all the levels of context are always necessary for analyzing the meaning of one particular message exchange, in that ‘‘[t]he model as presented makes hierarchical relationships isomorphic with part-whole relationships.’’ To explain the hierarchical levels of context, the general definition of each level of context is presented first, immediately followed by the corresponding one proposed for the business arena. Raw Sensory Data – Customer Value Proposition This category denotes the visual, auditory, olfactory, and other sensoryrelated stimuli that a person interprets through images, sounds, smells, colors, and other stimuli. These stimuli do not represent a level of context in the strict sense of the expression but serve as raw data for communication and further interaction. Customer value proposition, likewise, is what the company declares it can provide to customers. As with raw sensory data, the service promise denotes the basic offer a company presents for a person in any other company to interpret. The customer value proposition comprises the declarations a company gives with reference to the service or product it can deliver to the market. Unless interaction with another company occurs, these stimuli only serve as raw data for further interaction. For instance, a company may send a sales leaflet to advertise a new product that it is launching; details regarding the product features, price, delivery conditions, and guarantee may be included. Unless somebody takes note of the leaflet, it does not have any meaning. Content – Processes of the Customer Value Proposition The content of a stimulus is how it is first interpreted. It provides an initial understanding of what the stimulus refers to; it occurs at the referential cognitive processes level by which people organize and interpret the world. For the business relationships perspective, processes provide the content of the stimuli. Processes offer the basic reference by which a company organizes its resources, whether to deliver its service promise or to interpret the business world. Processes are part of the customer value proposition. They include the means that a company has to enable their customers and suppliers to interact with it. For instance, processes define how orders are taken and managed, how the order status is communicated, how the roles of different people in the organization are defined, what the politics of customer and supplier segmentation are, and what the processes for payment and collection are, to mention a few. The appropriate sets of

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processes are a very basic condition for the coherence of interaction. The customer value proposition, with its correspondent processes, provides the ground for long-term interaction. Speech Acts – Acts or Interactions Content acquires more meaning when the stimuli are referred to the person who produces them and his/her communication style and relationship with the stimuli receiver. A speech act is what a person does to another by saying something. The words uttered perform an action. What people do through communication include making threats, making promises, informing, advising, insulting, giving compliments, rejecting, among others. These acts are interpreted as an interpersonal exchange of meanings. Acts or interactions are equivalent to speech acts in the perspective of business relationships. They can be defined as what a company does to another to exchange services or products, whether it is the buyer or the seller. Acts are the processes at work. Acts or interactions include, for example, requisitions, quotations, questions, technical advice, notices of delivery, reports, receipt acknowledgments, communication of problems, complaints, and rejections. Whether started by a company or its business counterpart, both verbal and nonverbal messages count as acts. A connection is established here with Key’s (1980) broader approach to communication, previously mentioned in this section. Episodes A number of reciprocated acts taking place over time constitute an episode. Episodes are groups of acts contextualized hierarchically and temporally as wholes, which are at least nameable by subject matter. Episodes are bounded sequences of acts, with a beginning, an internal structure, and an end. An episode is a sequence of interactions that form a unit. In the business arena, episodes are deemed as sets of reciprocated interactions between companies, which are nameable by subject matter. Examples of episodes are a purchase order, a perfect order (which is delivery on time, in full, with the right quantities, in the right place, with the right documentation), price, quality, a late delivery, a lost order, or a money collection, to name a few. The same episode may have a different number of interactions, for different customers or different circumstances. Master Contracts – Relationships Rules theory literature does not make any specific distinction between contract and relationship, as many business relationships do. For the

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purpose of explaining the model, both contracts and relationships concepts are classified together in this section. However, later, for research purposes, they are separated. Contracts determine what one person may expect from others in a specific episode. They define the attributes of people’s relationships, how and on what terms two or more persons engage. This contract works like legal contracts do. Four aspects of contracts count: (1) boundaries, which delimit the difference between one and others; (2) repertoires, which list the collection of legitimate events within the contract; (3) valence, that is, the value of the relationship compared with an alternative option; and (4) enmeshment, which denotes the grade of a person’s linkage within the network. A contract may be defined by identifying the episodes it obligates, legitimates, and prohibits and the acts enabled by such episodes. A relationships level of context defines the collective we within the system. As previously stated, contract and relationships are levels of context that can be differentiated within the business relationships arena. The difference does not rely on a transactional or relational view of the exchange. It relies, instead, in the matter that for contracts, the exchange, although relational, is kept at ACR. Conversely, for relationships, the exchange is considered as OCR. The last type of exchange, which provides the grounds for a relationship level of context, also contains goodwill trust, a concept suggested by Sako (1992), which is mentioned in an earlier section. However, it is partially discussed in the section below to explain both levels of context: contract and relationships.

Contract When business exchange is kept at ACR, the meaning of acts is given using what is written in a contract. That is, the ‘‘contract’’ level of context takes priority. The contract has to predict all possible types of episodes and in written language states the collection of rules that govern business exchange. If the contract could not anticipate a specific episode, other levels of context would be necessary for meaning definition and guiding action. Many business relationships are intended to operate at arm’s length. The main reason for that is efficiency. Not every supplier or buyer deserves the necessary investments in time and effort to build a relationship. Moreover, if the exchange is simple enough, a contract may govern the parties’ actions. For instance, a company required to provide certain product or service can have an explicit document establishing that after the goods are in the customer’s warehouse, the subsequent act is to send the bill and be paid.

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However, if an episode is beyond the scope of the contract, a higher level of context is required. This could be the role of a relationships level of context. Relationships Contracts cannot anticipate all the episodes that take place in business exchange. Thus, the contract level of context has limited capability to provide meaning and guide the subsequent act to each and every possible episode in ongoing business exchange. Relationship is a higher level of context that deals with the issues beyond the contract’s scope. A relationship can be said to exist when trading partners possess a moral commitment to maintain a trading relationship and when the business counterpart is not likely to take unfair advantage at any available opportunity. That is goodwill trust (Sako, 1992). At this level of context, many episodes of business might be given meaning. The features of business relationships vary from one company to another and even within the same company, depending on the business counterpart. They also change through time as a result of the ongoing episodes occurring between the two companies. Thus, using rules theory to analyze the dynamics of interaction requires noting the features of the relationship as perceived by the parties. Life Script This level of context defines the group of episodes the person expects to participate in, that a person identifies with him or herself. The life script context reflects the person’s conception of self in social interaction, those interactive situations that are consistent with the recognition of the person as is or as it would be. Life script is constructed through participation in several relationships, which are made from episodes and interactions, the cluster of episodes defined by the person as those where he/she would participate. Within the business perspective, life script is the level of context that defines the individual’s beliefs about his/her role in the organization, inseparable from private experiences and social life. The individual thus evaluates the acts within the organization in the context of his/her life script. Company Character This level of context articulates the norms and values that a company embraces. Whether explicit or implicit, norms and values represent a collection of regulations that oversee people’s behavior within an organization and provide the grounds for giving meaning to the different acts that occur while

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trading with other companies. Among the norms and values are respect for people, the importance given to the customer, the company’s role within the community, the company’s policy toward the environment, suppliers, employees’ welfare, the government and legislation, and taxes, among others. As companies are formed by groups of individuals, the aggregated individuals’ life scripts give shape to the company character. The company character is given by the company’s self-definition as an entity, which should reflect the identity of the company to the market. Archetypes – Industrial Sector Archetypes describe the highest level of the hierarchy, the common ground of a group of people’s thinking and interpretation. These are high-order conceptions of how society, industry and commerce, personal roles, and relationships work. Archetypes create the rules that govern the communication considered normal in a particular episode; they legitimize ways of knowing and ways of acting. For business relationships, the industrial sector is the highest level of context, which includes the acceptable and unacceptable practices among the group of companies in certain industrial sector. This archetype transcends the boundaries of the organization and regulates its operation. It might work as an umbrella under which the arrangements of norms prevail for any trading act. Some norms are explicit, like the laws and regulations, at local or international level, and some norms are implicit like a generally accepted practice among entrepreneurial groups, which are not necessarily written. It should be noted that a company’s position concerning an archetype is made manifest through its character. The general structure of the hierarchically organized levels of context in which acts in business-to-business exchange could be performed is ideally depicted in the following six: episodes, contracts, relationships, life script, company character, and industrial sector. Table 1 presents a comparison of the generally used levels of context in previous development of the theory and its applications. No specific network level of context is proposed because each of the proposed levels of context for describing the dynamics of business relationships has an implicit network perspective. For instance, the industrial sector level of context includes all the firms that belong to the sector, as well as the other parties with whom they interact, whether they are individuals or organizations. The company character level of context has a network perspective as well because it is formed by all the parties related to a company. The same holds good for life scripts, hence for relationships and

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Table 1.

A Comparison for Hierarchically Organized Levels of Context.

Rules Theory Levels of Context

Business-to-Business Relationships Equivalents

Archetypes Life scripts

Industrial sector Company character Life script Relationships Contract Episodes Acts or interactions Customer value proposition

Master contracts Episodes Speech acts Content Raw sensory data

n4 Company Characters n3 Relationships = Company Character n2 Episodes = Relationship n1 Acts = Episode

Fig. 2.

= Industrial Sector

Aggregate Character of Hierarchical Levels of Context.

even for contracts because they may include norms and regulations established by other organizations. The construction of different levels of context can be regarded as the aggregation of acts into episodes, episodes into relationships, relationships into company characters, and finally a group of company characters should form the industrial sector. Fig. 2 shows this idea. The levels of context give meaning to the acts performed between companies but are at the same time the result of the companies’ interaction. Thus, the more interaction, the more the levels of context that can provide meaning to those interactions and therefore the more complex the rules that operate in business exchange. This does not imply that two companies construct relationships only for the reason of being involved in continuous interaction. The only implication of Fig. 2 is in relation to the complexity a relationship may entail with the creation of more levels of context. Fig. 3 schematically represents the potential levels of context that are encountered in business-to-business interaction. Once the hierarchical levels of context are identified and defined, the focus should turn to the definition of the logical operators and symbols to represent the meaning of events through different levels of context.

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SERGIO BIGGEMANN Industrial Sector Company Character Life Script Relationships Contract Episodes Acts

Fig. 3.

Schematic Representation of Hierarchical Levels of Context.

Logical Operators Rules theory uses five logical operators. However, Aristotelian logic is not strictly applied. Cronen et al. (1982b, p. 95) assert that ‘‘[t]he hierarchical concept breaks with Aristotle’s principle that an entity must be either A or not A. In a hierarchically organized set of meanings, a message can be A or not A depending upon the context in which it appears.’’ Pearce and Cronen (1980) also emphasize rules theory’s separation from Aristotelian logic for the following reasons: (1) the irrelevance of truth, (2) the necessity of including hierarchical relationships, (3) the necessity of including an operator, and (4) the importance of representing entailment as having variable strength. Rules theory borrows symbols from Spencer-Brown (1972) and Varela (1975). Both assert that reflexive relationships are better comprehended as actions through time. Disjunctive Operator Disjunctive operator, , or ‘‘if y then,’’ expresses a sense of sequential entailment of actions. Count as Operator The count as operator, -, denotes a meaningful definition. One meaning is equivalent to another. Hierarchical Operator The hierarchical operator : is read ‘‘in the context of.’’ X Y

Means Y in the context of X

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Autonomous Operator The autonomous operator lization:

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is read ‘‘and’’ denoting reciprocal contextuaX Y

X Y

and

Y X

The autonomous operator permits to establish relations, which are intrinsically paradoxical in traditional logic, avoiding paradox. Deontic Operators Deontic operators, denote degrees of ‘‘oughtness.’’ An interpreted action entails certain subsequent actions that can be deemed obligatory, legitimate, irrelevant, and prohibited. They describe the nature of entailment and provide the elements necessary to represent regulative and constitutive rules. c O

exclusive disjunction read ‘‘and or’’

 B

read ‘‘if and only if ’’ negation

Coordination For an outside observer, the metaphor of the director-less play is sufficient to initiate an enquiry. However, the play also needs analysis and the meaning understood (Pearce & Cronen, 1980). Business relationships are in the same ground; the sole recognition of being part of complex networks is insufficient in interpreting the meaning of particular episodes of building relationships among the companies embedded in those networks. Each system has its own set of rules used to interpret the actions of others and therefore to respond accordingly. Members of the system in interaction create the rules. Pearce and Cronen emphasize that the linkages among meanings, between and within different hierarchical levels, are represented by rules that describe how people process information. Various actors produce a referent of a rule as a social norm. Harris (1980) claims that the individuals’ rules for meaning and action provide the grounds for the emergence of construals from particular events. Coordination means that ‘‘conversational participants are able to enact message behaviours that make sense to each other y and that they also feel that what is occurring is within their control’’ (Rose, 1988, p. 145). The process of coordination is explainable as follows: Assume two people are

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exchanging messages; they take turns sending and interpreting messages. Message is used in a broad sense; it may take the form of verbal conversation, written communication, facial expression, and expected and unexpected signals, to mention a few. During the message exchange process, each person produces messages according to his/her rules and in response to preceding messages, continuously monitoring the sequence of messages (speech acts), asking these questions: What are we doing? Who is controlling what are we doing? Do I like what are we doing? The answers to these questions are reflected in three terms: coherence, control, and valence (Pearce & Cronen, 1980). Coherence may take four forms: mutual incoherence, unilateral coherence, coordination or symmetrical coherence, and asymmetrical coherence. In a coordinated conversation, the interpretation of one person’s speech act is robust enough to guide subsequent acts. Thus, the sequence of messages makes sense. More often than not communicators act as if they have access to the recipient’s meaning, which typically does not happen, deliberately inducing coherence in the other person involving a different interpretation of his/her own. Control is the level of a person’s ability to affect the ongoing sequences of conjoint behaviors in which they participate. Valence describes the person’s evaluation of the emerging episode.

Rules Participants in a conversation or interaction, whether it is in a personal or business setting, need to be able to perform message behaviors that make sense to each other (Rose, 1988). For an external observer, conversational participants coordinate their acts as if they are applying a set of rules that give meaning to the other’s act while guiding their own responses. Members of the system in interaction create the rules; rules are not required to be explicit but instead organize an actor’s cognition and exist in the actor’s head. Two types of rules are used as a conceptual device to describe how people process information and the way they structure their social reality: constitutive rules (cR) and regulative rules (rR). Constitutive Rules Constitutive rules are rules of meaning that describe how sensory inputs count as meanings and how meaning at one level of context counts as meaning at another level (Pearce & Cronen, 1980). Hierarchical levels of

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cR = Where:

Fig. 4.

MC k A ⊃ [ MC i → MC j ]

cR A MC i, j, k → ⊃

213

= Constitutive Rule = Antecedent Condition = Meaningful Construction = Levels of abstraction = Read “Count as” = Read “In the context of” = Read “if … then”

Primitive Form of a Constitutive Rule. Source: Pearce and Cronen (1980).

context are integrated by constitutive rules that show how meaning at one level counts as meaning at another level with regard to a context higher than both. An example of a constitutive rule could be in the context of relationships (the context of performance): if one party gives information (antecedent condition), then the act of sharing information (act) counts as being committed to keep the relationship working (meaning). Fig. 4 algebracizes the primitive form of a constitutive rule. Regulative Rules Regulative rules describe the process by which particular acts are felt appropriate and guide action. An interpreted action entails certain subsequent actions that are deemed obligatory, legitimate, irrelevant, or prohibited; these are deontic operators, which denote degrees of ‘‘oughtness’’ in the parties’ subsequent actions. ‘‘Regulative rules are cognitive reorganisations of constitutive rules’’ (Cronen et al., 1982a, p. 75). An example of a regulative rule could be in the context of contract (the context of performance): if an order is delivered in full on time (antecedent condition), it is obligatory (deontic operator) to pay the bill (consequent condition). Fig. 5 algebracizes the primitive form of a regulative rule. For each level of context, particular rules apply giving different meanings to particular acts as well. For instance, a constitutive rule may be as follows. In the contract level of context, delivering with delay counts as a noncompliance deal, and therefore, the respective regulative rule may say if the supplier delivers with delay, then a contract termination is obligatory to avoid further problems. The same act, for a supplier whose acts are given meaning in the context of relationships, may have the following constitutive rule. In the relationships level of context, delivering with delay counts as the supplier having had a problem, and therefore, the respective regulative rule may say if the supplier delivers with delay, then a review of processes is

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rR = Where:

Actn i [ A ⊃ ( Do (Actn j ))1 − n] ⊃ C

rR A Do ⊃ Actn i Actn j C

Fig. 5.

= Regulative Rule = Antecedent Condition = Deontic Operator (obligatory, legitimate, prohibited, irrelevant) = Read “if … then” = Read as “Action.” A class term for specific act(s) or extended episode(s). = Meaningful construction of social action at a level of abstraction j higher than level i. = Consequent Conditions

Primitive Form of a Regulative Rule. Source: Pearce and Cronen (1980).

legitimate to avoid further problems. Clearly, the same act if analysis is done in two different levels of context is given different meanings and results in two different subsequent actions, both with the same objective. A company operating in the context of contracts may lose the customer; instead, for a company operating in the context of relationships, the same act may even represent an opportunity for improvement.

Logical Force The structure of regulative rules governs the mechanism by which persons become part of an interpersonal system. At any moment when a person performs an act, the act stands between an antecedent and consequent episode, both performed by other persons and hierarchically contextualized. Later on, this act becomes an antecedent for future acts or a consequent for other people’s acts. Hence, individuals do not act in isolated systems but in interconnected networks. For each person, interpretations of acts are appropriate given his/her own constitutive and regulative rules, and each subsequent act connects with the other person’s rules as the antecedent or the consequent act for that person’s subsequent acts. Each person can be visualized as an organized cluster with his/her own constitutive and regulative rules, who may interpret other persons’ acts and translate their meanings into feelings of obligation to perform acts on their own. An antecedent condition is called prefigurative force and a consequent condition is called practical force. Every act connects to an antecedent condition and to a consequent condition. The strength of the connection

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and the range of legitimate acts determine the explanation for a person’s act. The range of acts a person perceives as legitimate may vary from ‘‘no legitimate act’’ available to ‘‘many.’’ However, in most of the cases, the person may feel obliged to perform a particular act from a specific array of acts. Acts are also connected to each level of context. Those connections may be causal or purposive, depending on whether a prefigurative or practical force is dominant. The strength of the connection varies depending on the level of context as well. With the temporal extension of the episode, the strength of the linkage changes. This enables the meaning to change depending on the level of context. Also, early events or acts may constitute rules later on. For instance, early declarations of one of the parties may condition his/her behavior later thus limiting the range of legitimate options. If only one actor operates with temporally extended rules, an asymmetry of power is present. This applies for both constitutive and regulative rules. Prefigurative Logical Force This force links an act to prior elements of the rules that exist before the act. The connection between the act and the antecedent condition determines a person’s perception of how important the cause of a preceding event of action is for a particular act. When this linkage is strong, the person perceives acts as caused by previous events. A person asked to explain a particular act would answer, ‘‘I did that because of y’’ which means that people’s acts are determined by the events around them. A person acts ‘‘because of y’’ when a prefigurative force prevails. For instance, in a business interaction, a buyer may cancel an order because of the permanent delays the supplier is incurring. Practical Logical Force This force links an act to elements of the rules that determine the subsequent results after the act. The act is purposive and necessary to produce a particular subsequent event. In this case, a person performs an act ‘‘in order to’’ produce something. For instance, a supplier sends a report of exception to alert the buyer of possible delays and avoid problems later. Logical forces act in a manner that if the strength of the prefigurative force is such that it disqualifies any practical force, people are either compelled or prohibited to act ‘‘because of’’ the preceding events, or, instead if the strength of the practical force is such that it precludes any prefigurative force, people are either compelled or prohibited to act

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SERGIO BIGGEMANN Industrial Sector Company Character Life Script Relationships Contract Contextual Force

In Order to

Because of Preceding episodes

Prefigurative force

Implicative Force

Episode

Act

Practical force

Anticipated episodes

Source: Original inspired by Pearce (1989)

Fig. 6.

Logical Forces in Business Interaction. Source: Original inspired by Pearce (1989).

‘‘in order to’’ achieve a particular outcome. Pearce (1989) extends the model by adding the concepts of contextual and implicative force. Fig. 6 is a synopsis of the model. Prefigurative force is the sense of obligation that derives from episodes that occur before one acts: ‘‘Why did you do that?’’ ‘‘Because of y’’ Practical force is the sense of obligation that derives from episodes expected to occur after one acts: ‘‘Why did you do that?’’ ‘‘In order to y’’ Contextual force is the sense of obligation that derives from definitions of self, other, relationship, situation, and other factors that one brings into the situation: ‘‘Why did you do that?’’ ‘‘Because a person like me in a situation like this must do that.’’ A buyer may report, ‘‘I insisted on being given a discount because for a company like us it is easy to find another supplier.’’ Implicative force is the sense of obligation that derives from the perceived anticipated effects that one’s action will have on the definitions of self, other, relationship, situation, and the like: ‘‘Why did you do that?’’ ‘‘Because I wanted to redefine my relationship with him.’’ A supplier may report, ‘‘I have sent a free replacement because that should improve our relationship with them.’’

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Reflexivity When the implicative and the contextual forces are equal, the message and the level of context swap over and a reflexive loop forms. Two or more levels of context are reflexively connected. The levels of contexts are regarded as embedded because one may be the perspective through which the other is understood. Sometimes two levels of context can change positions in the hierarchy in a way that one may be the level of context of the other and vice versa; this is called reciprocal embeddedness, reflexivity, or paradox. For instance, in business exchange, interactions are given meaning in the relationships level of context, but it may also happen that the relationship is given meaning in the context of the episodes occurring. When the meaning of a message changes depending on which level of context counts as higher, the message recipient becomes confused and therefore a reflexive loop is formed. It is symbolized:

Reflexivity exists when ‘‘by moving upwards (or downwards) through the levels of some hierarchical system, we unexpectedly find ourselves right back where we started’’ (Hofstadter, 1979, p. 10). Charmed Loop If no changes of interpretation occur regardless of which level of context is regarded as higher and which as lower, then the loop is self-confirming, called a charmed loop and symbolized: 

Charmed Loop

Strange Loop Sometimes, changing the hierarchy of two levels of context leads not only to different but also to contradictory interpretations. This is paradox or strange loop and is symbolized: s

Strange Loop

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A strange loop is one where two levels of meaning cannot exchange hierarchical position without changing the meaning of one of them. Some strange loops produce adverse personal, social, and organizational consequences. Consequences of Strange Loops If any particular event represents a strange loop in the context of social action, confusion over the interpretation and the choices of appropriate action arises. The appropriateness of acts and intended consequences also depend on different interpretations of the event. An appropriate question in analyzing strange loops is how many levels of context are involved. The more the number of levels involved, the higher the degree of reflexivity, and therefore, the more radical the changes required to readapt the system. Moreover, the absence of an appropriate strategy to deal with strange loops allows the confusion to continue. An example of a strange loop and its consequences may be as follows: A person in a company is assessed in terms of how much profits he/she generates in dealing with a particular customer; therefore, in the context of his/her role definition, acting opportunistically counts as accomplishing his/her obligations. The opposite means not fulfilling the terms of his/her working contract. However, the company is committed to building a longterm relationship with the customer, thus, in the relationships level of context, opportunistic behavior counts as deceiving the counterpart. Therefore, the system enters into paradox, the relationship is not given meaning in the context of such episode and the parties are confused. As a consequence, the customer may decide whether to bring this paradox to the attention of the supplier or to switch to a competitor. Stories like this are encountered all the time in business exchange, typically with unwanted outcomes. Cronen et al. (1982b) propose that hierarchically organized levels of context commonly have certain degree of reflexivity.

Rules Theory in Brief By applying rules theory, analyzing the meaning that participants in an interaction give to the actions of others is possible. For that purpose, different levels of context are taken into consideration. The number and definition of the levels of context depend on the nature of the interaction under study. For a coordinated interaction, constitutive and regulative rules determine whether to enable or to preclude subsequent acts. Rules theory

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also recognizes that the acts occur ‘‘because of’’ an antecedent condition or ‘‘in order to’’ achieve certain outcomes; these are called prefigurative and practical logical forces. However, when both forces are of the same magnitude, a reflexive loop is formed. If the reflexive loop confirms the rule of action, it is a charmed loop and it reinforces the system. When it creates confusion it is a strange loop, which could potentially redefine the system. Table 2 summarizes key concepts of rules theory. The concepts and functions of rules theory provide a broad basis to explain how business-to-business relationships are managed in the context of the supply chain. They may also provide an appropriate tool for resolving practical problems, specifically in planning and monitoring the management of a relationship, to achieve better results in delivering value to the market. Table 2. 1.

2.

3.

4.

5.

Key Concepts of Rules Theory.

The exchange of expressions (acts) builds the context for interpretation and gives the meaning to the interaction Acts and episodes acquire and create meaning according to different hierarchically ordered levels of context of the social reality being described For an external observer, conversational participants coordinate their acts as if they are applying a set of rules that give meaning to the other’s acts while guiding their own responses Constitutive rules (cR) describe the meaning of a particular act, given a level of context Regulative rules (rR) describe the process by which particular acts are felt appropriate and guide action. An interpreted action entails certain subsequent actions that can be deemed obligatory, legitimate, irrelevant, or prohibited; these are deontic operators, which denote degrees of ‘‘oughtness’’ in the parties’ subsequent actions

Source: Biggemann and Buttle (2004).

6.

7.

8.

9. 10.

At any moment, when a person is performing an act, it stands between a preceding and consequent episode both performed by other persons. A preceding condition is called prefigurative force; a consequent condition is called practical force A prefigurative force is the sense of obligation that derives from episodes that occur before one acts. Why did you do that? ‘‘Because of y’’ Within the levels of context, this is a contextual force A practical force is the sense of obligation that derives from episodes expected to occur after one acts. Why did you do that? ‘‘In order to y’’ Within the levels of context, this is an implicative force Two or more levels of context are reflexively connected Two types of reflexive loops have been identified, charmed or selfconfirming loops, and strange loops in which changing the hierarchy of two levels of context leads to different and contradictory interpretations

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LITERATURE REVIEW IN SUM This section presents a review of business-to-business contemporary knowledge. The first part reviews the contributions underpinned by early work of transactions costs theory and social exchange theory. Both theories develop propositions aiming to explain (1) why business interaction does not always lead to building relationships, that is, transactional versus relational exchange; (2) the governance methods for relational exchange based on the criticality and complexity of the relation, that is, ACRs or OCRs; and finally, (3) the development process of relationships, whether as a sequential path in which the relationship improves through time or changes from one relationship state to another, moving backwards and forwards, that is, the stages and states theories. Then the network approach to business relationships is presented. This corpus of research broadens the scope of the study through the inclusion of groups of connected actors to describe business relationships. In essence, business relationships within networks are conceptualized as structure and processes. Structure relates to the connectedness and interdependence of the actors, which ultimately defines the actor’s network position. Processes define networks as a combination of substance and functions. Substance (what the relationship affects) includes activity links, resource ties, and actor bonds, whereas function (who are affected) relates to functions for the dyad, functions for the individual company, or functions for third parties. This corpus advances the understanding of the problem but does not explain the reasons why actors in a network act and react in one way or another in response to their partner’s acts. It is proposed that the degree of attractiveness or repulsiveness of a firm as an exchange partner has influence on the parties’ behavior toward the other. Its critical hypothesis is that managers conceptualize their competitive position on account of an extended network. Defining the network boundaries is indeed a difficulty that the network approach presents. This stream of thought identifies a subset of work that considers relationships as social constructions that result from the participants’ interaction in the network. The role of exchanged communication and meaning, which parties give to such communication, is identified through these contributions. This section concludes by presenting rules theory. This is an interpretive framework for understanding and assigning meaning to other’s actions, as if parties in interaction apply sets of rules that give meaning and guide subsequent action.

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Rules theory is completely new to the field of business relationships. Its application in conjunction to the existing body of knowledge is expected to contribute in finding the answers to questions about the dynamics of business relationships and how they can be described in a way that the participants can understand and improve their relationships with members of their network.

METHOD A number of nodes based on the rules theory typology are used to group sets of text regarding changes in relationships, which are later used for writing the reports of each case study. These nodes are based on the list of levels of context that are initially proposed in the literature review, as well as other elements of rules theory such as rules, forces, and loops. A description is assigned to each node to keep consistency in the coding process. Nodes prepared on rules theory typology, as well as their descriptions, are summarized in Table 3.

Cross-Case Analysis The cross-case analysis seeks to accomplish three objectives: (1) show commonalities and differences among the cases that can be explained drawing on contemporary knowledge; (2) based on the empirical evidence, make propositions that advance current theory, particularly in regard to features and value of business relationships; and (3) examine the usefulness of rules theory as a technology that is suitable to explain the dynamics of relationships in extended network contexts, providing as such a new basis for questioning existing theories of business relationships.

INDIVIDUAL CASE STUDY REPORTS Case Study A: Steel Construction Developing Relationships First step in the examination of data regarding relationship development is to verify whether it fits into stages theory or not. That is, whether the evolution of relationships can be seen as a sequential path in which the parties become closer and build rapport until they reach a level of

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Table 3. Nodes for Features and Steps of Relationships Initially Defined. Features of Relationships Node

Trust

Child

Sub-child

Competence

One party’s belief that the other has the required expertise to perform the task. The capacity to keep the promise

Benevolence

The belief that one party will act in a beneficial manner to the other party as well

Honesty

The belief that the other will be credible Attitudinal

Positive attitudes toward the partner. Psychological attachment to the role of the relationship

Instrumental

Resources allocated. Physical assets, dedicated employees. Rising switching costs

Performance

Contribution of the relationship to the parties. Increased efficiency. How much cake are we going to get?

Justice

Distribution of the benefits. Who gets which part of the cake?

Formal

Specific adaptations to single partner contractually agreed

Informal

Specific adaptations to single partner beyond the terms of the contract

Specific inputs

Commitment Relationship outputs

Adaptations

Economic

Financially assessable

Noneconomic

The feeling of enjoying the engagement

Structural

Information systems, ties, links, connections, and institutional

Economic

The business only exists if performed in conjunction

Social

Emotional, psychological, mental, and personal relationships

Cultural

Differences in norms, values, and working methods between the parties

Technological

Differences in product, processes, and technologies

Geographical

Physical distance between companies’ locations

Social

Familiarity with each other’s ways of working

Satisfaction

Bonds

Distance

Description

Phases of Relationships Node

Description

Awareness

One party identifies the other as a potential partner

Exploration

Searching phase, high levels of uncertainty

Expansion

Growing benefits, increased interdependence

Commitment The honeymoon Dissolution

Disengagement process, changes in the reward-costs position

Source: Original underpinned by the literature review.

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commitment (Dwyer et al., 1987; Ford, 1980) or the relationship dissolves. Likewise, data was tested before a states theory perspective. That is, whether relationships be considered not as evolutionary but as exhibiting potential for dramatic change from one state to another, in which both commitment and closeness fluctuate over time (Ha˚kansson & Snehota, 1995b; Turnbull et al., 1996). Two parts in the development of relationships are identifiable: (1) that the company works in a product-oriented environment in which the firm is trying to adopt a relationally oriented way of dealing with customers, and (2) that there are a number of sequential phases in developing relationships that some people share within the company. From Production to Relationship Orientation. A very early finding of the research shows that the company is changing toward a relationship orientation with its customers after having been production- and transactionoriented in previous years. In this regard, the interviewees comment: The major issue in our game is that we became manufacturers first, and sales focus second. It was important to keep the machines working, it was important to put [the company’s] products through the system. (L1, p. 22) Sales marketing focus has to drive [the] company’s business and not as in the past that the company was driven by a production focus. (L3, p. 6) This business was bugged in the nineties to the point of closure destroying relationships with customers. We went to central call systems, we lost customer focus, and we went to a very hard manufacturing base looking purely in terms of our business. (L1, p. 91) show your care about the customer not trying to make the phone call finish in 20 seconds y (L2, p. 134)

Also, it is perceived that the customers are not relationship-oriented either: Customers didn’t want relationships because they felt threatened by the relationship, they really didn’t want people in their face, they just wanted to have the ability to get a price, they didn’t really want a relationship, they didn’t see the negotiation point of having a relationship. (L1, p. 19)

The company appeared willing to build long-term relationships with customers at the time this research was being conducted. a big part of the selling repertoire are relationships and sales representatives are encouraged to always build relationships y (L5, p. 21)

The company’s construction of relationship development includes the following sequential stages.

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Showing Interest. Most of the interviewees see relationship development as a sequential process in which specific acts permit the supplier to build a relationship. The process starts with a first approach, making the customer aware of the company’s intentions in a clear and straightforward manner. I went in and I speak to the managing director and I said, ‘look I want to do business with you.’ (L6, p. 9)

Identifying People. Once the customer is aware of the company’s intentions, the seller needs to identify who the decision makers are, to learn what the psychological profiles of these people are, and attempt to understand the customer’s needs and their ways of doing business. It worked to the point that we could find who the key people are. (L6, p. 20) For example we got a specific matrix which says, based on certain factors of the person we identified in terms of their interaction, we call them a driver, an amiable, an expressive y (L2, p. 25) I understand very well the business to be confident to talk about their business as a whole and to offer something from my business y [I]n the early stage it was asking questions and then developing a plan around their answers y (L1, p. 42)

With the use of this information, the seller acts as seeking to build the relationship in a manner that is consistent with the customer’s profile. A service offer that suits the customer’s needs is prepared. We need to know who they are, what sort of social style they have, whether they are analytical or expressive or amiable. So we look at the character type, so we can understand his character and then, we look for learning his business, and that builds the relationship. (L4, p. 19) I met the big customers, listened to their problems and worked to have adjustments to the customer service department. (L3, p. 10)

General Sales Agreement. As the number of transactions increase, the basic framework for how the companies will work together becomes more explicit. A large number of social contacts underpin these actions, in which the driver appears to be the seller. This would lead the companies to generate a general sales agreement. We have the order, and at the end of this month we will have a fishing trip. On the boat there will be 10 people, 5 of them and 5 of us and we will have a little competition, and we will start to build a uniqueness, and we all will know, this guys and their styles, so the amiable, the analytical etc. will receive the right ‘massage.’ (L4, p. 84)

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Then a lot of money was spent on entertainment. (L3, p. 11) The real thing was taking the deals that the reps were putting in the play and the relationships that they build up with the local managers. (L6, p. 21)

Customer’s View. These observations suggest a one-way style of building relationships, in which the critical assumption made is that customers are equally interested in building a new relationship and replacing their old supplier. However, the company, when it is on the side of the customer, did not always want a new relationship with a new supplier. Instead, the usual one is preferred. For instance, the interviewees comment in relation to their transportation supplier: I try to get what I need within these three, if I don’t, I can go outside and I did it sometimes but I try to stay with these three. (L7, p. 26) [T]here are lots of different suppliers that we have, and you got through a lot of pain to get what you want, so I rather deal with somebody who already understands us than to start again y (L7, p. 240) For changing, you should consider the disruption to your business, specially in the transport contract that are the biggest suppliers. (L9, p. 116)

These quotes, regarding the company’s relationship with suppliers, warn about the importance of the customer’s views on the building of a longlasting relationship. The mere contact or even initial transactional exchange between two companies does not guarantee that a relationship can be built to last. Moreover, the company experienced this as a result of their main competitor’s strike action, during which most of its customers did business with the company. They then went back to their traditional supplier as soon as the strike was over. This is what happened when our competitor was in strike [showing the customer service performance graphics], double the orders from one day to other, and this is after thinks happened, back to normality. [Our competitor] went back to work so they has taken back much of their customers. (L7, pp. 126, 129)

Summarizing Relationship Development. Most interviewees see relationship development as a sequential process in which the supplier leads the dealings with the objective of building links with the customer. This provides the information needed to sign a general sales agreement, which constitutes the basis for a long-term business relationship. The steps of the process are (1) make the customer aware of the company’s existence and its willingness to build a relationship; (2) learn about the customer’s needs and the social

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styles of its people; (3) adapt the company’s service offer to suit the counterpart’s needs and style; (4) establish a general sales agreement, which provides the basis for business interaction; and (5) benefit from the relationship with the customer. Because of the shared character of these beliefs and the mostly successful stories that interviewees could recall, people in charge of marketing and sales are confident to continue following the path they have been taking. However, other members of the organizations, who were taking into account the customers’ point of view, also provided valuable information that is important to consider when designing future strategies. The next section describes the most desired characteristics of relationships as described by participants of this study. Elements and Characteristics of the Relationship Drawing on the existing taxonomy used to characterize business relationships, empirical data is organized to portray the company’s most desired relationships’ features. The use of preconfigured frames when analyzing the information was avoided. Instead, issues from different angles were examined before a broad range of contemporary typology of business relationships. Marriages and Affairs or Dancing Metaphors. A metaphor that compares business relationships with marriages or affairs among common people is frequently used (Dwyer et al., 1987; Scanzoni, 1979). Others use a metaphor that equates organizing a business to organizing a dance party (Wilkinson & Young, 1994). Whatever the metaphor used, the basic idea that underpins its use is the development of relationships through continued interaction of the parties in which particular characteristics sustain the relationship, for instance, in the case of the marriages and affairs metaphor, a couple is tied by love. Advocates of the dancing metaphor argue that two companies cannot fall in love. They prefer to explain business relationships as the process that unfolds at a dance party. The participants learn about each other and therefore, as a result of continuous interaction, can perform more complex movements with better coordination. Although commonly used in academic literature, the metaphor of marriages and affairs is not widely used by the company to describe the development and dissolution of business relationships. The marriage metaphor is only used to illustrate one story in which the company lost a customer after a two-year courtship. When asked how they felt, the interviewee replies as follows: It is like a divorce, the account manager said it is like a divorce y (L2, p. 126)

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Thus, comparing a business relationship with a marriage would be acceptable, considering that losing a customer feels to them like a divorce. However, another interviewee who compares a business relationship with friendship elucidates a crucial difference that also needs further consideration: There is a critical difference between a real friend and a business friend and that is motivation. Real friends have no motivation to be a friend of one, conversely in business relationship the drivers of a relationship are the business dollars making the relationship a kind of mercenary relationship, the motivation is to enhance the business revenues. (L5, p. 9)

This is particularly important in the analysis of the dynamics of the interaction in which some relationships never progress beyond being one-offs because all that counts are short-term financial benefits, and, other times, some of the relationship’s characteristics acquire value that may exceed monetary value, thus preventing the customer from switching supplier. Although a commercial interest is always present in business relationships, other factors also appear to be important. Management of Relationships No visible strategy exists in the management of relationships. Even though people within the company share ground in their perceptions of what constitutes a high-quality relationship, how it should be developed, and what are the benefits of such relationship, there is not a single person in charge of managing the company relationships. Nor is there an instance or method for qualifying the company relationships or evaluating the expected outcomes of particular incidents in a relationship, whether before or after the incident occurs. This point is illustrated with the story of a relationship with a particular distributor, which despite its long tenure was considered a bad relationship. After many years of being mistreated by the customer, who was described as excessively demanding relative to the benefits that were delivered, a letter was sent to inform the customer that prices were to be increased by 10% to cope with the distributor’s requirements of extreme levels of service. In the middle of the arguments justifying their decision, the company states, ‘‘What you at times demand from our staff and systems is physically beyond our capabilities’’ (L14, p. 11). This demonstrates how hard it can be in serving this customer. However, the letter also adds, ‘‘Your berating of our staff is also totally unacceptable and of significant concern to us’’ (L14, p. 12). Here, the company stresses that they are at the limit of their patience with this distributor.

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The company was prepared to lose the customer, whose $300,000 of sales per year were ‘‘not worth having to deal with that company,’’ as stated by one of the interviewees. The customer, instead of walking out, immediately replied with a letter demanding an amicable meeting. However, within the delivered communication, the customer justifies her being demanding to better serve the end customer in a competitive market place. Her explanation of how she thrives to serve customers is surrounded by details about the failures the customer was experiencing in having appropriate answers to requisitions, receiving information about stock-outs, trying to coordinate the delivery process, and even the attitude, knowledge, and commitment of the company’s sales staff. Only to emphasize the origin of the problems the following was added: The inexperienced staff have not seemed to understand the meaning of ‘urgent’ and this is what has frustrated me no end. (L15, p. 17) As a customer of yours for over 13 years, the respect and treatment that I have been continually subject from some of your service staff and delivery drivers has been dire. (L15, p. 18)

The response seems to be intended to establish that the distributor is not only experienced but also that she works hard to serve the market. Conversely, the supplier is neither experienced nor customer focused. Therefore, the price increase will not be accepted but a conversation should take place. The conversation took place indeed, and after that, the relationship took another perspective. Further inquiry shows that things are going smoother. The same person who considered sales of $300,000 per year not enough to put up with such a customer comments after these event ‘‘that is not an account to ignore’’ (L16, p. 9). Some relevant facts to this reconciliation are the presentation of mutual apologies, mutual commitment to improve sales and service levels, and a further action taken by the customer to invite some people at operative level for a dinner ‘‘paid by the customer.’’ These actions appear to build enough social bonds to completely change the company’s perception of the customer’s value. Because there were not more sales involved, the only explanation is that the costs of serving the customer were perceived to be lower. That changed the difference between benefits and costs from negative to positive. This episode in which the completely reverse outcome of the events, although positive, appears to have improved the relationship instead of leading to loss of the customer, and the simplicity of the solution, a meeting

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and a dinner, suggests that the company may not be managing their business relationships as they might. The Dynamics of Business Relationships As illustrated in the previous section, the complexity of business relationships cannot be explained only by narrating the episodes. In the next section, the same episodes are explained with the use of rules theory. For that, an initial description of the levels of context in which interaction appear to be performed is necessary. Hierarchical Levels of Context. Six levels of context are thought to result from and give meaning to exchanged acts between the company and its major counterparts. The proposed levels of context in ascending order of hierarchy are episodes, general sales agreement, relationships, life script, company character, and steel construction industrial sector. The dynamic interaction among actors potentially changes, creates, or dismisses one or more levels of context. Each one of these levels of context may change because of the dynamic character of the interaction and the many actors participating. Fig. 7 shows the levels of context in which relationships appear to be performed in this case study. Episodes. Episodes are a nameable set of interactions; episode is the lowest level of context that results from ongoing exchange of acts between parties. An episode is a string of actions that has an identifiable beginning, middle, and end. General Sales Agreement. The general sales agreement, sometimes named supplier agreement, results from the continuous interaction between the Steel Construction Industrial Sector Company Character Life Script Relationships General Sales Agreement Episodes

Fig. 7.

Hierarchical Levels of Context Case Study A.

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parties. It contains the general norms and definitions of how the business will operate. The agreement provides the basis to cultivate a relationship. I get away and put a lot of work to prepare a package which was a very basic package that said ‘[the company] and [the customer] want to do an agreement and this is the intent of how we want our business to operate, you will place your orders this way, we will accept on this way, we will give you a product this day, and those sort of things.’ (L6, p. 16) We don’t have a contract but we have an agreement where we measure each other on. (L7, p. 257)

The agreement, whether formal or informal, tries to foresee which episodes may occur while the companies deal with one another. It is specific for each customer. It is a supply agreement from our side that is not more than two pages. We used to have 12 pages supply agreements with lots of words, lots of intentions and it was like a proforma, everybody used to have one but that doesn’t work because each customer is unique so lets do a unique agreement for each customer because it tell them they are unique to us. (L1, p. 59)

Relationships. The relationship level of context is the level most commonly used to give meaning to action. This level of context is described above in terms of the features of relationships. Each time an episode is performed between the parties, this level of context is potentially reshaped. If the acts are deemed as consistent with the most desirable features of relationships, a charmed loop occurs and the quality of the relationship is confirmed. If, conversely, a particular act is estimated inconsistent with the relationship context as construed by those in interaction, a strange loop occurs and the system enters into paradox. A system cannot stay in paradox permanently and will eventually be rearranged. Life Script. Even though business-to-business relationships tend to be described rather as existing between two organizations, the individuals in interaction are the ones who form them. These individuals are constituents of relationships, whereas their life scripts result from the relationships in which they participate, within and outside the company. People’s definition of self is the recognition of the person as is or as it would be embedded in the context in which they perform their acts. Company Character. The company character is the identity that the company reflects toward the outside. The ‘‘company character’’ results from

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the acts performed by the company and the meaning that their counterparts give to those acts. The company, as described in the previous section, is aiming to forge its identity as a customer-oriented organization that values long-term ‘‘winwin’’ relationships. Steel Construction Industrial Sector. This is the highest level of context formed by the actions performed by all the actors related to this industrial sector. The steel construction industry level of context contains the generally accepted norms and values, explicit and implicit, among the members of a particular industry group. It is the way the business works. Data suggests that this industrial sector is characterized as being product driven and transactionally oriented. Analysis of Episodes This section analyzes, with the aid of rules theory, the episodes that have occurred with the distributor as if the parties applied rules to give meaning to the other’s acts and to guide their actions. Episodes are nameable subjects that result from reciprocal interaction between companies. The episode of the letter sent to the ‘‘too difficult to deal with’’ distributor, with the aim of ending the relationship, is used now for illustrating how rules theory provides the appropriate technology to explain the dynamic interaction within business-to-business relationships. The acts as they appear to be coordinated are shown using rules theory symbolism. Steel Construction Industry General Sales Agreement

cR1=

rR1=

Dealing with the distributor

Worthless distributor

⊃

⊃

Swearing employees Permanent complaints Call 10 times for the same problem Does not carry inventory Sales of 300K $/yr

(Legitimate (Price increase))

Customer too expensive to serve Acts as a trader Does not add value Too few to tolerate this person

⊃

Terminate Relationship

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Read: Constitutive rule 1. In the context of the general sales agreement, and in the context of the steel construction industry, if our company deals with a distributor that: 1) permanently complains and abuses our employees, it counts as a distributor too expensive to serve, 2) does not carry inventory it counts as a trader, as not adding value, and 3) only buys $300,000/yr, it counts as to few to tolerate its behaviour. Overall, the distributor/trader is deemed worthless. Regulative rule 1. If the distributor is worthless, then it is legitimate to increase prices in order to force the distributor to terminate the relationship. This act performed by the company suggests that a contextual force has been influential. She doesn’t want to add value. She is operating as a trader, takes the order of someone, deals with the credit issues, then passes that order through to us but then, we have to do all the work. But she wants a premium as she is doing all the work y our wishes are simply to say we don’t want to deal with you. (L5, pp. 50, 53)

This episode is construed as if it were ‘‘We sent that letter (seeking to delist the customer), because a company like us, in the circumstances of dealing with a company like that, could not do any other thing to change the customer’s behaviour.’’ The situation was such that any alternative act was precluded. The company preferred to lose the distributor’s sales revenue instead of continue dealing with this customer. The rules of meaning and action applied by the customer following receipt of the letter appear to be as follows: General Sales Agreement cR2=

Manufacturer sends a letter

⊃

Price increase

rR2=

Contract break-off

⊃

(Legitimate (Demand a meeting))

Contract break-off

⊃

Avoid Termination

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Read: Constitutive rule 2. In the context of the general sales agreement, if the manufacturer sends a letter, then its communication of a price increase counts as a breach of contract. Regulative rule 2. If the manufacturer intends to terminate the contract, then it is legitimate to demand a meeting in order to avoid termination. The distributor sent a response letter that recontextualized the episode from a general sales agreement to a superior relationships level of context that suggests the application of a further constitutive rule. Relationships General Sales Agreement

cR3=

Dealing with the manufacturer

⊃

Inopportune answers to requisitions Stock outs Inexperienced staff >13 yrs as customer Coordinate deliveries

Blame the supplier for the problems I am important I know the market I care about the customer

Read: Constitutive rule 3. In the context of the relationship with the company, if the supplier 1) is slow to answer requisitions, 2) has recurrent stock outs, and 3) employs inexperienced staff, it counts as the supplier is causing the problems: ‘‘The attitude, knowledge and pro-active commitment of your sales staff over the past few months or so has been so poor’’ (L15, p. 16). If the distributor 1) has been there for more than 13 years, ‘‘As a customer of yours for over 13 years y’’ (L15, p. 18), it counts as being important, knowing the market, 2) coordinates deliveries, it counts as taking care of the customers. Thus, the manufacturer appears to have applied the following rules to interpret the distributor’s request to meet.

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rR4=

Demonstrates good predisposition

⊃

(Obligatory (Make a visit))

cR4=

Distributor sends a letter back

⊃

Amicable meeting

⊃

Demonstrate good predisposition Demonstration of good predisposition

Read: Constitutive rule 4. In the context of our relationship, the distributor’s request for an amicable meeting, counts as a demonstration of good disposition to fix the problems. Regulative rule 4. If the distributor demonstrates good predisposition to improve the relationship, then it is obligatory to make a visit in order to demonstrate our good predisposition as well. Because of the recontextualization of the acts, an implicative force is suggested, ‘‘We presented mutual apologies, made our promises, set targets to improve sales and service levels, it was a bit of massage’’ (L16, p. 15). Situating the episodes in the relationships level of context, the interviewees recall the social aspect of the relationship, which seems to be better than the overall relationship: She is probably the nicest woman outside her work but her work is everything and goes to the point of 12 calls a day. At the end you just don’t want to answer your phone. With better manners she can get better managed her order. (L10, p. 148) We have a good relationship. When I say good, individually is OK but from the business point of view it is terrible. (L5, p. 62)

This new situation opened possibilities other than termination of the relationship. Thus, the implicative force that appears to have operated is, ‘‘We visited the distributor because we wanted to redefine our relationship with her.’’ An integrated illustration of the episodes using rules theory symbolism is presented in Fig. 8. After that, the distributor also strengthened the social bonds, inviting for dinner some of the company’s staff, and some weeks later, the words of one

Contract break-off

rR2=

⊃

⊃

⊃

⊃

(Legitimate (Demand a meeting))

Price increase

(Legitimate (Price increase))

General Sales Agreement

Manufacturer sends a letter

Worthless distributor

Dealing with the distributor

cR2=

rR1=

cR1=

Swearing employees Permanent complaints Call 10 times for the same problem Does not carry inventory Sales of 300K $/yr

General Sales Agreement

cR3=

cR4=

rR4=

⊃

⊃

⊃

Inopportune answers to requisitions Stock outs Inexperienced staff >13 yrs as customer Coordinate deliveries

Amicable meeting

(Obligaory (Make a visit))

Relationship

General Sales Agreement

Dealing with the manufacturer

Distributor sends a letter back

Demonstrates good predisposition

Relationship

Coordinated Reciprocate Acts.

Avoid Termination

Contract break-off

Terminate Relationship

Acts as a trader Does not add value Too few to tolerate this person

Customer too expensive to serve

Fig. 8.

⊃

⊃

Steel Construction Industry

⊃

I care about the customer

I am important I know the market

Blame the supplier for the problems

Demonstration of good predisposition

Demonstrate good predisposition

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interviewee compares the past with the present suggesting that things have changed for the better: She has changed, she is so different, and she now probably realised that people are more helpful to her. I hated to talk to her. She always said the same. You can’t help to her, she was usually yelling and screaming and I get to the point where I didn’t want to talk to her. (L9, p. 149)

These acts, now more consistent with the supplier’s desired features of relationships, decrease the perceived costs to service this distributor, and even though the distributor still does not carry inventory, and has not increased purchasing volumes, the same person, who previously considered the distributor worthless, comments, ‘‘This is an important account to keep,’’ denoting the increased value of the relationship. Changes in Relationship Features For the rest of this paper, changes to the features of relationships are based on the typology discussed in Chapter 3. The previously described episodes alter the direction that the relationship between the company (C) and the distributor (D) was heading to. A number of dimensions of the company’s most desired features of relationships appear to have been affected by these episodes. Table 4 indicates changes. Three constructs were affected as a result of the episode. (1) Social bonds, which are among the most important features of relationships, appeared not to be present in this particular relationship; it was no sign of emotional attachment toward the distributor when the termination letter was sent, nor it was from the distributor to the company. However, after the episode, social bonds started to emerge in that the distributor invited company staff for dinner and the company staff responded by accepting. (2) Attitude inputs toward the continuation of relationships, which is a dimension of commitment, also changed. Before the episodes, the distributor was perceived as brash with the company staff, whereas she perceived them as not caring about her company. After the episodes, mutual pledges were given; thus, attitudinal commitment toward continuing the relationship was demonstrated. Conversely, there is no evidence that changes to instrumental commitment occurred. However, no further mention of the distributor’s failure in keeping inventory was made. This therefore supports the idea that attitudinal inputs are more important than instrumental inputs for evaluating relationships within the company. (3) Competence and benevolence, which are dimensions of trust, also changed during the episodes, in that the company criticized the distributor’s

Modeling the Dynamics of Business-to-Business Relationships

Table 4.

Changes in Relationship Features.

Dimension

Before

After

C

D

C

Social bonds

N

N

N

Instrumental Inputs

N

Benevolence

N

D

Y

‘‘Inopportune answers.’’ Y

Y

‘‘Mutual apologies, made our promises.’’ ‘‘Doesn’t carry inventory.’’

N

‘‘Permanent stock outs.’’ ‘‘Call 10 times for the same problem.’’ Y

‘‘She has changed. She is so different.’’

N

‘‘Inexperienced staff. Need coordinate deliveries.’’ Y

Financial value

‘‘She invited to a dinner staff of the company.’’ ‘‘Swearing employees.’’

N

Competence

Evidence

‘‘You can’t help to her y I didn’t want to talk to her.’’ Y

Attitudinal Inputs

237

N

‘‘Now people are more helpful to her.’’ ‘‘Too few sales to tolerate the distributor.’’

Y

‘‘Important account.’’

lack of benevolence while the distributor complained about the company’s competence. After the episodes, the company perceives that she has changed as well as expects that she has realized that people are more helpful to her, hence she receives better service. Finally, the value equation appears to have changed, turning a worthless distributor into a valuable account worth keeping. This last statement suggests that different characteristics of the levels of context in which acts between parties are performed lead to application of different rules; thus, the parties would react differently. Conclusion for Case Study A The company’s strategy for building and managing relationships shows strengths and weaknesses. The most relevant strength is that in the middle of an industry that is highly product-oriented and characterized for being short term and transactional focused, the company becomes customeroriented and is willing to build up long-term relationships with customers. This relational orientation permitted the company to recover markets lost some years ago as a result of its reduction of local sales representatives and

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creation of the national call center, in which the only concern is to keep the conversation as short as possible. The company has been able to develop valuable relationships that permit having a slightly higher price in a commodity type market, but the ultimate benefit of having relationships is the option of last refusal. Among the aspects of relationships that appear as weaknesses are the following points. (1) Participants in the firm generally accept that specific actions lead the parties to build a relationship following a sequential process. However, particular episodes, which still have to be recognized, may lead the relationship to change, whether to the better or to the worse without the need of being sequential. The company’s actions to build relationships, although in many cases successful, do not observe the willingness of the customer to build up or not build up a relationship with the company. The intentions of the customer for building the relationship affect the outcome of the efforts made by the company. (2) Adding tangible characteristics to the already desired features of the company relationships is necessary. Specially, the construction of structural and economic bonds should provide to the relationship more stability and longer life expectancy. Otherwise, the overemphasis in building social bonds imposes on the company the need for continuous demonstration of interest toward the customer, which is comparable with the need for continuous whipping to keep the water and oil blended. (3) The interviewees perceive that their counterparts can reap additional benefits from their connections to third parties within their network. This extra value comes indeed from the importance of the company’s parent company, but this particular relationship does not appear to have the features that the company values in business relationships. Therefore, this is a subject that requires attention. (4) Currently, the company does not have the tools for managing its business relationships. A proposed method for analyzing and managing relationships is described in the section ‘‘Dynamics of Business Relationships.’’ (5) Rules theory is useful for describing and analyzing the dynamics of business-to-business relationships as if the participants were applying sets of rules in coordinating their acts. The use of this theory helps in bridging the existing gaps in the literature as well as providing a powerful tool for practitioners to understand how a particular episode changes the relationship for better or worse depending on the context of its performance. However, because every relationship is different, the contexts for interpretation are themselves socially constructed. It is not the aim of this tool

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to predict behavior but to improve understanding of the dynamics of the interaction.

Case Study Report B: Vegetable Oils Trading Developing Relationships The same theoretical framework explained in case study A is utilized for this case study and the next two. Two parts in relationships development are identifiable: (1) the context in which the company works, currently attempting to move toward a relationally oriented way of dealing with customers, and (2) a number of sequential phases in developing relationships that some people share within the company. From Trading to Relational Business. From the conversations with company’s executives, it became clear that the company is, only in the past few years, moving from a transactional price-focused business toward a more integrated relational business whether with suppliers or customers. This relatively new method for doing business is part of the whole business strategy and service offer of the company to gain position in the market. Part of our strategy the last three or four years was trying to move our business from a commodity, just transactional price trading business, into something that is more than that, that is a little more integrated. So, we think about moving it from a pure commodity price into something that is long-term structured transaction. (G8, p. 8) And then the next step was to try and differentiate in our trading style or the way we do our business and now we have two different types of trader, we have what we call our price trader and we have what we call our sales trader. Now, I took that model from the fuel industry. (G4, p. 21)

This has been called supplier alignment and was also established in the conference in which the marketing strategy was launched, as the ‘‘Incremental shift from trading business to service business’’ (G10, p. 22). However, because of its novelty, the internal adoption is still in process; ‘‘I think we need a culture from our trading people to adapt to the customer’’ (G4, p. 17). Some people do not think they already have sales traders: ‘‘The way our business is structured is that we have the price sales trader basically; we have a few people that is responsible for sales’’ (G1, p. 8). In the same manner, a customer says ‘‘they are a trading company, they have traders working for them’’ (G3, p. 50), implying that the company is still perceived as transactionally oriented.

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Targeting the Partner. The company does not maintain relationships with many customers or suppliers. Instead, they target the companies with whom they want to deal: companies that are big or might grow, as well as those that can benefit from working together. For us, most of our customers are targets, so we target them because we know whether they are a big consumer or producer or they have a growth plan. We do also target suppliers in a slightly different basis. We target the suppliers who have in some cases a large volume. Who might be independent by nature and not a big multinational in a big conglomerate and who need to get expertise and exposure to the international market. (G8, pp. 62, 68)

However, if a customer approaches the company without being targeted, they scrutinize the customer as much as possible before moving forward to do any business. We will have a lot of enquiry to find out if the customer is really serious, and the only way you can do that is doing a test about the amount of product they are actually requiring, the purposes of what they are requiring, purposes of the use of the product. So you generally get a feel if someone is serious or doesn’t know what are they talking about. (G7, p. 33)

Targeting both customers and suppliers represents a particularity of the business that affects the subsequent process of building a relationship. Beyond this point, there does not appear to be an explicit process of relationship development. Instead, the informants highlight the significance of having the most adequate service offer to the market. The Service Offer. Once the company identifies a desired customer with whom it wishes to build a relationship, the company presents its service offer and proposes doing more business. We go and say, every month we are exporting, here are our markets, look, this is our history of three years, every year lifting oil and exporting. We would like to talk to you about some alignment. (G8, p. 69)

One of the features of the company’s service offer is its comprehensive range: ‘‘we offer the most complete menu of fats and oils’’ (G8, p. 36), which is perceived as an advantage against the competitors and therefore provides the grounds for dealing and establishing relationships with the company. There wouldn’t be any company that could offer them the whole suite of product that we can offer. (G4, p. 46)

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We make contact with the customer, it is generally saying to the customer, we can provide this product, this type of quantities, we can use our terminals to put that product in, we can give you in US dollars or Australian dollars so we set the parameters around what we can actually deliver to the customer. (G7, p. 32)

The company stresses their capabilities in presentations to customers. Our unique offering:  Full range of animal fats & vegetable oils (one stop shop).  Think customer requirement first rather than selling production. (G11, pp. 36–38)

Establishing Multiple Points of Contact. Relationships are not believed to be the responsibility of only one person within the company. They are, instead, the job of everybody. People are expected to help create the relationship, and thus, the company establishes multiple points of contact. I believe that the customer relationship must be embraced by the whole company. So when our account receivable lady rings up [the customer] to see if they will pay their bill, she knows that they are a very valuable customer so she manages people, she manages a relationship. I would like to think that our relationships with other companies are based on different levels, one on one, starting from the receptionist, accounts receivable, the sales people, group financial controller, MD occasionally. (G4, pp. 54, 135) I think that where we have strong relationships at multiple levels, those customers are the ones that we more repeat business with. (G7, p. 20)

The value of multiple level of contact is also recognized by one customer. ‘‘We certainly do have a strong relationship with [the company] and is probably on more than one front because we have interaction with several businesses’’ (G3, p. 10). Long-Term Buying Agreement. The nearly new relational orientation approach that has been adopted fundamentally aims to achieve a longterm buying agreement with customers or a long-term selling agreement with suppliers. This sort of frame contract gives the company the grounds for the necessary planning process and efficient resource utilization, specifies quantities, pricing formulas, and all that is necessary for establishing the basic rules of the game. Rather than hundreds of different suppliers we have a basketful of suppliers that we have long term agreements with or a relationship with. (G2, p. 130) For example a supply agreement we made this year, was for specific quantity, and it was on a priced formula, so linked to an independent market price. (G5, p. 8)

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By establishing these supply agreements we are securing the business because a lot of them will go to see export markets but basically we hold that seeds for us. (G6, p. 188)

Once the long-term agreement is signed, there are no other specific actions that the interviewees reported for leading the relationship to a further stage. However, the features of it were widely discussed. Summarizing Relationships Development. Most people within the company see the process of relationships development as four sequential company-driven phases: (1) identify the appropriate and desired partner, 2) adjust to the counterpart needs and communicate the broad scope of services that the company can deliver, (3) develop multiple points of contact for strengthening the relationship, thus reducing dependency on only one contact person, and (4) attain a long-term agreement. However, it cannot be said that there is a unique view among the interviewees for the company’s relationship building strategy. Some see relationship building as climbing a tree, that is, a process in which a platform is elevated but not in a straight line up. They recognize relationships are necessary and deliver value but also require time and effort to build them. Nevertheless, there is one person who states that, ‘‘The relationships are very simple relationships because is very difficult to go to a complex relationship. It is pretty simple, knowing each other, flexibility, complement what each other does’’ (G1, p. 80). Another person sees relationships only as a set of basic rules that do not set boundaries on the actions of participants. ‘‘I believe that there is room in a relationship to take advantage from the movements in the market’’ (G6, p. 202). All in all, relational orientation is only beginning to germinate within the company. It does not mean relationships do not exist, but the four-phase approach corresponds more to a desire than to a formal working process already embraced by the organization. The company has its way to manage relationships, as discussed in the next section. Management of Relationships Management of relationships is the ability to deal with the dynamic interaction between two or more organizations in a manner that the parties achieve their objectives. The company is willing to establish a process that helps them manage relationships with customers and suppliers for better business performance. One clear demonstration of the company’s desire is the appointment of the Customer Relationship Manager who is undertaking

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the challenge. He, the Customer Relationship Manager, is aware of the effects that episodes have on relationships, as he expressed in an internal presentation: ‘‘Every action involved in a transaction can impact on our relationship with a customer’’ (G10, p. 110). Additionally, the company recently implemented a customer relationship management (CRM) system, which although in its early stages of development would be of great benefit in managing relationships later on. Despite these facts, the company may not have sufficient ways to be confident about the quality of relationships that it is building. Neither it is possible for the company to evaluate the effects that some episodes may have, that is, if they may be beneficial or harmful to the relationship. The main problem is when the parties give different meaning to the same episode. An example of how the parties perceived one particular episode illustrates this point. One of the participants brought to the conversation an episode in which the company took advantage of a market opportunity that was not in the best interests of one of the company’s most valuable customers. The company asserts that their action was not so detrimental, ‘‘There was a profit opportunity too good for our guys to refuse that didn’t impact in a huge financial way to the customer’’ (G8, p. 134). This episode happened without consideration for the consequences that it could have on the customer and the relationship. However, the relationship is such that nothing was lost for this reason. It was only an inconvenience to the customer and did not damage the overall relationship. And we did it without the thought of the consequences to the customer. (G8, p. 135) Nothing lost. Our customer just came in and said ‘Guys wake up I am telling you this is an inconvenience’ y he was just reinforcing to us that sometimes we should consult with him before putting him in this position of inconvenience. (G8, p. 139)

On the other end of the relationship, the customer did not perceive the incident as merely an inconvenience but as the reality of dealing with the company: I guess, if there is any misunderstanding or feeling that aren’t, perhaps running as they should be, it is related back to the fact that occasionally it is felt that with [the company], being a trading company, and with them having traders, sometimes they might take the view and make a short term profit rather than a longer term view for, do you see what I mean? (G3, p. 46)

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If he has a choice and says this choice is better for [the customer] that will give them cheaper oil or oil more timely or this or that or I can make this choice and I make a really good margin on that deal, which one would he choose? (G3, p. 54) All I am saying is that can be a diminishment in our service because they are trying to maximise their profits in their trading activities. (G3, p. 74)

These passages suggest that the company gave different meaning to the episode than the customer’s meaning. It appears as, to the customer, the episode denotes more than merely an inconvenience. The final outcome of this misunderstanding may not be good for the relationship. Thus, the company needs tools, better than those they currently may have, for understanding and managing relationships. Rules theory can provide a methodology that makes relationships management better. The Dynamics of Business Relationships Understanding the dynamics of business-to-business relationships needs to go beyond the description of the most desired features of relationships. Describing the features of relationships provides a representation of the structure that the company seeks in their relationships. It also gives the baseline against which the episodes occurring in interaction can be judged. However, these features tell very little about the dynamics of relationships. Drawing on the previously described features of relationships, this section presents a rules theory analysis of the interaction that the company is having with one of their customers, who also participated in this research. Hierarchical Levels of Context. Six levels of context, as illustrated in Fig. 9, are thought to result from and give meaning to exchange acts between the company and its major counterparts. The proposed levels of

Trade Services Industrial Sector Company Character Life Script Relationships Long-term Agreement Episodes

Fig. 9.

Hierarchical Levels of Context Case Study B.

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context in ascending order of hierarchy are episodes, long-term agreement, relationships, life script, company character, and trade services industrial sector. Each one of these levels of context is potentially constantly changing because of the dynamic character of the interaction and the many actors participating. Episodes. Episodes are nameable interactions; they are the lowest level of context that emerges from interaction. An episode can be deemed as a sequence of actions that has an identifiable beginning and end during a period. Long-Term Agreement. The long-term agreement is a frame contract that delineates the process by which the companies deal with their customers and suppliers. It contains specified quantities, pricing formulas, and all that is necessary for establishing the basic rules of the game. A long-term agreement is sought for dealing with both customers and suppliers. As one interviewee remarks, ‘‘long term supply agreement or a long term buying agreement’’ (G8, p. 8). The objective of the agreement is the alignment between suppliers and customer through the company. Relationships. The relationships level of context is the level most commonly used to give meaning to action. It is described earlier. Life Script.

The life script level of context is described earlier.

Company Character. The company character is the identity that the company projects toward the exterior. The company character results from the acts performed by the company and the meaning that counterparts give to those acts. Ha˚kansson and Snehota (1995c) assert that a company is only a mental construction that results from people in interaction. Thus, people working in and interacting with the company are those who will ultimately form the company character level of context. Trade Services Industrial Sector. The trading services industrial sector is the highest level of context. It contains the norms and rules that companies generally accept as valid in their industrial sector. The trading services industrial sector as a level of context is socially constructed through interaction between the company and other parties of their extended network, as well as among parties themselves. The company’s extended network includes, to mention a few, producers of seeds, producers of animal

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fats, crushers of seeds, producers of vegetable oils, land and sea transportation providers, sales traders of vegetable oils and tallow, and users of the product. They are located worldwide. Analysis of Episodes With the aid of rules theory, a number of episodes connected to the dynamic interactions that occur between the company and one of their customers (regarded as their most valuable customer) are analyzed in the next section. Episodes are analyzed as if the parties apply rules of meaning and action within the context of their performance and the whole relationship. Episode One. Within the relationship analyzed in this section, the company and their customer had been doing business for a long time, but it had never gone beyond its transactional status. For many years we did very little business with them, in some respects we considered our competitor. We had a love-hate relationship with their people. Sometimes we could do business on an opportunistic basis, and everyone was slapping one another’s backs and that was a good deal for everyone, and the next minute you will be trying to put one another out of business. (G7, p. 83)

Then, the customer needed a company to replace one of their suppliers who had gone bankrupt. The company took over the contract delivering very good results. This established the fundamentals that helped build an enduring relationship. [The company] is one of the biggest exporters of tallow out of Australia so we are able to formulate strategic relationships that allows us to tie up vessels for their exports of tallow and our imports of vegetable oils. (G3, p. 18)

In rules theory terms, the episode can be described as follows: Relationships Bankruptcy of the Previous Supplier

cR1=

Need to manage shipping

⊃

Delivers efficiently

A mutually beneficial deal

Read: Constitutive rule 1. In the context of the episode ‘‘bankruptcy of the previous supplier,’’ and in the context of the relationship with the customer,

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if the customer needed a substitute to manage their transportation of vegetable oils imports, then the company provides an efficient service, that is, the product is delivered on time at the minimum possible costs, this therefore counts as a mutually beneficial deal. The results are satisfactory to the extent that the customer and the company started doing more business together. The customer is buying oils from the company’s crushing facility and storing oil at the company’s storage facilities. Finally, the customer offered the company a long-term contract if they were able to buy a crushing facility that was going to close in Western Australia. The customer appears to have applied the following regulative rule: Relationships rR1=

Mutual Benefits

⊃

(Legitimate (Do more business))

⊃

Maximise the results

Read: Regulative rule 1. In the context of this relationship, if in dealing with the company, there are mutual benefits, then it is legitimate to increase the business in order to maximise the results. This indicates a change in logical forces as a result of the favorable initial outcome. The initial engaging of the company to manage their inbound freights is deemed as if a prefigurative force was enacted, because of the previous supplier’s bankruptcy. After the initial outcomes, the customer increased the volume of business with the company as if a practical force were acting, to maximize the potential of the relationship. The change in context – the bankruptcy of the former supplier – together with the company’s performance changed the meaning that the customer once assigned to the company’s actions, leading the relationship to develop faster. Changes in Relationship Features. Relationship features that appear to have changed as a result of these episodes are illustrated in Table 5. There were important improvements in trust, commitment and bonds, as well as relationships value. This successful experience led the company to consider the customer as their most valuable customer. Nevertheless, there is a more recent episode, not totally satisfactory for both, that appears to have influenced the relationship too.

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Table 5. Features

Changes in Relationship Features ‘‘Efficient Service’’. Change

Evidence

m

‘‘We are able to formulate strategic relationships that allow us to tie up vessels for their exports of tallow and our imports of vegetable oils’’

Instrumental inputs

m

‘‘They came to us and said, guys we need someone to buy it, we are happy to sign a deal for few years if you buy’’

Relationship outputs

m

‘‘We’ve got the crushing, now they take most of the oil from it, we also have the freight from South America’’

Economic bonds

m

‘‘The canola business was doing terribly, we called that a white elephant, so it was useless. We are selling the oil from our crushing plant which is always tough for us’’

m

‘‘Our crushing plant is making money so we are happy there. We are getting money from the freight. We started seeing all the add-on of the gains of that relationship going from strength to strength’’

Competence

Relationship value

Episode Two. This episode refers to an action performed by the company in which the customer was delayed in the provision of a service because the company took advantage of a market opportunity, that is, the company prioritized the transport of other loads and slightly delayed delivering the customer’s goods. This section examines the episode initially from the perspective of the company regarding the consequences of their action and then from the customer’s perspective. There appears to be a remarkable difference in the company’s construction of the episode and its consequences for the future of the relationship and how the customer construes the same episode. One informant within the company recalls, ‘‘There was a profit opportunity too good for our guys to refuse’’ (G8, p. 134). It can be suggested that a practical force operated: ‘‘we took advantage of the opportunity in order to maximise our profits.’’ In this study’s construction of the episode, the opportunity was taken to reap a big profit, instead of looking after the interests of both parties. Therefore, the strength of the logical force, ‘‘in order to maximise y profits,’’ was such that it subordinated the prefigurative force, which could have been instead that the company refrained to take advantage because of the inconveniences that this would cause to the customer. However, the company’s construction was instead that it caused only a minor inconvenience to the customer.

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This was the company’s comment regarding a visit of the customer after the episode: ‘‘[He came] because he felt that we were taking his business for granted’’; ‘‘He just think we were taking the easy solution’’ (G8, pp. 130, 140). The following rules appear to have applied: Relationships cR=

rR=

Dealing with the Company

⊃

Take the easy way

Taking the business for granted

⊃

(Legitimate (Give them a warning))

Taking the business for granted

⊃

Avoid future inconveniences

Read: Constitutive rule. In the context of the relationship between us, as customer, and the company, as supplier, if in dealing with the company, they take the easy way, from the customer’s perspective, this counts as they are taking our business for granted. Regulative rule. In the context of this relationship, if the company is taking our business for granted, then it is legitimate to give them a warning, in order to avoid future inconveniences. Hence, the company made their pledge, ‘‘Don’t worry, we will help, will not happen again’’ (G8, p. 140). This is, from the company’s perspective, all that had happened with the customer, thus the end of the episode. This episode of taking advantage of market opportunities is constructed by the customer in a different way: ‘‘They have diminished service because of their trading mentality’’ (G3, p. 70). The customer also construed the episode as profit maximization but because of the company’s trading mentality, suggesting that a prefigurative force acted precluding other possible actions by which the company could be more oriented toward the customer’s interests; ‘‘They are trying to maximise their profits in their trading activities’’ (G3, p. 74). A strange loop occurs between the episode and the relationships level of context. The episode, acting opportunistically, reflects with relationships, which among its features should have benevolence. Having and not having a relationship are mutually exclusive as they are acting or not

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SERGIO BIGGEMANN Relationships Have a Relationship

Do not have a Relationship

Act Opportunistically

Do not act Opportunistically = exclusive disjunction

Fig. 10.

Acting Opportunistically Paradox.

opportunistically. If there is a relationship, the episode of acting opportunistically counts as not having a relationship, as not acting opportunistically could count as having a relationship. Then opportunistic behavior is inconsistent with having a relationship and puts the relationship in paradox. This is illustrated in Fig. 10. Strange loops cannot last long and their endurance may harm relationships. The customer’s reaction, ‘‘You obviously just have to work through the issues and there is normally a solution to everything but it is all about what is driving the decisions from their point of view, it is just something that you have to work through that’’ (G3, p. 59), suggests that they are not extremely concerned, ‘‘there is normally a solution to everything,’’ but also that they have their doubts about the company’s interests, ‘‘what is driving the decisions from their point of view.’’ The customer appears to have applied the following rules in construing the episode: Company Character cR=

Takes a Market Opportunity

⊃

Diminish Service

rR=

Maximising their profits as traders

⊃

(Legitimate (Seek alternatives))

Maximising their profits as traders

⊃

Protect our Interests

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Read: Constitutive rule. In the context of company character, if the company takes a market opportunity, then diminishes service, this counts as maximising their trading activities’ profits. Regulative rule. If the company acts maximising their trading activities’ profits, it is legitimate to seek for alternative options in order to protect our interests. ‘‘I don’t think it is going to be different because, let’s be honest, part of this is the type of industry that we are in, named commodities, and things do change. You always got to be adaptable and all of the rest of it but there is certainly a portion of it that is down to the fact that you got different driving motivators in each company.’’ (G3, p. 75)

The customer does not see the relationship in paradox because they have construed the episode within the company character level of context. From the customer’s perspective, this is a trading company with traders working for them. Therefore, the episode appears not to have damaged the relationship but, instead, reaffirmed the customer’s perception of the company’s identity, ultimately preventing the relationship to develop. If there is any conflict it is probably around that point and it is probably amplified by the fact that they are a trading company. (G3, p. 162)

The parties’ perception of the level of context in which the episodes are performed changes the rules of meaning and action that the parties appear to have been applying. For the customer, an episode that was not consistent with the newly formed relationship was construed in the context of company character. The meaning of the episode, instead, reinforces the customer’s perception of the company as a short-term-oriented trader. Changes in Relationship Features. Episodes like those mentioned in this section affect the company’s ability to build up relationships with the features the company desires, from which the most affected features appear to be trust and commitment as illustrated in Table 6. This episode affected features of relationships negatively. Although they are different features than those that were improved because of the initial episode in which the grounds for building relationships were established, these diminished features can inhibit the development of a more positive relationship in the future.

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Table 6. Features

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Changes in Relationship Features ‘‘Opportunistic Behavior’’. Change

Evidence

Benevolence

k

‘‘They have diminished service because of their trading mentality’’

Attitudinal inputs

k

‘‘Sometimes you don’t feel like you are the customer, that is a bit harsh’’

Cultural distance

k

‘‘They make their money by buying and selling and taking a margin and a profit at the end of the day, and, at the end of the day we are a food company’’

Relationship value

k

‘‘Their trading activities that may, can or cannot, may or may not result in lower, in financial losses or whatever for us but it can be an inconvenience’’

Conclusion for Case Study B Most of the participants acknowledge the value of relationships with suppliers and customers as a means for acquiring competitiveness in the market. The level of enthusiasm is remarkable, principally among the top managers. This enthusiasm is gradually permeating throughout the organization. However, there is still a gap between the price and the sale traders. The company has an almost state-of-the-art definition of the desired features of a high-quality relationship. This definition lays emphasis on being trustworthy. However, in their comments, most of the interviewees ignored the relevance of sticking to deals that are fair for both parties. This does not suggest that the company acts opportunistically with its counterparts. Instead, the company needs to include other aspects of trust such as benevolence, and a form of commitment, justice, to be perceived as completely trustworthy by their customers. Relationships are regarded as a source of value by both parties. Value comes either from reduced costs or from augmented benefits. This study encountered no consensus on the subject of the ability of relationships to make it possible to have higher prices. However, better chances for longterm planning and improved resource utilization derived from relationships should be reflected in the parties’ improved financial performance. The rules theory analysis of episodes suggests that the current management of relationships fails to fully understand the meaning customers give to the company’s acts. It appears that the most valuable customer believes that the company continues to be trading-oriented and more concerned with short-term profits than with long-term relationship building. This point

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needs to be considered by the company in relation to what they want to achieve in the management of their relationships and the identity that other companies perceive them as having.

Case Study Report C: Aluminum and Steel Cans Developing Relationships When the interviewees explain their views about development of relationships between companies, they routinely refer to changes in personal relationships. For instance, the case of a person who recently started working in the company was immediately brought up. He is back at the early stages of that and just will slowly work about developing those relationships on his own style, proving honesty, integrity, making things happen, so the customer would say, ‘‘Yes I can develop a relationship with this guy.’’ (A2, p. 144)

Generally, other informants turn to personal aspects to illustrate how relationships between companies evolve. If you got a really good strong bond with the main person within that business the rest comes together because whenever you want to put in a plan, whenever you want to talk about an idea that person supports you in that, to get that through the business. (A4, p. 102) You’ve got to find out, maybe a little bit about the specific people you are dealing with, what they like or don’t like. (A7, p. 77)

These quotes suggest that the topic of intercompany relationships tends to be brought down to the personal level. Only few weeks before starting this research, the company put in place an account development plan (ADP) that aims to align the strategic intent of both buyer and seller, building a relationship that can be called Synergistic KAM (KAM stands for key account management), in which intercompany project teams work together in different areas of the business beyond the mere acts of buying and selling. Fig. 11 illustrates this. This proposition, which draws in the work of Millman and Wilson (1999) and Peck et al. (1999), sees the development of business relationships as a sequential stage by stage process, clearly aligned with the stages theory. The ADP document sets out the objectives that the key account managers and customers want to achieve in their relationships.

Low

Strategic Intent of Seller

High

Low

Fig. 11.

High

SHE Project Team

Selling Company

Key Account Manager

New Product Development (NPD) Project Team

Main Contact “Buyer”

Buying Company

Market Research Project Team

Logistics Project Team

Joint Board Meetings

Operations Project Team

Synergistic Key Account Management

Account Development Plan. Source: Company’s Account Development Plan.

Strategic Intent of Buyer

PreKAM

Early KAM

MidKAM

Partnership KAM

Synergistic KAM

Customer Relationship Development Model

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Identify where your relationship currently lies. Identify where you would like your relationship to lie, and by when. What are the principal activities and actions required to make this happen? (A16, p. 69)

The ADP methodology was launched in the last company’s sales and marketing conference (2003). Because the data gathering process commenced soon after that conference, it was expected that the key account managers would comment about the plan. Indeed, one of them appeared to be on that track. He started making reference to the theoretical models of KAM, like the customer relationship development model (i.e., Pre-KAM, Early KAM, Mid-KAM, Partnership KAM, and Synergistic KAM). This was the focus of the conversation for the first 10–15 minutes, until the researcher asked ‘‘Did you fill the templates?’’ and the answer was ‘‘We did start this and y I think y but we ran out of time there’’ (A4, p. 15). No further mention was made to the plan during the rest of the interview. Later, the researcher wanted to see the work that was completed at the conference only to discover that the templates had already been archived. The situation was even worse with the other two key account managers. One of them could hardly recall the templates and the other one picked up the half-filled templates from a place where they had been saved for future attention. Two elements can be mentioned at this point: (1) the key account managers did not adopt the ADP despite the efforts made to support its introduction, and (2) the main focus when discussing building relationships between companies is on changes in personal relationships and the need to rebuild them when a new person comes in or changes position within the company. It can be argued that developing relationships with new customers were not among the concerns of the key account managers and other interviewees, at least at the moment when this research was being carried out. Therefore, for a better understanding of why this was occurring, it is necessary to look at the context in which the company is embedded. Business-to-business relationships can be thought of as the result of dyadic interlinked episodes embedded in complex networks. This denotes the dynamic character of relationships and suggests that episodes go beyond the scope of personal relationships. However, Holmlund and To¨rnroos (1997) assert that although relationships are a consequence of activities and exchanges between companies, the focus for study of relationships should be not only on the individual actors but also on the context of the activities they perform. This acknowledges the importance of the individuals in business relationships and therefore of the personal relationships but also highlights the importance of the context of relationship performance.

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Similarly Anderson et al. (1994) stress the importance of the structure of the network that shapes the context in which all the decisions, actions, and changes occur. The structure of existing companies and relationships, they add, determine what actions are possible and which ones are not. An analysis of the context is therefore necessary to achieve a better understanding of the company’s approach toward building relationships. The Aluminum and Steel Cans Industrial Sector. The aluminum and steel cans industrial sector is a mature industry dominated by few players both in the production and supply of cans and in the purchase of cans for filling. In Australia, on the buyer’s side, three major companies account for more than half of the demand. Two are global public overseas-owned companies that fill their own brands. One of these uses exclusively aluminum cans and the other one uses only steel cans. The third company is a local private Australian-owned company, which is expanding into the Asian markets. This company fills aluminum and steel cans for third-party brands. These third parties, usually global companies, compete with the two companies previously mentioned. On the supplier’s side, the focal company on which the case study has been done is the biggest manufacturer. In brief, this is an industrial sector with a few big players in control who need each other to make business possible. The focal company is the only one that can supply the cans, and the three big customers are the only ones that can buy enough products to justify the supplier’s existence as illustrated by the following quotes: They are the only guys in Australasia that can meet our volumes in cans. They are also the only ones that have investment potential, to invest in the new technologies we now are coming up. (A5, p. 56) More than half of the total revenue of the company will be associated with these [three] customers. (A11, p. 10)

These companies are not only important because of the volume of business they generate but also because they have been customers of the company for a very long time, far more than 10 years. The attention of company members is thus mainly focussed on these three customers. This lessens the importance of any emerging business related to other companies. Episodes. In addition to the industrial sector context, three themes capture and focus the attention of the company members as well as the customers. The first one is the capacity of the aluminum plant. This is working at full capacity, facing a demand that exceeds its physical capabilities. The second

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Customer A

Customer B

Capacity Constraint

Customer C

Plant Relocation

Personnel Turnover

Overseas Competitor Y

Competitor X

: Commercial link

Fig. 12.

Steel

Aluminum

Company

Competitor Z

Local Competitor T

: Information Channel

Current State of Affairs. Source: Self-construction.

theme is that the steel plant has been going through full plant relocation. This includes modernizing the production processes. The third theme is that many changes in personnel have occurred at different levels within the organization. Thus, the lack of spare capacity on the aluminum side of the business has made it difficult to attract new customers and therefore to develop new relationships. The plant relocation also focuses the interests of the parties on keeping current customers satisfied. Changes in personnel channel energy into developing new personal relationships. A graphical representation of the industrial context and the current themes in which the company is immersed is presented in Fig. 12. Management of Relationships Management of relationships is the ability to deal with the dynamic interaction between two or more organizations in such a manner that the parties achieve their objectives. The company, as previously asserted, has been viewing the management of relationships as the management of interpersonal relationships. Although personal relationships are the basis of intercompany relationships, the company cannot rely only on this one aspect. An attempt to manage more comprehensively its relationships is recognized in the ADP that ultimately aims to achieve the synergistic KAM

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level in which intercompany teams interact. Reaching this high level requires not only an understanding of the multifaceted interaction but also a method to track the effects that acts performed within the relationship would have, and a method to add up the parts in a manner that the quality of the relationship would be ultimately assessable. Thinking of relationships only as a sum of its discrete parts does not create a full understanding. This study instead argues that a holistic approach is necessary to analyze the dynamics of business relationships within the context of the relationship’s performance. Rules theory is a tool that enables the parts to be integrated into a whole. The Dynamics of Business Relationships Understanding the dynamics of business-to-business relationships needs to go beyond the description of the most desired features of a relationship. Initially describing the relationship features provides the grounds for delineating the shape of relationships that the interacting parties appear to seek. It also gives the baseline against which the episodes occurring in interaction can be judged. The use of rules theory, on the basis of the previously described features of relationships, provides a tool that enables the parts to be integrated into a whole. Hierarchical Levels of Context. Five levels of context, as illustrated in Fig. 13, are thought to result from and give meaning to exchange acts between the company and its major counterparts. The proposed levels of context in ascending hierarchical order are: episodes, relationships, life script, company character, and aluminum and steel cans industrial sector. The dynamic interaction among the many actors, potentially changes, creates or dismisses one or more levels of context. Each one of these levels

Aluminum and Steel Cans Industrial Sector Company Character Life Script Relationships Episodes

Fig. 13.

Hierarchical Levels of Context Case Study C.

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of context is constantly changing because of the dynamic character of the interaction and the many actors participating in them. Two levels of context are described earlier, the aluminum and steel cans industrial sector, and the most common episodes that have been occurring between the organizations. Relationships. Life Script.

The relationships level of context is described earlier. The life script level of context is also described earlier.

Company Character. The company character is the identity that the company projects toward the exterior. The company character results from the acts performed by the company and the meaning that its counterparts give to those acts. Ha˚kansson and Snehota (1995c) assert that a company is only a mental construction that results from people in interaction. On the basis of that idea, it can be argued that the company character is influenced by people’s definition of self. Thus, episodes occurring within a business relationship would also be given meaning in the life script level of context. Analysis of Episodes Analyzing the current episodes with the aid of rules theory could facilitate understanding of direction in which the company’s relationships are moving. This theory also helps to comprehend how particular acts affect the quality of such relationships. The method has a holistic approach in which the parts are nonsummative constituents of the whole (i.e., the whole is greater than the sum of the parts); the meaning of a part depends on the whole but not vice versa. The parts have their own meaning immersed in a larger system. This study analyzes in the following sections acts and episodes in the context of their performance and the whole relationship. For this, it is necessary to concentrate on each customer, one at the time, bearing in mind that the acts within one relationship affect other relationships in the system, to analyze how different episodes (re)define the nature of the company’s relationship, with each specific customer and later with their whole customer base. Customer A Customer A is a large global public company with operations in Australia. It has been working with the company for several years. This customer’s demand, which is exclusive to the aluminum plant, has considerably

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increased in the past year, to the extent that the company cannot produce the quantity of cans that is required to meet the customer’s needs. Therefore, the relationship with customer A is currently being influenced by the capacity constraints at the aluminum plant. Antecedents. The parties, customer and company, involvement in the problem occurred for more than a year. During this time, several episodes have happened, but the solution to the problem is rather uncertain. The significance of the problem has reached such high levels that both parties recalled a similar problem of capacity shortage that took place four years before. Although it was the result of the plant relocation at that time, the parties have connected both episodes regarding them as a single event that has lasted more than four years. This theme drives the relationships and therefore steers the life of the company. During the data gathering process, the participants’ concern about this situation was evident. Not everything but a significant part of the interviews gravitated around the capacity constraint. Currently, its importance is such that it can be deemed as a level of context itself in which various episodes of the intercompany relationships are performed. At the time this research was conducted, the relationship was fraught with confusion and the parties appeared to have trouble in assigning meaning to the counterpart’s acts. Arguably, there is at least one aspect of the relationship immersed in a strange loop. All the information related to the capacity constraints was grouped with the assistance of a fishbone diagram, resulting in the following five groups of problems: (1) production, (2) management of the information, (3) demand performance, (4) personnel turnover, and (5) reactions to the problem. Fig. 14 shows these relationships. First Problem. The first capacity issue goes back four years to when the company moved to their new aluminum facility located 400 km north from the previous steel facility. As in any start-up process, the new personnel needed training and the efficiency levels dropped significantly and soon after the company found it unable to cope with demand. Several actions were taken and the problem was controlled. This section analyzes these episodes with the use of rules theory and attempts to shed light on the situation as it was when this research was conducted.

Demand

Efficiency

Quality

Production

Fig. 14.

New KAM Appointment

Old KAM Dismissal

New MKTG MGR Appointment New General MGR Appointment

Personnel Turnover

.

Themes Related to the Capacity Constraint.

Unexpected

Projected

Growth

Exports

Promotions

KAM Relocation

Production Planner Appointment

Capacity Constraint

Second Hand

New

E Earlyswitching off

3rd Suppliers Qualification

New Production Line

New Project Team

Imports

rd

Capacity 3 Suppliers

OldSalesMGRDismissal

Reaction

Marketing Coordination

Listening

Opportune

Open

Complete

Accurate

Information

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The occurrence of the first capacity shortage was understood in the context of the plant relocation and the following rules appear to have been applied:

Plant relocation cR1=

Dealing with Customer C

⊃

Could not cope with demand

Lack of coordination

Read: Constitutive rule. In the context of the plant relocation, if the company is dealing with customer C and then cannot cope with its demand, this counts as a lack of coordination.

Plant relocation rR1=

Lack of Coordination

⊃

(Obligatory (Set Initiatives))

⊃

Improve Interaction

Read: Regulative rule. In the context of the plant relocation, if there is a lack of coordination, it is obligatory to establish a number of initiatives in order to improve the ways of interacting with Customer C. In response to the problem, the company arranged for the production planner to work together with the customer’s production planner; relocated the key account manager to the new facility to ease the flow of information; started a temporary program of imports to cope with the extra demand, even going to the lengths of favoring competitors from overseas, to avoid letting down the customer; and finally, established a team to work in developing new technology that could break new ground in their industry. The customer appears to have applied the following rules:

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Relationships Plant relocation cR2 =

Capacity Shortage ⊃ [Reactions → Care about customer] Ep. Appointment of the Production Planner

Shortening links in the chain for speed up communication

Ep. Relocation of the KAM to the new facility

Exclusive assignation of the KAM to the customer

Ep. New technology initiative

Providing innovativeness to the relationship

Ep. Temporary imports

Sacrificing short term profits

Read: Constitutive rule. In the context of the plant relocation and in the context of this relationship, if there is a capacity shortage, then the company in response: 1) appoints its production planner to work directly with our production planner, thereby speeding up communication and improving coordination at fine detail levels, ‘‘We just sat down and went through every single sku, when I needed to run it, I put in the order and [she] see and said what can we do’’ (A12, p. 61); 2), relocates the key account manager to their new facility, providing us an exclusive point of contact to satisfy our needs, ‘‘[The key account manager at that time] was fully [assigned to our company], I am pretty sure she was specifically [to our company]’’ (A12, p. 16); 3) starts a temporary program of imports to cope with the demand, showing that the supplier is even prepared to lose to keep us going, ‘‘At the end of the day they would be hurting on this exercise. In the short term they manage it, they keep us happy’’ (A5, p. 150); and 4) creates a joint team to study the feasibility of applying new technologies to the industry, thereby giving us a big opportunity for innovation, ‘‘Four years ago we started working on a project which should have freed out capacity’’ (A5, p. 35) All the actions put together count as: ‘‘the company is taking care of us.’’ Contained by the relationship features previously described, the company’s acts had positively affected trust, commitment, and bonds, thus

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improving the quality of the business relationship. The customer appears to have applied the following regulative rule: Relationships rR2=

Improved Relationship Quality

⊃

(Obligatory (Correspond))

⊃

Preserve relationship

Read: Regulative rule. In the context of relationships, if the supplier acted to improve the quality of the relationship, then it is obligatory to correspond, in order to preserve the relationship. Afterwards, the company was awarded preferred supplier status and became sole supplier of the product. New Problem. Three years later, the parties again encountered a similar problem, although amplified and not caused by the plant relocation. Two significant episodes that have had an effect on the meaning that the customer gives to the company’s actions in coping with the new problem are (1) personnel turnover, in that the Customer A now has to deal with a new key account manager, a new sales and marketing manager, and a new general manager, and (2) supplier managed inventory (SMI), which was awarded to the company. The latter means that the supplier has total responsibility for keeping supplies available. Nevertheless, the company applied similar actions to the previous experience, but the context in which the acts are performed has changed from a one-off episode: the plant relocation to a recurrent episode; the capacity constraints. The meaning that the counterpart gives to the company’s reaction appears to be different. Relationships Capacity constraints cR =

New Capacity Shortage ⊃ [Reactions → Intention to cope with the problem]

Ep. Expand capacity

Promise still non tangible

Ep. KAM substitution

A big loss

Ep. New technology initiative

A project not seriously executed

Ep. Temporary imports

An escape valve that does not work effectively

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Read: Constitutive rule. In the context of capacity constraints and in the context of the relationship, which now has embedded a supplier managed inventory system, if a new capacity shortage is occurring, then the company in reaction: (1) offers to expand capacity putting in place a third production line, but does not progress beyond making the promise, which is neither tangible nor has a deadline, ‘‘No one yet has come back and said we have bought it’’ (A5, p. 158); (2) replaces the key account manager with one that is neither exclusive to the customer, nor located at the aluminium facility, thereby causing a big loss to the customer, ‘‘We used to have a lady who is not there anymore, that was a big loss’’ (A5, p. 75) ‘‘He [the new key account manager] has a few customers as well, he is not just looking after [our company]’’ (A12, p. 16); 3) continues with the new technology project, a project that has not been seriously executed since it has not delivered results for years, ‘‘There wasn’t a seriousness put into that part of the project I don’t think’’ (A5, p. 36); and 4) restores the temporary imports program, which as stated generates losses, thus is only an escape valve that does not provide very effective results, and the supplier is also aware of this, ‘‘We imported the three million cans but didn’t really have a definite position on where we were at the end of the three months’’ (A4, p. 159); all the actions together, count as no more than good intentions to cope with the problem, ‘‘The relationship is a bit stretched because they know we’ve been through it before and nothing of that was rectified’’ (A2, p. 90). The appointment of the production planner, which, as perceived by the informants, is the only real bond in the relationship, was not included within these acts since it happened four years before and could not be deemed as a new action. Switching the context of performance from a discrete problem to a recurrent one, in conjunction with other previous episodes occurring within the relationship, led the customer to assign a different meaning to the supplier’s reaction. The customer, instead of feeling compelled to give assistance, appears to have applied the following regulative rule: Relationships Capacity constraints rR=

Intents to cope with the situation

⊃

(Legitimate (Wait and see))

⊃

Evaluate options

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Read: Regulative rule. In the context of capacity constraints and in the context of relationship in which a supplier managed inventory system is embedded, if the supplier is trying to cope with the situation, then it is legitimate for us to wait and see whether they come out with a definite solution, in order to evaluate the better options for our company. ‘‘Their reaction was ‘well you do whatever you can do to support our demand’’’ (A4, p. 135).

Results. In this new situation, the company’s reaction did not produce satisfactory results. The company could not cope with the demand almost after a year had elapsed. The parties do not blame each other but suggest that the management of the information was not the best. On the one side, the supplier believes that the customer did not accurately forecast demand and the little they knew was poorly communicated, ‘‘They didn’t go back to demand and, if that was true demand, they just said, well, put a line on the sand and said this is our demand, we are going to need 20% extra make sure you can do that’’ (A4, p. 134). On the other hand, the customer replies saying that they had accurate forecasts, and clear growth expectations, ‘‘we give an accuracy level of our forecast of maybe 75 or 80% which is pretty good, we also have growth plans in to grow minimum a 6% per year’’ (A5, p. 26). Thus, if the supplier did not have capacity to cope with this situation, it was because they were not listening to the customer. Additionally, the demand was boosted as a result of a war price occurring between two big supermarkets, which are indeed the main distribution channels. This was the straw that broke the camel’s back. The solution of importing cans lost effectiveness for various reasons. (1) the supplier halted the imports too early and did not do enough to cope with the extra demand: ‘‘We imported cans for a period of three months and then we flipped off the switch and said right no more imports, we don’t need to import anymore’’ (A4, p. 158). Arguably, this has happened because of the general difficulty in understanding levels of demand. (2) When the supplier tried to increase the volume of imports, this resulted in the overseas producers not having enough spare capacity. However, this was only communicated when the shipments were delayed. (3) Replacing suppliers proved to be harder because of the specific requirements that both suppliers and product must meet. This problem, which is yet to be solved, has jeopardized the quality of the relationship. It has been aggravated by the weak or virtually nonexistent personal relationships between the parties, with the exception of the dyad formed by the production planners and a high level relationship at the top of the organizations that seems to be holding the businesses together,

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CEO General Manager

Customer A

Sales and Marketing Manger

Key Account Manager Customer A

CEO

National Sales Manager

Supplier Manager Packaging

Operations Manager

Technical Manager Aluminum

Production Planner

Production Planner Aluminum

Fig. 15.

Dyadic Relationships with Customer A.

‘‘We probably continue with them because of the strength at the CEO’s level’’ (A11, p. 94). Fig. 15 shows the dyadic relationships. Fig. 15 shows that a key party within the customer company, the supplier manager, does not have a real counterpart on the supplier’s side. The only relationship that this person appears to acknowledge is that with the general manager. However this is not a day-to-day relationship. Strange Loop. This sort of isolation that the supplier manager is experiencing in the context of a relationship that is not delivering satisfactory results is inconsistent with the definition of this person’s life script and his role as a supplier manager, ‘‘I look after, in the old school is buying, the supply management. For a very good reason we don’t actually buy anymore we do manage the relationship’’ (A5, p. 12). If the role of a supplier manager is to manage the relationship and he does not manage it, then this puts this person in a strange loop. Resolution of the paradox may either boost or seriously threaten the relationship. The role of supplier manager, which could be perfectly compatible with SMI, is instead in a reflexive loop because of the unsatisfactory results that the relationship is delivering. Thus, what is consistent within the SMI level of context is inconsistent within the supplier manager’s life script level of

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Capacity constraint SMI

Life Script

I am a Supplier Manager

I am not a Supplier Manager

Intervene with the inventory’ management

Let the supplier manage inventory

= exclusive disjunction

Fig. 16.

Supplier Manager Paradox.

context, putting the supplier manager’s definition of his role within his own company in paradox, as illustrated in Fig. 16. In Fig. 16, there is an exclusive disjunction between ‘‘I am a supplier manager’’ and ‘‘I am not a supplier manager.’’ If the acts are performed in the context of the SMI system, a supplier manager lets the supplier manage the inventories. However, when acts and episodes are within the context of capacity constraints, letting the supplier manage the inventory in the context of life script counts as ‘‘I am not a supplier manager,’’ then the appropriate action is to intervene with the management of the inventory. This, however, means that ‘‘I am a supplier manager’’ is not consistent with SMI. This situation creates confusion. The supplier manager does not know what kind of rule of action corresponds, because having a SMI separates the supplier manager from the problem but, on the contrary, the problem that the parties are facing requires the supplier manager’s intervention.

s

Life Script

Supplier Managed Inventory

rR =

The supplier is working to fix the problem

⊃

(Oblig. (Let them make the effort))

⊃

Respect the terms of the agreement

The supplier is not delivering satisfactory results

⊃

(Oblig.(In tervene and find a new supplier))

⊃

Fill the role of supplier manger

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Read: Regulative rule. In the context of a strange loop, one of these regulative rules but not both should apply. If the supplier is working to fix the problem, which in the context of SMI could be the meaning that was given to the supplier’s actions, then it is obligatory to let the supplier perform his task in order to respect the terms of the agreement with the supplier (SMI). Alternatively the regulative rule would be: if the supplier is not delivering satisfactory results, which in the context of Life Script could be the meaning that was given to the supplier’s performance, then it is obligatory to intervene and find a new supplier in order to meet the terms of the supplier manager’s role within the organization. Cronen et al. (1982b) stress that some strange loops produce adverse personal and social consequences. However, they also assert that people act creatively to convert strange loops to charmed loops. This suggests that the company should play a role in managing their relationships with the supplier manager in a manner that he can exit the paradox without causing damage to the relationship. Changes in Relationship Features. Each time an episode occurs between two or more individuals, the characteristics of relationships are potentially reshaped. This study recounts in previous sections two episodes that took place between the company and Customer A. Both episodes resulted from an increased demand that exceeded the company’s capacity. Both episodes can be deemed similar, with only one difference: one happened three years later than the other. Hence, the company reacted to both episodes in a similar manner. Nevertheless, the effects that the management of both episodes has had on relationships appear to be different. Facing this evidence a question has emerged: How is it that a single episode can result in such different consequences across different relationships? The first time that the company faced capacity constraints in dealing with Customer A, they reacted in a manner that improved several dimensions of the relationship. Customer A construed the company’s reaction as a demonstration of commitment in a number of its dimensions, which afterwards improved other constructs of relationships such as trust and bonds, and also reduced distance. Conversely, the subsequent problem of capacity constraints resulted in the deterioration of the relationship, even though the company’s reaction was similar. Table 7 illustrates the changes on features of relationships on both occasions.

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Table 7. Features

Changes in Relationship Features Customer A.

Change

Evidence

First New problem problem Benevolence

k

‘‘They had spare capacity four months early and now they don’t have spare capacity’’

m

‘‘She is extremely open and honest I can sit at her work station y there are not secrets’’ ‘‘No, I am not hiding anything, no. Nothing at all. It is safer to show the real figures’’

k

‘‘We only had two minor stock outs, they managed it very well’’ ‘‘[Demand] goes like this [increasing] so every time we did this then they lost and made it worse’’

Honesty m

Competence

m

Attitudinal inputs

m

Instrumental inputs

m

Performance

k

Informal adaptations

m

Economic bonds

m

Structural bonds

m

Social bonds

m

Cultural distance

Relationship value

Production planner appointed to work direct with customer Although production planner still works directly, this decision comes from the previous episode

k

‘‘I am pretty sure she was specifically to [Customer A]’’ (the old KAM) ‘‘He is not just looking after [Customer A]’’ (the new KAM)

2

The company started an imports program to cover changes in the customer’s demand It is the same imports program used to deal with the first episode of capacity constraints, not a new one

k

The imports program is not generating profits to the company

2

The imports program was an adaptation beyond the terms of the normal supply It was not a new initiative

m

Justice

Social distance

2

m

‘‘They are the only guys in Australasia that can meet our volumes’’

k

Both companies started a joint program of technological innovation ‘‘The project really is a toy is not a serious project’’

k

‘‘We all respected what she had to say’’ (in regards to the old KAM) ‘‘That was a big loss’’ (the dismissal of the old KAM)

k

‘‘They need somebody who can hit the floor running between me, a lot of experience’’

k

‘‘We work quite closely with each other’’ (the production planners) ‘‘Very new, frankly I don’t think he knows a lot of things about this whole part of the business’’

k

‘‘We are in the mess and I take part of the responsibility of not having capacity there’’

m

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The reason why this appears to have happened can be expressed in terms of meaning and context. On the first occasion, the acts were given meaning in the context of the plant relocation, and therefore, Customer A felt compelled to cooperate to overtake the problem. The second time, capacity constraints happened to be the level of context in which shortages and inventory breaks were occurring. Consequently, Customer A feels it is legitimate to consider alternative solutions to the problem. This option was further legitimated by a weakened relationship resulting from changes in personnel within the company. Only honesty-based trust and economic bonds improved in relationships, but all the other dimensions deteriorated. Summary A. Drawing on the evidence presented above, and complementing this evidence with observations made during the intercompany meeting (in which an inquisitive customer examined a defensive supplier regarding the actions that the latter had been taking to solve the problem), it is argued that the supplier manager will be pursuing an overseas manufacturer as a substitute supplier; if not to cover the whole demand, at least to partially satisfy his company’s needs. This can be done for products for which demand is less variable. To make this possible, the supplier manager would take advantage of the annual preferred supplier certification, which if not achieved could legitimize the supplier manager’s search for better alternatives. The preferred supplier certification is a companywide assessment of the supplier’s performance, not a private assessment of the supplier manager. The person who managed the intercompany meeting, who is, also, above the supplier manager in the customer’s company hierarchy, made a final comment that reinforces the theory that the customer’s concerns reach further than the supplier manager’s limits: ‘‘[addressing the key account manager] Having no cans is keeping me awake, how about you?’’ (A15, p. 36). Customer B Company B is a big private company operating in Australia. This company provides filling services to third parties that market brands but have no manufacturing facilities in the country. This company has also extended its scope, presently covering export markets, mainly Japan but also in other Asian countries. The range of products that Customer B deals with is broad. They are customers for both aluminum and steel cans. The state of affairs with Customer B is currently better than with Customer A, although not perfect.

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This customer is currently experiencing the three main problems: personnel turnover, plant relocation, and capacity constraints. All these episodes are contextualized by the customer’s Total Quality Management (TQM) approach. It is unbelievable the standards you have to meet, the colour y although the average shopper looks on the shelf and wouldn’t matter if it is two shines of purple, but specially with [customer B] quality requirements, they reject cans for being slightly out of colour and things like that. [Customer B] pride themselves of being number ones in quality and try to be in price as well. (A1, p. 68)

Although the company recognizes the value of having a demanding customer, they also ponder the little impact that it has on the price, ‘‘The problem is [customer B] are expecting Japanese quality for an Australian price and we are refusing to do that’’ (A11, p. 99). The company is also this customer’s sole supplier and although there is no SMI system in place, the customer pushes hard to keep inventories as low as possible, ‘‘We don’t want pallets of product that we are not running on the week’’ (A13, p. 32). Personnel Turnover. This customer was not affected by any change at the key account manager level, the current one having been several years in the role. On the contrary, the supply chain manager on the customer’s side has been recently appointed causing some level of strain within the relationship; ‘‘For being new he is trying proving himself and is trying to enforce things a lot harder on what they used to be with the previous supply manager’’ (A1, p. 155). This is happening even though the key account manager knew him from the past when he was working for another customer. To the supply chain manager’s short tenure within the customer’s company should be added the company’s newly appointed sales and marketing manager and sales manager’s dismissal. As a result, the dyadic relationships between the company and Customer B are not strong at all levels, as illustrated in Fig. 17. Fig. 17 suggests that the strongest link is between the key account manager and the supply chain manager. However, being a private company, the CEO also plays an important role. It is also suggested that the links of the departing national sales manager have not been replaced yet by the newly appointed sales and marketing manager. As with Customer A, the general manager has already established relationships on the grounds of his previous experience in the industry. Plant Relocation. This was not an issue of concern so long as the company kept the customer informed about the state of the relocation project. During

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General Manager Customer B Sales and Marketing Manger Key Account Manager Customer B National Sales Manager

CEO

Operations Manager

Technical Manager Aluminum Supply Chain Manager Technical Manager Steel

Fig. 17.

Dyadic Relationships with Customer B.

the intercompany meeting, one of the customer’s representatives requested information about the project’s milestones, risks, and safeguards in place. After the information was given, the customer seemed to be satisfied. Even though the customer would prefer the plant not to be relocated, ‘‘[Customer B] didn’t see the need to be moving [to the new facility]’’ (A11, p. 38), in the context of the capacity constraints, this episode is exacerbated, ‘‘If we didn’t have [the problem at the aluminium plant], this move will mean nothing to [customer B]’’ (A11, p. 39). Thus, the company appears to apply the following constitutive and regulative rules: Capacity constraints cR=

Dealing with Customer B

⊃

Plant relocation

Inconvenience

Read: Constitutive rule. In the context of the aluminium plant Capacity constraints, if dealing with customer B, then having to relocate the

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steel plant counts as an inconvenience that might derive in further problems. Relationships Capacity constraints rR =

Inconvenient plant relocation

⊃

(Obligatory (Keep the customer informed))

⊃

Reduce strain

Read: Regulative rule. In the context of the aluminium plant capacity constraints, and in the context of relationships, if the customer perceives that relocating the steel plant can cause problems, it is obligatory to provide as much information as possible in order to keep the customer satisfied and reduce strain within the relationship. It noticeable how episodes turn to be contexts when perceived by the counterpart as being interrelated. These levels of context can be deemed as temporary. Capacity Constraints. Currently, the customer is not affected to any degree by the capacity constraints. However, it became aware of its effects when the company needed to import to supply a totally unexpected order. Nonetheless, the fact that the company would not be able to meet any extraordinary orders has already made the customer feel that the capacity constraints may limit their expansion capacity. Thus, the customer, preempting any problems comments: ‘‘We don’t like when the trend of missed deliveries or number or outs of stock increases, and then make a shuffle to fix it’’ (A3, p. 39). Therefore, the customer expects the company to resolve the problem before it becomes a major inconvenience for them. This customer expressed the desire to see a new production line installed at the aluminum plant facility, as an old one could limit the company’s flexibility in the future. ‘‘We want to see in our suppliers’ innovation and capital expenditures in new equipment’’ (A3, p. 22). However, the customer does not offer any purchase guarantees that make it clear to the company that they should embark on such an investment. A passage regarding the company’s quest for a contract to justify investing in a new production line shows the customer’s position: ‘‘[Customer B] refused, they don’t

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believe in contracts. Wouldn’t even take a thought’’ (A11, p. 46). It can be argued that the meaning of the episode of asking for a contract was not given at the level of context of relationships. Instead, it was given at the level of context of the capacity constraints. The following rules appear to have operated: Capacity constraints cR =

Justify a new production line

⊃

Asking for a contract

Sharing risks

Read: Constitutive rule. In the context of the capacity constraints, if the supplier is trying to justify investing in a new production line, then comes asking to sign a contract, this counts as an attempt to share the risks with us. Capacity constraints rR=

Share risks

⊃

(Legitimate (Deny petition))

⊃

Avoid losing leverage

Read: Regulative rule. In the context of the capacity constraints, if the customer attempts to share the risk, it is legitimate to deny the petition, in order to avoid losing leverage for future negotiations. Changes in Relationship Features. Three main themes currently occurring within the company affect customer B, that is, personnel turnover, plant relocation, and capacity constraints. Table 8 summarizes relationships with this customer changing in a number of dimensions. The combination of the three episodes has negatively affected relationships with Customer B as construed by participants in the research. On the one hand, the customer appears to believe that the company has not been acting quickly enough to solve the problems, particularly capacity constraints, and on the other hand, the company appears to see Customer B as not reciprocating, for instance, when not signing a contract that could be used to justify the company’s proposal to invest in a new production line.

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Table 8. Features

Changes in Relationship Features Customer B. Change

Evidence

Benevolence

k

Instrumental inputs Justice

k

‘‘[Customer B] refused, they don’t believe in contracts. Wouldn’t even take a thought’’ Customer B refused to sign a contract for enabling the investment in the third line ‘‘The problem is [customer B] are expecting Japanese quality for an Australian price’’ ‘‘We want to see in our suppliers innovation and capital expenditure in new equipment’’ (regarding the delayed decision to invest in a new production line) The newly appointed Sales and Marketing Manager has not yet built social bonds ‘‘There is a tendency to [customer B] to want to make things happen quicker’’ (regarding capital expenditures) ‘‘For being new he is trying proving himself and is trying to enforce things a lot harder’’ No changes have been perceived to the value of relationships

k

Structural bonds k Social bonds

k

Cultural distance

k

Social distance

k

Relationship value

2

All in all, relationships lost in trust, commitment, and bonds and increased distance. Summary B. The relationship between the company and this customer is operating in a TQM atmosphere, in which the customer attempts to show the company not only how to improve quality but also how to manage their operation. This gave the company a sense of obligation to comply with every one of its customer’s requirements, with very little reciprocal response toward the supplier. As one customer says, ‘‘What we do is in our customer’s interest, not in the supplier’s interest’’ (A3, p. 10). Under these circumstances, even though the customer depends highly on the company’s ability to stay in the country, it is very unlikely to gain their commitment until a more holistic view of the problem is obtained. Customer C Customer C is a big international public company operating in Australia. At the time this research was conducted, it only used steel cans. This customer is the biggest one for the steel cans facility. Most of the interviewees agree that the relationship between the companies is good. Cordiality was apparent between the parties during the intercompany meeting. The general atmosphere was warmer than during the meetings with the other two customers. Although the customer asked several questions

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regarding the plant relocation, they were not aggressively inquisitive; instead, they looked genuinely interested in understanding the details of the new project. Arguably this was because there is no impact on them due to the capacity constraints. Customer C put on much less pressure on the company than Customer B regarding the quality shortfalls. The main themes between the companies are (1) quality – technical themes, (2) steel plant relocation, and (3) personnel turnover. All three themes are co-related. Quality – Technical Themes. Overall, the customer describes the supplier’s quality as good, ‘‘The quality has been generally good and that is in terms of can making as well as printing’’ (A6, p. 57). Within the company, there is a shared sense of understanding in this regard, ‘‘For every [Customer C] complaint we will probably receive about 20 [Customer B] complaints, supplying the same sorts of cans’’; ‘‘They would prefer to work through the personal level than putting a complaint’’ (A9, pp. 120, 162). However, there is a leakage problem that upsets the customer’s production line and generates a quality incident report (QIR) that needs attention. Investing in some equipment can solve this problem. Thus, one of the interviewees construes the episode as follows: Relationships cR=

Dealing with QIR ⊃

Investing in new equipment

Cementing the relationship

Read: Constitutive rule. In the context of this relationship, if in dealing with the quality incident reports (QIR), then the company invests in new equipment to prevent leakages, this counts as cementing the relationship. In the typology of business relationships, this act could be deemed as an instrumental input towards the continuation of the relationship. The customer also values the company’s technical support for and responsiveness to new product development. An episode in which the company did not react as quickly as the customer wanted is construed as follows: Relationships cR=

New product introduction

⊃

Not progressing quickly enough

Not cooperating

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Read: Constitutive rule. In the context of our relationship, if the customer is in the process of introducing a new product, and the company does not progress quickly enough, this counts as not being cooperative with the customer. According to the key account manager, his role is to look after the needs of production. This is illustrated by the following constitutive rule: Life Script cR=

Dealing with Customer C

⊃

Keeping production satisfied

Managing the relationship

Read: Constitutive rule. In the context of the key account manager’s life script, if in dealing with the customer production is pleased with his performance, this counts as managing the relationship. The meaning that both customer and supplier gave to these two acts later influences how the customer construes the other two main themes: plant relocation and personnel turnover. Plant Relocation. The steel plant relocation did not put high levels of stress on the relationship. It must be stated, though, that relocation was not finalized at the time this report was written. Customer C acknowledged the benefits of the plant relocation, ‘‘We understand that it is a benefit to us in ensuring continuity of supply and maintenance of quality cans’’ (A6, p. 30), but also complained about delays in receiving adequate technical support. I guess in recent times they become a little bit lean in terms of technical support and that is a little bit of concern, things don’t happen as quickly as we would like sometimes, from a technical investigation point of view, because there are a range of technical issues that come up periodically with cans, and we find that often are not addressed as quickly as we would like. (A6, p. 29)

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Then the plant relocation became a temporary level of context in which episodes were given meaning. The following rules appear to have applied to the slow level of response to some technical problems: Relationships Plant relocation cR =

Technical problems

⊃

Slow to respond

Internally focused

Read: Constitutive rule. In the context of the plant relocation and in the context of relationships, if technical problems occur, then the supplier takes too long to deal with the problems, this counts as being internally focused. Relationships Plant relocation rR=

Internally focused ⊃

(Obligatory (Tolerate))

⊃

Harvest further benefits

Read: Regulative rule. In the context of the plant relocation and in the context of our relationship, if the supplier is internally focused, then it is obligatory to tolerate it in order to benefit from the improvements that the new plant could produce in the future. The customer is concerned about a project that appears to be occurring within the company to reduce variability of the output. The customer construes this project as resulting in a potential reduction of flexibility. There is campaign running with [the supplier] to find a way of taking all the less complex stuff out of the mix and just churning up through on a regular basis all those cans we need on seasonal stuff and then need space for flexibility. We need flexibility in our seasonal products. (A6, p. 35)

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The topic appears not to have been broadly discussed, which has led the customer to become prematurely concerned. This might be connected with the personnel turnover. Personnel Turnover. This theme is also present within the relationship. As explained previously, several changes in personnel occurred within the company, and Customer C is feeling the effects of these changes. A loss of knowledge is believed to be a result of personnel turnover. In addition to there being a new general manager and sales and marketing manager, this customer also hired a new key account manager. Fig. 18 shows the dyadic relationships. Fig. 18 suggests that the newly appointed sales and marketing manager has not yet replaced the social bonds that the dismissal of the national sales manager severed. Neither has the new key account manager replaced the links that the old account manager built. However, he has already established a relationship with the packaging, purchasing & development

General Manager Customer C Sales and Marketing Manager

Key Account Manager Customer A

Key Account Manager Customer C

Supply Chain Manager

National Sales Manager

Operations Manager

Technical Manager Steel

Fig. 18.

Packaging Purchasing & Development Manager

Dyadic Relationships with Customer C.

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manager. In Fig. 18, the long-dash connector between the key account manager of Company A, formerly the key account manager of this company, and the customer’s packaging, purchasing & development manager, denotes an alive relationship, which at the time this research was conducted was more personal than professional, but was nonetheless helping in the development of the relationship with the new key account manager. The link between the technical manager and the packaging, purchasing & development manager strengthens the relationship, as the company’s technical support is valued. The personnel turnover did affect the customer other than for the fact that it was felt there was an inadequate amount of discussion about the changes that were taking place. I guess one of the things that has bothered us in the last 12 to 18 months is not only the number of changes but the rates of haste in which they are announced to us and often not with a great deal of forewarning and certainly very little discussion. (A6, p. 67)

Thus, the episode appears to be construed as follows: Relationships

cR=

Personnel turnover

⊃

Changes without enough discussion

Need to rebuild trust Loss of understanding of what has been transpired Loss of history and heritage

Read: Constitutive rule. In the context of relationships, if the supplier changes personnel and the changes occur without proper communication, this counts as not having transmitted knowledge between previous and new members of staff. For the relationship management, loss of knowledge and understanding denotes increased social and cultural distance, reduced trust, reduced commitment, and loss of social bonds. This does not necessarily suggest a threat to the relationship but new efforts are required to take it back to a better stage. Changes in Relationship Features. Three themes were occurring between the company and the Customer C: quality and technical themes, plant relocation, and personnel turnover. Capacity constraints are not an issue as

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Table 9. Features

Changes in Relationship Features Customer C. Change

Evidence

m

‘‘I think [the company] managed that fairly well and it hasn’t really affected our day to day business’’ (regarding changes in Australian standards)

Attitudinal inputs

k

‘‘I guess in recent times they become a little bit lean in terms of technical support and that is a little bit of concern’’

Instrumental inputs

m

‘‘It is a benefit to us in ensuring continuity of supply and maintenance of quality cans’’ (regarding the new facilities)

Social bonds

k

‘‘They take with them their understanding and the history of what has transpired’’ (regarding the dismissed KAM)

k

‘‘Understanding that needs to be rebuilt after someone departs. It is quite disruptive’’ (regarding the new Sales and Marketing Manager)

2

No changes have been perceived to the value of relationships

Benevolence

Social distance

Relationship value

they were for the other companies. As a result of interaction, relationships between the company and the Customer C are affected in a number of dimensions as illustrated in Table 9. Personnel turnover appears to have disrupted the relationship. This customer experienced a new key account manager together with the arrival of the new sales and marketing manager. This was construed as having lost history, heritage, and experience; therefore, relationships have lost in social bonds and increased in social distance. The plant relocation, instead, has been deemed beneficial to future supply and continuity of the business; thus, it has improved instrumental commitment, even though some reduction in technical support was considered as lessening attitudinal commitment. Finally, Customer C could also recall episodes other than those related to the three most recurrent ones. Consequently, an episode in which the company looked after the customer’s interests as well when dealing with changes in manufacturing standards increased the customer’s belief that the company acts in a manner beneficial to them too.

Summary C. The relationship with customer C could be deemed good despite the need to rebuild social bonds and reduce distance between the new members of staff, namely, the sales and marketing manager. A further strengthening resulting from the new steel facility together with the structural bonds that the investments in improving the rate of leakages

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would create should suffice to keep the status of sole supplier that the company has been awarded. Conclusion for Case Study C This report presents analysis of the data gathered through interviews, observations, and review of documents. The analysis is performed in two main sections: one with the use of the whole information to describe the shape of the most desirable features of business relationships, and the second focusing on the specifics for the three major relationships that form part of this case study. The report focuses on four aspects: (1) development, (2) features, (3) value and benefits, and (4) management of relationships. In relation to developing relationships, especially within the marketing and sales employees, two common topics are raised, the personal side of relationships and a proposed ‘‘Account Development Plan.’’ The emphasis on the personal aspect of relationships was associated with an extensive personnel turnover, which the company had experienced over the 12–18 months before when this research was carried out. Overall, developing relationships appear not to be a major concern within the company, essentially due to the long tenure of the three main customers. Regarding the features of relationships, the information was structured to fit within the current business relationships typology, which permits the creation of a comprehensive vision of the most relevant features of business relationships as construed by the participants. Four major constructs were identified: (1) trust, (2) commitment, (3) bonds, and (4) distance. Strangely, no mention is made of satisfaction with the relationship, whereas various aspects of commitment, typically a unidirectional construct, were encountered. This was different for bonds, which denote a bidirectional attachment. Social bonds were accentuated over structural and economic bonds. This suggests that the company is putting more effort into sustaining the relationship than customers are. Relationships deliver financial, knowledge, strategic, and personal values to the parties. However, under the circumstances, the most valued aspect of relationships was ‘‘making the pain bearable’’ (A11, p. 89), particularly in the light of the capacity constraints problem. Finally, dealing with summated data does not lead to a full understanding of the management of relationships at one given point in time; therefore, a company-by-company analysis was performed. Three of the company’s leading relationships were scrutinized with the assistance of rules theory. It was shown how the meaning that the parties give to particular acts depends on different levels of context in which the

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acts are performed. In the same manner, the counterpart’s response to an act depends on the context of its interpretation. The outcomes of the enacted episodes have reshaped a number of dimensions of the relationships, with some of them improving and others worsening. Three major themes have coloured the intercompany interaction: (1) the capacity constraints of the aluminum plant, (2) the plant relocation of the steel plant, and (3) personnel turnover over the 18 months before when this research was conducted. These themes turned to be temporary levels of context that have such relevance that they preclude the emergence of other important matters for the parties, for instance, the development of a joint action to resist the impact of global competition. Of the three relationships, the one established with customer A, which is a customer of the aluminum plant exclusively, is considered to be the most complex. The customer’s supplier manager, arguably the most important point of contact, is involved in a strange loop resulting from his inability to intervene in the business and his role as supplier manager that compels him to act. The resolution of this paradox might harm the relationship and eventually have adverse effects on the company’s market share. Although other customers have not perceived it yet, an unfavorable ending to the capacity constraints problem could negatively affect their own probabilities of success. For instance, Customer B (whose advantage of being able to service other companies by filling cans locally relies on its ability to purchase aluminum cans both fast and in small quantities to efficiently serve the market) may find their position jeopardized if the company stops operating in the country or does not increase capacity in the short term. Customer C, currently using steel, might be adversely affected by having their probabilities to innovate in their packaging materials (for instance, switching to aluminum cans) curtailed. The company is unlikely to promote research in innovation to create demand that it cannot satisfy. The overall situation is exacerbated because the relationships of the company with these two customers are weak and dyadic relationships between individuals instead of strong and integrated.

Case Study Report D: Imaging Solutions Development and Management of Relationships Management of relationships is the ability to deal with the dynamic interaction between two or more organizations in such a manner that the

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parties achieve their objectives. Relationships develop whether for better or for worse as a result of the episodes occurring through interaction. In response to the question if the company has a means to assess the quality of their relationships, the interviewees admit that they do not have any. It is a good point, I don’t think we have. We’ve got a quantity one which is how many customer do you retain but that is not really a quality of the relationship measurement that is just a purely financial one. I think that is probably the challenge that most organizations have to measure the quality of their relationships. (C14, p. 134)

Neither is there a method to track the direction relationships could be moving toward. If you are asking the question: Do we track an individual customer level of relationship, the quality of the relationship for each customer? We don’t. We don’t have any formal system, no. (C10, p. 102)

Thus, although the company recognizes relationships as very important to achieve success, it appears not to be managing relationships thoughtfully. One important customer disclosed that within his company there is no formal method in place to evaluate the quality of relationships either. We certainly have no formal process of evaluating relationships. That is done in a informal way similarly to individuals evaluate their personal relationships in day-to-day life. They are types of things that quality successful relationships between us and our suppliers would include open communication, a degree of trust, a history of acting with integrity. (C22, p. 8)

The most desirable features of relationships within the company and its major partners are the features to which the interviewees pay attention to in order to evaluate relationships, despite the absence of a formal method. Each time an episode occurs, it constructs the relationships, prompts the counterpart’s reaction, and conditions future interactions. As a result, relationships are deemed to be formed by a succession of episodes. However, the dynamics of the interaction may notably differ from one relationship to another. Thinking of relationships only as a sum of their discrete parts does not create a full understanding. This study suggests instead that a holistic approach is necessary to analyze the dynamics of business relationships embedded in the context of the relationship’s performance. The Dynamics of Business Relationships To achieve an understanding of the dynamics of business-to-business relationships, one needs to go beyond the description of the most desired

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features of those relationships. Initially, describing the features of a relationship provides the grounds for delineating the shape of the relationships that the parties in interaction appear to seek. This also gives the benchmark against which the episodes occurring in interaction can be judged. The use of rules theory, on the basis of the previously described features of relationships, provides a tool that enables the parts to be integrated into a whole. Even though it has been possible to describe the views that companies share regarding the most desired features of business relationships, the company’s division into two main groups, as well as the subdivision of the Business Imaging Solutions Group (BISG) group into three subgroups, suggests that different types of interaction may occur. Therefore, identified episodes during the data gathering process are analyzed bearing this in mind. Hierarchical Levels of Context. Six levels of context, as Fig. 19 illustrates, are thought to result from and give meaning to exchanged acts between the company and its major counterparts. The proposed levels of context in ascending order of hierarchy are episodes, dealer agreement, relationships, life script, company character, and imaging solutions industrial sector. The dynamic interaction among the many actors, potentially changes, creates or dismisses one or more levels of context. Episodes. Episodes are nameable interactions; they are the lowest level of context that results from interaction. Episodes will be used later for a rules theory analysis of relationships. Dealer Agreement. The dealer agreement is a contract drawn between the company and each of its dealers. This contract governs the interaction between the parties. Within the BISG nondirect business, the dealer agreement can be deemed as a level of context in which the interaction is Imaging Solutions Industrial Sector Company Character Life Script Relationships Dealer Agreement Episodes

Fig. 19.

Hierarchical Levels of Context Case Study D.

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performed and given meaning, for dealers who came after the agreement was established. For the existing dealers, the introduction of the dealer agreement to the company is construed by participants as an episode, which as a result of being enacted has redefined the relationship between them and the company, and thus replaced in part the relationship level of context in which the interaction is performed and given meaning. Currently, this level of context is exclusive to the BISG nondirect business. Relationships. Life Script.

The relationships level of context is described earlier. The life script level of context is also described earlier.

Company Character. The company character is the identity that the company projects toward the exterior. The company character results from the acts performed by the company and the meaning that the counterparts give to those acts. Ha˚kansson and Snehota (1995c) assert that a company is only a mental construction that results from people in interaction. Thus, people working in and interacting with the company are those who will ultimately shape the company character level of context. The company character level of context will be different for each business group and its subdivisions. Imaging Solutions Industrial Sector. The imaging solutions industrial sector is the highest level of context. It comprises the generally accepted norms of conduct. There are at least two different industrial sectors, which coincide with the company’s internal division. The Consumer Imaging Products Group (CIPG) industrial sector comprises the company, its suppliers, whether internal or external, the competitors, the customers, which include traditional and nontraditional channels, and the end consumers. The BISP industrial sector, likewise, comprises the company, its internal and external suppliers, which might or might not be the same than those within the CIPG sector; the competitors, some that also compete with the CIPG sector and others rather exclusive to the BISP sector; the dealers; and the customers (the latter being typically other companies that use the company’s equipment or document management solutions). Several changes have been taking place in this industrial sector. The main one was the introduction of digital technology to various products. This caused changes in the introduction rate of new models, which also affected the life cycle of the product. This resulted in the entry of new players, for

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instance, new channels of distribution, new brands and competitors, and principally new market segments, for instance, individuals buying multifunction machines (photocopy, fax, scanner, and printer in one), which in the past were reserved for commercial application. Also worth mentioning are the changes in the market scope, that is, from photocopy vendors to imaging solution provider, which also introduced new players: channels, customers, and even points of contact within the customer’s company. All these changes have reshaped the business imaging industrial sector and therefore the rules of meaning and action whenever this is the level of context in which the acts are performed. Analysis of Episodes This study analyzes now, with the aid of rules theory methodology, acts and episodes that were identified in the data gathering process. A number of episodes have been chosen for each division and subdivision of the company. This does not suggest these are the only episodes, but they were chosen because they are the ones that participants of the research considered important. Episodes are analyzed as if the parties applied rules of meaning and action, within the context of their performance and the whole relationships embedded in a large system. Episodes within the CIPG Group. Participants of the CIPG group are illustrated in Fig. 20. From what they said in conversations, the recent appointment of the national sales manager and the effects of this episode in the quality of relationships with major customers has emerged as a central theme. Shaded boxes appear in Fig. 20 denote people who were not interviewed, although they were mentioned in data collection; dotted lines suggest connection between actors. The appointment of the national sales manager brought significant changes to the relationships with both Customer A and Customer B. The dynamics of interaction were construed as follows. Antecedent Conditions. Antecedent conditions to this episode are the beliefs that each party had about the other’s character based on the parties’ past behavior. The customer construed the company character as a company that did not provide information in advance. This did not make the company a bad supplier, although it did not make it the best one either. This made the customer consider the company as inept at understanding relationships, to the extent that it never involved its executives. Instead, they were deemed as having a culture of working in isolation.

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CEO/MD

Senior General Manager CIPG

Marketing Manager CIPG

National Sales Manager

State Sales Manager NSW

Distributors Customer H

Account Manager

Account Manager

Account Manager

Customer A

Customer B

Customer I

Fig. 20.

CIPG Participants Scheme.

Two years ago it was not uncommon for [the company] to send us a letter telling this product is ending life today and the new product is available tomorrow y They were never a bad partner, they were always a good partner, this is the difference between a good partner and a very good partner. They always acted with integrity, during a time they were in some way inept in their understanding of the relationship in understanding the implications on our business of their decisions. (C22, pp. 17, 50) We have never ever met with their product management team we only met with the front of shop sales team. As a result they’ve got a culture of doing the product management in isolation. (C22, p. 132)

The company construed the customer character as tough, demanding, and unlikely to trade with products of the quality of theirs. There were certain individuals at [the company] that thought that [Customer A] is a very tough business group. That this customer was demanding this customer was unlikely to get the quality product that we provide. (C2, p. 39)

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That was the background that contextualized the acts between the companies, thus precluding any act that could improve the relationship. The initial episode of appointing the new national sales manager appears to have changed the customer’s expectations and to have brought to the company the competency to build relationships. In addition to this, the new manager ultimately worked together with the also newly appointed account manager. When a person like [the new National Sales Manager] moves into a company like [the company] you say yes, this is a good fit, we will work together well, we feel very comfortable, our relationship will go to the next level. (C22, p. 64) In theory you could do it without that person. We could try to build the competence with people inside the organization but we chose to bring someone else to bring in and develop this competency. (C23, p. 39) New approach as a manager at direct account level but also behind me was a new sales manager supporting me. So we got him to implement many changes and initiatives that were foreign business previously. (C3, p. 54)

The customer appears to apply the following constitutive rule: Company Character Relationships

cR1=

A person like him ⊃

Moves to a company like [the company]

The beginning of a new relationship

Read: Constitutive rule. In the context of the current relationship, and in the context of the company character, if a person like the new National Account Manager moves to a company like [the company], this counts as the first step towards improving relationships. Arguably, the aspect of the company character that prevails is that of having acted with integrity which diminishes the aspect of being inept at understanding relationships. This in turn would improve with the newly employed executive. The subsequent episode was sharing meaningful information, ‘‘Not just ‘Hi how are you going, did you have a nice weekend, me too.’

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More than that’’ (C3, p. 54). It was a demonstration of dedication and willingness to drive the business together. It was also an initiative that appears to have been well received. The first three points, clearness, consistency and clarity, more importantly I think it just be a change in account manager, probably a change in my role where we go to the customer and want to talk about opportunities and sharing with them information that is being that. This is what we’ve doing three months out, showing our dedication, more willingness to do an offer, a deal, an exclusive, so more willingness to drive together the business but before they just use to say no to everything and no stock allocation. (C2, p. 165) My first meeting was, here is information. They set back, ok, and then continually for the next two weeks I was getting phone calls so we are really, really happy with this change, thank you, I can’t tell you how much difference you made to the account, almost overnight. (C3, p. 49)

The customer appears to have applied the following constitutive rule: Ep: New Executive Appointment They trust me

cR2=

Shares information

⊃

Expose itself

We have a relationship

Read: Constitutive rule. In the context of the new executive’s appointment, if the company begins to share information, then it exposes itself. This counts as a demonstration of trust and as having a relationship with my company. For me, I always measure trust on how much the other person exposes themselves so if they provide information to me which I can eventually use to harm them but they provide it in trust because they know I will use it proactively, I know that they trust me, I know that we have a real relationship. (C22, p. 36)

The following regulative rule appears to have applied: Relationships rR2=

Trust me

⊃

(Obligatory (Give information back))

⊃

Progress in the relationship

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Read: Regulative rule. In the context of relationships, if the supplier demonstrates that he/she trusts us, then it is obligatory to reciprocate by giving information in order to progress in the relationship. The company construes the information that it received as the result of their initiative of giving information first: After we started to share more so we were assuming more risk, we get a lot more information. So customers such as [Customer A] we get their sales figures, we started to get forecasts from them. (C1, p. 46) With the colour laser currently 999 [dollars] we learnt yesterday that we will not going to be competitive after first of June at that price point y That information step back yesterday by just phone calls from people who wanted me to know about it. Now if we didn’t have that relationship, they wouldn’t want me to know these things that will be happening next month. (C3, pp. 23, 24)

The following constitutive rule appears to have applied: Relationships

cR3=

Shares information

⊃

Receives information

Improving the quality of relationship

Read: Constitutive rule. In the context of relationships, if the company shares information exposes itself and then the customer reciprocates by also giving information, this counts as the relationship moving towards a superior stage. We were actually rate 5/10 in July, since I took over the account my priority was to build up the relationship y We asked to rate us again a month ago [nine months later] and they rate us 8/10 so we really came a long way on terms of how rate us that company. (C3, pp. 14, 17)

Both the company and the customer redefine their construction of the other party’s character: The customer is doing all the things that he said he will do. They will do advertising, they were reliable, trustworthy, doing what they said they will do and we do exactly the same so it made good business sense for both to do that. (C1, p. 105)

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The [company] relationship improved day to night because the relationship we had was based on over ten years trading with us. (C22, p. 13)

These reshaped levels of context have opened immense possibilities for development between both companies. The customer is currently the most important channel that the company has. The company has dramatically increased its business in terms of the percentage of the customer’s business that is allocated to it. The result of these episodes can be deemed as a relationship-created economic value (Wilson & Jantrania, 1996). Arguably, the new relationships and company character levels of context, instead of precluding acts that would improve relationships, encourage the parties to explore new options to better their relationship. For instance, both parties aim to establish a program for joint forecasting and further joint product development, which, at the time this research was conducted, was completely foreign to the relationship. Rules theory also aids in the understanding of episodes that appear to be contradictory. For instance, the passage in which Customer A delivered information to the company regarding the need to change the price level of the color laser printers suggests that the customer disclosed information about a competitor. This act appears to be contrary to what is expected from a trustworthy counterpart. Not divulging information to or about a competitor is considered as a demonstration of trust benevolence. Contrary to what could be expected, this was highly appreciated and regarded as an act that was possible only because of the existing relationship. This act is analyzed with the aid of rules theory to explain how the paradox appears to untangle. Fig. 21 aims to illustrate the paradox between (1) what being trustworthy means and its relationship with sharing information about competitors, and (2) the company’s reaction to the customer’s act of sharing information about a competitor. Fig. 21 reads as follows: In the context of relationships, if a counterpart is trustworthy, he/she does not divulge information about a competitor. But, if he/she does not share information, he/she is not seen as trustworthy (because information builds trust). If he/she is not trustworthy, then he/she will divulge information about a competitor. Thus, the counterpart who shares information is deemed as trustworthy. The ways in which the word ‘‘competitor’’ appears and disappears in the dynamics is worth noticing. Arguably, this paradox is solved after reshaping the customer company character level of context. Under the old customer company character

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I am not trustworthy

I do not share (competitor’s) information

I share (competitor’s) information

Fig. 21.

= exclusive disjunction

Spreading Competitor’s Information Paradox.

context level (tough, demanding, not valuing the quality of the product), the following constitutive rule would apply: (Old) Customer Company Character

cR =

Customer A

⊃

Delivers information of expected changes in prices

Divulging competitor’s information Not trustworthy Seeking to take advantage of the situation

Read: Constitutive rule. In the context of customer company character, if customer A learns about a change in the market, then delivers information of expected price changes for a product, this counts as divulging information about a competitor; this counts as a company not being trustworthy; as a company that is seeking to take advantage of a situation in the market for its own benefit. This act, construed in the context of the (old) customer company character puts the relationship in paradox since sharing information about competitors is deemed as an act that demonstrates the party is not trustworthy.

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Under the new customer company character context level (reliable, trustworthy, doing what they said), it appears that the following constitutive rule is applied: (New) Customer Company Character

cR =

Customer A

⊃

Delivers information of expected changes in prices

Sharing market intelligence Being trustworthy Looking after the interests of both parties

Read: Constitutive rule. In the context of (new) customer company character, if customer A learns about a change in the market, then delivers information of expected price changes for a product, this counts as sharing market intelligence and as being trustworthy and trusting the company; this counts as a partner looking after both companies’ interests. This act construed in the context of the (new) customer company character builds benevolence-based trust. The company appears to think that the customer made the information available in order to make sure they deal with the market changes correctly. In another relationship, the same episodes (i.e., appointment of new national sales manager and new account manager) appear to have improved the relationship creating favorable conditions to move toward a more fruitful relationship. Antecedent conditions in the relationship with this other company suggest that the company character was also construed as ‘‘this is a company that does not share information.’’ Thus, the appointment of the new executive is seen as the reason why the company increased its willingness to give information. In my category [the company] is competing with [competitor X] and that is quite good, I know when thinks are coming to the end of life cycle, entering the life cycle and at some stage we didn’t have that with [the company] because they keep that very close to their heart and they tell you information as they needed but that relationships totally changed, we know that we can’t work with that and [the new National Sales Manager] has changed for us. But we get to see life cycle charts now, like the other competitors of them. (C5, p. 17)

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Considering the acts as a whole with the aid of rules theory, it is possible to analyze the dynamics of subsequent acts that occurred between the company and the Customer A. This study describes in what manner the same act would be given different meaning depending on the context in which it was performed. It can be argued that the newly appointed executive has provided the trigger mechanism to allow the improvement of this relationship; however, this could not have been possible without other episodes that reinforced the customer’s expectations, which were also aligned with the most desirable features of relationships sought by the customer, principally trust. Within the relationship with Customer B, the results are yet to emerge; however, the passage previously analyzed suggests that the same sort of rules could apply. It suggests that the customer’s definition of the company character has already changed. Thus, it is likely that the information flow will start to go both ways. Changes in Relationship Features. The episode of hiring a new national sales manager which, later on increased the quantity and quality of information shared between companies, also appears to have changed the features of relationship. Seven dimensions of four major constructs of relationships have improved as a result of the newly appointed national sales manager’s influence on the company’s way of doing business. Attitudinal commitment has increased because the company has demonstrated to the customer(s) its willingness to offer a deal. Trust honesty has also increased, given that the company is perceived as keeping its word. The level of sales has increased significantly; therefore, relationship outputs have also increased, adding even more to commitment. As information sharing contributed to the improvement of the relationship, it is construed as a desired feature of the company’s relationships. Finally, the increased flows of information between the parties played a role in better understanding the counterpart, hence reducing cultural distance. Social distance has also reduced due to the previous experience that the new executive had with the company’s major customers. Table 10 summarizes the changes. Overall, the value of relationships has increased. On the one hand, a customer’s formal evaluation shows an improvement from 5 to 8 out of 10 and, on the other hand, one of the customers states that the relationship has completely changed overnight. Episodes within the BISG Group. Three subgroups make up the BISG group: the dealers, the direct sales, and the telemarketing/suppliers

Modeling the Dynamics of Business-to-Business Relationships

Table 10.

297

Changes in Relationship Features ‘‘New National Sales Manager’’.

Features

Change

Honesty

m

The customer is doing all the things he said he would do

Attitudinal inputs

m

‘‘This is what we’ve doing three months out, showing our dedication, more willingness to do an offer, a deal, an exclusive, so more willingness to drive together the business’’

Relationship outputs

m

‘‘The relationship has improved so much, our business has grown by 56% and is not coming from a small base it is a millions of dollars of growth’’

m

‘‘We have never met with their product management team; we only met with the front shop sales team.’’ ‘‘What we have been doing was involving more people between the organizations’’

m

‘‘They kept that very close to their heart, they tell you information as they needed y’’ ‘‘We get to see life cycle charts now y’’ ‘‘Not just ‘Hi, how are you doing y’’’ ‘‘We go to the customer and want to talk about opportunities and sharing with them information. After we started to share more y we get a lot more information’’

m

‘‘When a person like [him] moves into a company like [the company] you say yes, this is a good fit y’’

m

‘‘An interesting thing is that lot of people in the relationship were unhappy in the old way who are happy with the new way we are doing things, it is much better, we can share and talk each other, this people loves the type of change’’

m

‘‘We were 5/10 in July y they rated us 8/10 [nine months later]’’ ‘‘The [company] relationship improved day to night y’’

Multicontact

Mutual disclosure

Social distance Cultural distance

Relationship value

Evidence

subgroup. Episodes have been identified in each subgroup which are, seemingly, relevant to gaining an understanding of the dynamics of relationships within this case study. BISG Dealers. This study analyzes episodes in the dealers’ subgroup first. The interview scheme applied in this subgroup appears in Fig. 22 in which customers C and D represent two of the company’s dealers, one with several years of experience with the company and the other recently appointed.

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CEO/MD Senior General Manager BISG National Marketing Manager BISG Regional Dealer Manager

Team Leader Dealer Sales

Customer C

Fig. 22.

Customer D

BISG Dealers Participants Scheme.

The most relevant episode emerging from data is the establishment of the dealer agreement as the instrument to govern the relationships between the company and its dealers all around Australia. The dealer agreement is currently a level of context in which performed acts are given meaning and guide subsequent action. However, its introduction took quite a long time to implement, as ‘‘the dealership agreement didn’t come in place until 12 to 15 months later’’ (C13, p. 54). The process of introduction itself is indeed a level of context, which reflected with the relationships level of context and ultimately redefines the features of relationships between the existing dealers and the company. For the dealers that came after its introduction, that episode means nothing. The dealer agreement provides instead a valued framework to forge relationships with the company. Antecedent conditions to the episode were many years of dealing with the company without the need of written documents due to the existence of a trust-based relationship; however, concerns were raised because of changing conditions. Everything was on your word, everything was just on handshake y There is fear that [the company] will go direct everywhere or [the company] will go no more exclusivity, that in [my area] they could end up with three dealers. (C19, pp. 14, 10)

On the contrary, from the company’s perspective, the situation was such that the dealers used to do what they wanted.

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That is a person who felt challenged, who always have been able to get what he wanted in the past. (C21, p. 110)

An interviewee construes the relationship between the company and the dealers as a tennis match, which needs rules to make it happen. That was the reason why the dealer agreement had to be put in place. The way we operate in the world with the dealers is like a tennis match, go back and forth, sometimes we get very close to the net and sometimes not but the simple fact is that we can’t step over the net. That side is their side, this side is our side and from time to time we will stretch things. (C13, p. 62)

The process of putting the dealer agreement in place encountered widespread resistance. This resistance was initially construed as caused by the contents of the dealer agreement: ‘‘the biggest problems we had was that the dealer agreement was awful, we did get some changes made’’ (C19, p. 20). Later, this was proven to be wrong: ‘‘The nice thing is that it took us eight months to have all the agreements signed but the first agreement and the last agreement were exactly the same agreement’’ (C13, p. 130). The problem, instead, appears to have been the way in which the agreement was introduced and not the agreement itself. ‘‘It was the way the dealer agreement was pushed in, gun held, that is a dual sign or you lose your deal agreement’’ (C19, p. 18). Thus, it appears that in the episode of putting the dealer agreement in place, the following rules of meaning and action are applied. Relationships cR1=

The company Introduces a ⊃ written internally changes agreement

rR1=

Changes the rules (Legitimate ⊃ (Refuse of the game to sign))

⊃

Changing the way of doing things

cR2=

Keep our rights intact

rR2=

Putting structure in place

⊃

Refuse to sign dealer agreement

Do not want to ⊃ (Legitimate (Make collaborate it mandatory))

Lack of collaboration

⊃

Achieve the objectives

Read: Constitutive rule 1. In the context of relationships if the company experiences internal changes, then attempts to introduce a written agreement, this counts as changing the way business is done between the company and the dealers. Hence in the corresponding act the following rule of action appears to be applied: Regulative rule 1. If the company wants to change the rules of the game, it is legitimate to refuse to sign in order to keep our rights intact, as the way we used to work with the company was working well.

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The company appears to construe the dealers’ reaction as follows: Relationships cR2=

Putting structure in place

⊃

Refuse to sign dealer agreement

rR2=

Do not want to collaborate

⊃

(Legitimate (Make it mandatory))

Lack of collaboration

⊃

Achieve the objectives

Read: Constitutive rule 2. In the context of relationships, if the company attempts to put structure in place, then the dealers refuse to sign the dealer agreement, this counts as lack of collaboration. Regulative rule 2. If the dealers do not want to collaborate, then it is legitimate to make the dealer agreement mandatory, in order to achieve the company’s objectives. The company then left the dealers with no other option: sign or miss out. This act made the episode of introducing the dealer agreement a level of context itself, in which the dealers construe the episode of being forced to accept the dealer agreement as follows: Introducing the Dealer Agreement

cR3=

Wants to change the rules of the game

⊃

Puts a gun to our heads

Dismissing all the relationship value

Read: Constitutive rule 3. In the context of introducing the dealer agreement, if the company wants to change the rules of the game, then puts a gun to our heads to force us to sign, this counts as dismissing all the value of years of relationship, which from the dealers’ perspective was forged on trust. This act, as appears to be construed by the dealers, is seen, using the same tennis match metaphor, as stepping over the net. If one party steps over the

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Modeling the Dynamics of Business-to-Business Relationships Introducing the Dealer Agreement Life Script

Relationships

I am a Dealer

I am not a Dealer

I do not sign the agreement

I sign the agreement = exclusive disjunction

Fig. 23.

Dealer’s Paradox.

net, the counterpart’s turn to reply is precluded by the presence of the other player in his side of the court and the tennis match stops until the situation changes. Likewise, the company’s decision to enforce approval of the dealer agreement, instead of ruling subsequent action, put the dealers in paradox. The value of the relationship is dismissed and thus the role of the dealer questioned. Fig. 23 aims to represent the paradox the dealers found themselves in while they were arguing with the company. The consequence is the creation of a strange loop the dealers were immersed in. Two exclusively disjunctive regulative rules could guide action while they were in the strange loop.

s

Life Script

Relationships rR3 =

The company wants to put structure in place

⊃

(Obligatory (Sign the contract))

⊃

Establish the basis for a better relationship

The company does not value our relationship

⊃

(Legitimate (Refuse signing))

⊃

Defend our rights

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Read: Regulative rule. In the context of the strange loop, one of these rules but not both should apply. If the company wants to put structure in place, then it is obligatory to sign in order to establish the basis for better relationships. Alternatively, the regulative rule could be: If the company dismisses the value of our long time established relationships, it is legitimate to refuse to sign in order to make our rights valid and avoid further interference. A contextual and an implicative force are in opposition. The contextual force that appears to have applied is, A company like us, in a situation like that, has the right to refuse to sign. The implicative force, instead, would be, We had to sign the agreement to lead the relationships to a better stage. Those dealers for whom the implicative force was stronger signed the agreement and those dealers for whom neither force was stronger, those with more years dealing with the company, entered in paradox and could not take action, neither signing nor missing out. Only one dealer, for whom the contextual force was stronger, refused to sign and stopped doing business with the company. One dealer in the end refused to sign the agreement therefore ceased to be a [company] dealer. (C13, p. 130)

As Cronen et al. (1982b) suggest, strange loops produce adverse personal and social consequences. In this case, there are a number of dealers who despite having already signed the agreement still feel bitter about it. One of those people is still having problems today. He signed the agreement but resented and in a meeting just recently he told me in front of his management and my management team that it was no longer about the agreement, it was now personal. (C21, p. 130) There will always be in the back of my head because I had 12 months of horror, I had meetings with solicitors, I had meetings with [the company], it was horror. (C19, p. 34)

At the time this research was conducted, the actors considered the relationships were better that ever; however, the effects of the paradox will still be having influence on the actors’ life script and therefore on the coordination of the relationship. Changes in Relationship Features. The dealer agreement ruffled the relationships with the existing dealers at the time of its introduction. As stated earlier in this paper, the dealer agreement evolved into an instrument that underpins the construction of relationships between the company and

Modeling the Dynamics of Business-to-Business Relationships

Table 11. Features Competence

Change

303

Changes in Relationship Features ‘‘Dealer Agreement Introduction’’. Evidence

m

‘‘The dealers that we deal with everyday know that if I spoke to Mary today it will be here tomorrow’’

k

‘‘It is very difficult to trust someone that is saying that that is going to happen when they are saying to you to sing while holding a gun on the other hand’’

m

‘‘We have the dealer manual that put a structure in the place, this are the rules, we make it very close’’

k

‘‘He would definitely understand dealers better but I have no hesitation that [he] works for [the company] in understanding that he is [the company] first’’

Structural bond

m

‘‘This is what he’s done, putting in the dealer program, the policy manual is there to help us and [the company] to deal better’’

Social distance

k

‘‘Then [the company’s executive] and I had a foul out because I said to him it is your way or the highway’’

Cultural distance

k

‘‘Everything was on your word, everything was just on handshake and suddenly we had to sign things, we had to this, to do that’’

Relationship value

k

‘‘I also felt that all the years and all the millions of dollars we’ve give, didn’t matter one bit’’

Benevolence

Instrumental inputs Social bonds

its dealers, particularly those who arrived after the agreement was put in place. Nevertheless, for those existing dealers, the introduction of the agreement was an experience that radically changed the features of the relationships they had with the company. Table 11 summarizes the changes of these features. Arrows in Table 11 indicate the perceived change toward a more or less desirable condition of relationship features. It can be noticed that seven dimensions of four constructs of relationships changed with the introduction of the dealer agreement, not all in the same direction though. For instance, trust competence appears to have improved, whereas trust benevolence diminished. As the objective of the dealer agreement was to establish a structure, it was considered an instrumental input that progressed to form a structural bond. However, those improvements resulted in decreased social bonds and bigger social and cultural distance.

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All in all, the value of relationships was deemed as having been ignored by the company at the time of the introduction of the agreement, to the extent that four years later, there are still two dealers that appear not to have overcome the effects of this episode. BISG Direct. Within the BISG Direct business group, two customers, as illustrated in the interview scheme, Fig. 24, are part of the research. The information gathered from the participants contributed in building up the most desired features of relationships. This study analyzes, with the aid of rules theory, the position of one customer who was permanently arguing against some practices of the company. His arguments were mainly related to the proprietary nature of consumables to photocopiers. The analysis presented in this section elucidates the reasons why in cases like this, relationships do not evolve as much as one of the parties would like.

CEO/MD

Senior General Manager BISG National Marketing Manager BISG

Assistant General Manager

State Sales Manager NSW

Customer E

Account Manager Government Business

Account Manager

Customer F

Customer G

Fig. 24.

BISG Direct Participants Scheme.

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Passages from the conversation with the customer suggest that his overall relationship with the industrial sector is not the best. We don’t have a very long term relationship, we just buy copiers on a needs basis and then we will ask [the company] and a number of companies to give us a quote or a proposal for it and we will buy it, so we don’t have a real relationship. (C6, p. 8)

The company also recognizes that within the customer’s company, there are various persons, not just one person, to deal with. However, they have good relationships with a number of them, including the person in question. Although we do have good relationships with various people within [the customer], there is no one person or one division that looks after the products that [the company] sells, as a procurement section. (C20, p. 9)

This person, who is currently looking after corporate service procurement, that is, ‘‘paper or toner or things like that’’ (C20, p. 11), has a long history of dealing with the company that stems from his previously having had a position in a government regulatory body. However, it appears as if for him no relationship has developed. When asked if the relationship with the company would count to decide whom to buy from, he refers to the whole act of purchasing a photocopier as follows: Not really because it is just a commodity. Between a [company brand] machine and a [competitor brand] machine I will just take the one that is giving me the best price because the product itself once it is installed it just wears out, it just goes for a life of two years and after that these guys won’t support it. You have to go for another warranty period, and the way they build this machines, from the way I see it, they sell the machine very cheap and then in the service element you pay quite a lot so the revenue stream comes from the service. (C6, p. 17) So the machine might be very cheap but you pay on the other end and they manipulate the whole market, they support you for three years with a maintenance agreement, you can only buy parts from them for this machines, you can only buy a toner from them, it is so customised, so the best deal I can get upfront because later on the relationship I have no leverage with these guys, I am so locked into their supply chain, I can’t put another toner there, I am so dependent on them so upfront I make sure to get the best deal, because I have to work with this guys for the next three years or they screw me for the next three years. And that is the way they design the product. (C6, p. 18)

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Thus, the episode of buying a photocopier, from any supplier, appears to be construed as follows: Imaging Solutions Industrial Sector Interaction Sells Cheap

cR1=

rR1=

Buying a new photocopier

⊃

Disadvantageous ⊃ deal

The profits come from service

Make technology proprietary

Manipulate the market

Sign a maintenance agreement

Consent them to screw you for three years

(Obligatory (Get the lowest price))

⊃

Take advantage when you can

Read: Constitutive rule. In the context of the imaging solutions industrial sector, and in the context of interaction (this customer does not appear to recognize a Relationships context), if we are buying a new photocopier, then the supplier gives us a low price, however makes the technology proprietary (i.e., we only can buy consumables from them), and make us sign a maintenance agreement, respectively it counts as the supplier will make their profits from the service, they are manipulating the market, and will screw us during three years that lasts the contract. In sum, it counts as making a disadvantageous deal. Regulative rule. If there is a disadvantageous deal, then it is obligatory to obtain the lowest price straightforward in order to take advantage of the only opportunity in the whole transaction. The construction of the episode that leads to apply this rule of action appears to be the reason why the buyer does not feel comfortable in dealing with any company in the supplier’s industrial sector. The buyer pictures himself as a procurement expert who understands, better than other buyers, the real cost of using a product like the ones the company sells. I think people don’t understand the whole of the true cost of copying, I understand but lots of people think they’ve got a really good deal in that machine but don’t realise the

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true cost comes out in all your three-year service cost, the cost of page and things like that. (C6, p. 106)

For the buyer, a good deal is that in which the whole costs are considered and minimized, not only obtaining the lowest transfer price. It does not represent a good deal. As a consideration of the whole costs is currently not possible if buying a photocopier, ‘‘you want to reduce your cost as much as possible and you want to be able to not be locked in’’ (C6, p. 45), each time the buyer purchases a photocopier, his decision reflects with his own definition of how a good deal is achieved. The very act of buying a photocopier is in paradox with the buyer’s life script, as illustrated in Fig. 25. Fig. 25 reads as follows: In the context of life script, if I want to optimize the total cost, I do not take the lowest price straightforward, but in the context of buying a photocopier, I do not optimize the total cost unless I take the lowest price, because later on, there will be no other cost reduction opportunity. To avoid entering in this strange loop, which can produce adverse social and personal consequences (Cronen et al., 1982b), the buyer keeps the interaction with the company as one-off, that is, buy and discard. This appears to be the reason why the construction of relationships between the actors and therefore the companies does not progress toward a better stage. The company’s awareness of the situation might not change the way the business works, but at least it is useful to define their expectations of Imaging Solutions Industrial Sector Life Script

Buying a Photocopier

I optimise the total cost

I do not optimise the total cost

I do not take the lowest price

I take the lowest price = exclusive disjunction

Fig. 25. Purchasing Manager Paradox.

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forming relationships within this kind of business settings. Believing that there is a relationship where it is not may lead to expect value that will not be delivered and therefore significant business may be lost. BISG Telesales/Suppliers. To bring to a close with the description of episodes within the BISG group, there is the Telesales subgroup in which the consumable business is managed. The interview scheme is illustrated in Fig. 26. The company interacts through this subdivision with customers who whether or not they bought equipment from the company are buying consumables, particularly paper. Through this division, relationships with suppliers of these consumables are also managed. The principal supplier of paper is included in the research. One episode in which one of the company’s customers was having a problem in printing on both sides of the paper illustrates how the supplier’s response improves the relationship. The first issue that we had was, we were having problems with duplexing of the paper, there was too much colour in the paper when you were using the double sidings, when you print on both sides, and it only happened in a particular machine, an older machine. And they visited the customer’s premises to see what was happening, they went back to the mill, the mill then purchased one of those machines so they could, in their testing process, replicate what would happen at the customer premises. They tested it in the manufacturing process. They purchased the actual machine that we were having the issue with, they changed the composition of the paper, they make it a lot denser which then reduced that amount of colours so we don’t have those issues anymore, are completely solved. (C12, p. 63)

CEO/MD Senior General Manager BISG National Marketing Manager BISG National Telesales Manager

Supplier 1

Fig. 26.

BISG Telesales Interview Scheme.

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The episode appears to be construed a follows: Relationships

cR=

A customer has problems with the product

⊃

Visits the customer Buys a machine for testing

Demonstration of Commitment

Read: In the context of relationships with the supplier, if a customer of the company is having problems with a product manufactured by the supplier, then the supplier takes action visiting the customer, purchases a similar machine, and tests the product until the problem is solved; this counts as a demonstration of commitment to the company. That demonstrates the commitment to [the company] as a customer and to the satisfaction of our products. The complaint level was very low but. As we know, one person complains ten don’t, so it was terrific. (C12, p. 64)

The supplier acts as if he was part of the company’s team. This episode also aligned with the buyer’s life script, ‘‘My goals in the time that I’ve been here are to cement that virtual team kind of approach with our customers’’ (C11, p. 55); thus, the effect of the episode with the life script of the buyer formed a charmed loop bringing the relationship up to a better stage. The buyer summarized the company’s relationship with this supplier by saying, ‘‘This company has been the most flexible that we have dealt with. If they are any issues they will deal with immediately’’ (C12, p. 47). Changes in Relationships Features. The episode in which the supplier delivered a satisfactory solution to one of the company’s customers led the relationship to a better stage. Table 12 illustrates the features of relationships that appear to have changed. Drawing on the recount provided by one of the company’s executive, the episode can be deemed as a boost for commitment. The supplier acts are construed as attitudinal and instrumental inputs toward relationship continuation as well as an informal adaptation to better serve the customer’s needs. All of these are dimensions of commitment. As a result of the supplier’s act, the company assigns high value to the relationship.

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Table 12. Features

Changes in Relationships Features ‘‘Paper Supplier’’. Change

Evidence

Attitudinal inputs

m

They visited the customer’s premises to see what was happening

Instrumental inputs

m

They went back to the mill, the mill then purchased one of those machines so they could, in their testing process

Informal adaptation

m

They purchased the actual machine that we were having the issue with, they changed the composition of the paper

Relationship value

m

‘‘That demonstrates the commitment to [the company] as a customer and to the satisfaction of our products.’’

Summarizing the Dynamics of Business Relationships This section presents analysis of a number of episodes occurring in the company’s interaction with its customers and suppliers. These episodes are, in the case of the CIPG group, the experience of proactively sharing information with a customer; in the case of the BISG dealers subgroup, the introduction of the dealer agreement; in the BISG direct sales’ case, the process of buying a photocopier within a large government organization; and in the BISG telesales/supplier subgroup’s case, the reaction of one supplier to a problem with his product. With the assistance of rules theory, these episodes are construed as if the parties were acting and reacting applying a set of rules to give meaning to each other’s acts and to guide action to react as a result. The use of rules theory increases clarity in reaching an understanding of the interactions. Conclusion for Case Sstudy D This report presents analysis of the data collected through interviews, observation, and review of documents. The analysis is performed in two main sections: (1) the use of the information considered as a whole to describe the shape, or, the most desirable features of relationships, and (2) the use of specific episodes, embedded in the context construed in the first part, to describe the dynamics of the interaction within the two main groups within the company. The report focuses on three topics: (1) features, (2) benefits and value, and (3) development and management of relationships, which together provide the basis to analyze the dynamics of relationships. In relation to the features of relationships, the information is structured to fit within the current taxonomy used to describe business relationships.

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This permits the creation of a comprehensive vision description of the most relevant features of relationships as construed by the participants. Six major constructs were identified: (1) trust, (2) commitment, (3) bonds, (4) satisfaction, (5) distance, and (6) information sharing. Trust and commitment are the most outstanding constructs. Within commitment performance and justice are the two dimensions of relationship outputs that appear to matter most. This denotes that in this case study, relationships are deemed as making the cake bigger while also making the sharing of the cake among the parties more adequate. Information sharing appears to be critical in the whole relationship context, not only as a desirable practice but also as a feature that exists in high-quality relationships. Attitudinal demonstrations of commitment as well as social bonds were given prevalence over instrumental commitment and structural bonds. This suggests that the relationships rely heavily on the acts of individuals in the ongoing interaction without the aid of more concrete matters. The only concrete element appears to be represented by product quality, without which neither the business nor the relationship could be possible. Relationships deliver personal, financial, knowledge, and strategic values to the parties. All these forms of value ultimately derive in financial value, which is the easiest to assess. However, the paramount value of relationships is achieved when the parties increase competitiveness as a result of dealing with each other. This is what the company calls partnering. Although summated data provides an overall view of relationships, it does not lead to a full understanding of the current trends in the management of relationships. Consequently, the dynamics of relationships are analyzed, focusing on specific episodes with the assistance of rules theory. This analysis of episodes, whether it be those pertaining to CIPG or BISG (including its three subgroups), shows that each time an act is performed, it causes not only a reaction but also redefines the level of context in which the interaction occurs. This statement is supported by the results that stem from having started to deliver information to a customer as well as by the outcomes of the introduction of a written document to manage the relationships with dealers, as illustrated throughout the report. Other areas covered are the critical effects that episodes have on an individual’s definition of his/her role within the whole context and how it is possible for an episode to reflect on the person’s life script level of context, as well as potentially reshape the relationship, hence directing the dynamics of further interaction.

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CROSS-CASE ANALYSIS AND CONCLUSIONS This paper examines the dynamics of business-to-business relationships, focusing on the effects of interaction between customers and suppliers. To do so, four case studies have been conducted gathering a large amount of information. To report the findings of each case, a common structure is used. A number of relevant episodes occurring at the time of conducting the research are described using rules theory, as if participants were applying sets of rules to give meaning to the counterpart’s action and then guide subsequent action. This allowed a comprehensive description of the relationship themes that emerged in the research process in each organization. The results of the within-case analyses provide a case-specific basis to answer these research questions: How can the dynamics of businessto-business relationships be described and explained? How are action and reaction coordinated? Business relationships are social constructions that result from the interaction between two or more companies; thus, each case study delivers by itself singular results. Hence, answering the research questions based on the evidence of the four cases aims for analytic generalization (Healy & Perry, 2000) and not to produce universal laws (Schofield, 2000). Drawing on the same structure used for the individual case study analysis, commonalities and differences among the data of the four case studies are reported in this section.

Relationships Development Even though it is not the main concern of this research to find out if stages or states theory is the better description of relationship development in these four cases, attention is paid to this aspect, because it has an effect in understanding the dynamics of interaction. Data of the case studies shows different types of evidence to this matter. Case Study A Within case study A, relationships development was a theme that was repeatedly mentioned. The reason why it appears to have happened is related to the company’s aim to turn toward relational orientation within an industrial sector that has traditionally been transaction-oriented. Thus, interviewees recall relatively new experiences of approaching customers to build relationships. As a result, this study presents a multiple-stage process

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of relationship development formed of four stages: (1) make the customer aware of the company’s existence and its willingness to build a relationship, (2) learn about the customer’s needs and the social styles of its people, (3) adapt the company offer to suit the counterpart’s needs and style, and (4) establish a general sales agreement, which provides a basis for business interaction. This can lead to a situation in which both parties benefit from the relationship. It suggests a stages approach in which the relationship is expected to progress sequentially as proposed by Dwyer et al. (1987), Ford (1980), and Scanzoni (1979). Evidence of the case shows that the company’s proposed model is rather an idealization that does not operate every time the company tries to build relationships. For instance, the episode described in the case report regarding the loss of a business opportunity after having worked together with the customer in developing an innovative solution, because the price was wrong, indicates that the relationship moved backward as the result of that episode, but was not terminated. Case Study B Within case study B, the development of relationships is also a recurrent theme. The business environment in which the focal company operates is transaction-oriented, a situation exacerbated by the commodity nature of the product in which the parties appear as if playing a win-lose game. Although the company has its own production facilities, there is an important part of the business that relies on trading products of third parties and on providing logistics services. Thus, there is an important component of service in the company’s customer value proposition. One part of the company, with the support of top management, is trying to build a relational-oriented culture toward customers and suppliers. Another part, however, remains transaction-oriented. They have top management support as well. Hence, the company’s view of relationships is twofold. Those who believe in building relationships propose a four-stage model composed of (1) identifying the right partner, the one that is appropriate and desired; (2) communicating the broad scope of services that the company can deliver, as well as adjusting it to the counterpart needs; (3) developing multiple points of contact to strengthen the relationship, thus there is less dependency on only one contact person; and (4) attaining a long-term agreement. It does, as for case study A, denote a stages view of relationships building, which can be aligned with the dancing metaphor of Wilkinson and Young (1994) and Wilkinson et al. (1998). Nevertheless, there is evidence in the data of a relationship that rapidly improved as a consequence of a favorable episode that was construed as mutually

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beneficial, improved the output of relationships, and therefore that of commitment. Within relationships with the same customer, there are people who see the business as one in which taking advantage of market opportunities is compatible with a relational orientation toward the customer. The customer construes the company’s opportunistic behavior as evidence of the transactional nature of the company, implying a total absence of relationships. Case Study C Within case study C, the relationships’ development theme was focused on changes in personal relationships. Intercompany relationships were reduced to the personal level. The reason why this reduced scope view of business relationships appears to occur relates to the tremendous influence that three customers have on the company’s market share. These three customers account for more than half of the company’s total business. Moreover, these three customers have been dealing long enough with the company to the extent that changes in relationships with them appear to be mainly caused by changes in personnel. Other aspects of the relationship did not emerge in conversation at first instance. Besides, the industrial sector in which the company operates is itself reduced to a few companies. All in all, within case study C, relationships development was not an important theme of discussion. The conversation was instead underpinned by potential changes in relationships, backward and forward, that could be caused by episodes occurring in the day-to-day exchange, in some way suggesting states theory. The episode in which a phone call was made overseas to reestablish an old relationship with a supplier, who, since then has been helping to cope with the unexpected growth in demand of one of the company’s major customers, suggests that Batonda and Perry’s (2003) dormant and reactivation phase has operated. Case Study D Within case study D, no discussion occurred regarding relationships development. As participants construe their industrial sector, the dynamics of the market require relationships to exist to make business possible. People could not recall early stages of a relationship in a manner that could be useful to describe how such relationships developed. Evidence of the case suggests that some episodes potentially change characteristics of relationships. However, the case does not allow identification of whether those changes can be named as specific phases. In the context of an existing relationship, informants could differentiate two different states of

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relationships, one in which the parties share information and the other in which the parties do not share information, the first being the preferred state of relationship. Thus, it appears that states theory fits better in this case study. Summarizing Relationships Development Among the research evidence, two case studies lean toward stages theory, whereas the other two lean toward states theory for an explanation of business relationship development. However, the data does not shed much light on the number or nature of states into which the relationship could change. In industrial sectors with less history of relational exchange, informants are more predisposed to construe a stages view of relationships development as opposed to those in which relationships are part of the daily life of the company. The latter associate relationship development with personnel changes amid the companies’ staff, leaning more toward a states theory view of relationships. Relationships are context-dependent; case study B illustrates this, as the company tends to see relationship development as sequential, although one of their relationships radically changed as a result of a number of episodes that delivered benefits to the parties. The main difference appears to be the length of the company/industrial sector’s history of relational interaction. The shorter the history, the more stages-like development of relationships, whereas the longer the history the more states-like development of relationships. Table 13 presents the outcomes of the four case studies regarding relationships development.

Motivation for Building Relationships Dwyer’s et al. (1987) four-quadrant dyadic motivations for relational exchange work well in describing the motivation to build relationships within the four case studies (see Fig. 27). The focal company (seller) of case study A began to have motivation to invest in relationships as a form of improving its business performance. However, its counterparts do not have previous experience of relational interaction and therefore do not appear to have high motivation to invest in building relationships. The focal company of case study B (seller as well) has higher motivation to invest in building relationships than its counterparts in order to achieve long-term contracts. It can be said that both buyer and

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Relationships Development.

Table 13. Case Study

Stages/States

Phases

Shared View among Informants

Stages

Awareness Learn customer’s needs and social style Adapt Establish a general sales agreement

B

Stages/One relationship states

Find the partner Inform skills, adjust it to specific needs No, Dual Develop multiple points of contact Achieve a long-term agreement

C

States

No specific phase has been identified. Concerns of quality of relationships for personnel changes

D

States

A

Parties do not share information Parties do share information

Yes

Party that Drives the Relationship

Manufacturer

Service provider

Manufacturer Building personal relationships

Yes, customers included

Both, the company and the distributors or channels

Seller’s Motivational Investment in relationship High

B

D

A C Low

B

Buyer’s motivational High Investment in Relationship

(spot contracts)

Low

Fig. 27.

Dyadic Motivations for Relational Exchange. Source: Original inspired by Dwyer et al. (1987) to the research evidence.

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seller within case study C have equally only small motivation to invest in building relationships because both are mutually dependent and have dealt with one another for many years. Finally, companies within case study D are all highly motivated in building relationships because of the benefits that such relationships can bring to the parties’ performance.

Analyzing the Dynamics of Relationships The use of rules theory offers a methodology to describe intercompany action and reaction and changes in relationships that occur as a result of interaction between a company and its customers or suppliers. Rules theory helps an external observer make sense of the acts of participants in a relationship as if they coordinate their acts by applying a series of rules of meaning and action. Outcomes of Rules Theory Utilization Drawing on the principles of rules theory, a number of relevant episodes appear within all four case studies. The number of episodes varies from case to case depending on how many of them were identified at the moment of gathering research data. Rules theory provides an appropriate technology to analyze and understand the dynamics in business-to-business interaction. Likewise, its taxonomy is useful in identifying the different levels of context in which actions are performed. While analyzing different episodes, it was possible to identify constitutive and regulative rules, as well as contextual forces that appeared to be acting. Charmed and strange loops are also used to explain some reflexive acts that indicated the relationship could be in paradox. Paradox reduces the ability of the parties to coordinate actions and therefore damages a number of relationship features (Biggemann & Buttle, 2009). Cross-Case Hierarchical Levels of Context From the six hierarchical levels of context that are proposed to exist in business-to-business relationships, three of the four case studies appeared to have all, whereas within case study C, there was nothing like a formal contract, whether written or not that are viewable as a contract level of context. Table 14 reports individual case levels of the contexts. Even though the same names have been used for the levels of context within all four case studies, it should be mentioned that each level of context

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Table 14. Case Study A

Hierarchical Levels of Context.

Case Study B

Case Study C

Case Study D

Steel construction industrial sector

Trade services industrial sector

Aluminum and steel cans industrial sector

Imaging solutions Industrial sector

Company character

Company character

Company character

Company character

Life script

Life script

Life script

Life script

Relationships

Relationships

Relationships

Relationships

General sales agreement

Long-term agreement

Episodes

Episodes

Dealer agreement Episodes

Episodes

is case study–specific. The most evident differences can be noticed in the contract level of context described in the next section. Contract Level of Context. Within case study A, the focal company strives to settle a general sales agreement with customers, which will be typically written. It contains the general norms and definitions of how the business will operate. Within case study B, the focal company expectations are to achieve a long-term agreement, which differs more than semantically with the type of agreement for case study A. The long-term agreement is a frame contract in which the parties principally express willingness to do business together beyond a normal one-year period. Within case study D, the dealer agreement only applies in one division of the focal company. Case D describes the relationship comprehensively, to the extent that it has been called ‘‘The Bible.’’ The dealer agreement contains specifics such as the peoples’ identifications and obligations, and how a dealer must place a purchase order. It goes further in defining the expected rewards and penalties associated with the accomplishment of sales targets. However, there are still topics and decisions beyond the scope of the dealer agreement in which acts such as the application of penalties are performed at the relationships level of context, whether or not they have been previously stipulated. Life Script. Life script as a level of context is understandably different, not only from case to case but even within the case from individual to individual. Life script, which is a person’s sense of self-in-interaction, results from all the episodes in which an individual has participated over the years.

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Whether the relationships relate to the company or not, they affect people’s life scripts. This level of context is particularly relevant in those episodes in which the individual’s beliefs of his/her role within the organization are inconsistent with the perceived state of affairs. Then, the episodes appeared to have connected with their life script level of context, provoking a strange loop, which jeopardized the relationship. Hence, the life script level of context explicates very much how changes in personnel could change the nature of business-to-business relationships, for better or worse. Other Hierarchical Levels of Context. Other hierarchical levels of context such as company character or industrial sector level of context are conceptually equal across case studies but specific to each one. Participants in interaction construe them throughout time. As with other levels of context, these are potentially constantly reshaped. For instance, new entrants or departing companies potentially modify the generally accepted norms of business behavior. Likewise, acts of one company potentially reshape the whole industrial sector, for instance, triggering the creation of a new law. Rules of Meaning and Action Evidence of the case suggests that participants’ interactions are explainable as if they apply sets of constitutive rules through which the actions of the other are given meaning, and regulative rules through which the reaction is guided. These rules are not explicit; they are, instead, the observer’s construction on the basis of his/her observation of the actions and episodes. Rules are context-dependent and based on previous episodes as well as on expected future outcomes of the relationship. Changes in the characteristics of a level of context might lead to change the rules that otherwise would apply to coordinate the interaction.

Research Questions Revisited How Can the Dynamics of Business-to-Business Relationships be Described and Explained? The dynamics of business relationships can be described and explained by the combination of two bodies of knowledge: first, contemporary knowledge of business-to-business relationships, particularly those constructs that depict the most desired features of relationships as well as those concepts that describe the value that business relationships deliver to the parties;

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second, rules theory, which provides a suitable methodology that enables the external observer to explicate business relationships as if participants apply sets of rules of meaning and action. Thus, once a general picture of relationship features and value is acquired, an external observer is able to construe different levels of context in which the interaction appears to occur. Within these levels of context, the external observer also constructs constitutive rules that are applied to give meaning to the other’s act, and regulative rules that appear to be applied to guide subsequent action. Accompanying this description, there are logical forces, prefigurative and practical, which are deemed to influence the degree of ‘‘oughtness’’ by which a subsequent act is felt appropriate. These logical forces enable an analyst to explain why the parties perform particular actions, whether to act in response to antecedent acts or aiming to achieve a desired outcome. Dyadic relationships as well as interaction of the parties are always context-bound, permanently evolving, influencing other relationships, and being influenced by actions of others in the extended relationship network. This causes relationships to change over time as well as the rules that appear to guide meaning and action. How are Action and Reaction Coordinated? For understanding coordination of action and reaction between companies, this study has borrowed rules theory from the communications field and applied it to the business relationships body of knowledge. Rose (1988) asserts that coordination means that ‘‘conversational participants are able to enact message behaviours that make sense to each other’’ (p. 145). Therefore, members of two or more companies engaged in commercial exchange can be deemed as coordinating their interaction as if their acts make sense to each other. In the same way that Pearce (1989) describes the coordination of individuals’ acts, during the exchange process between companies, each party produces an act as if applying a rule and in response to preceding acts, or in anticipation of producing an action from the counterpart. Coordinated interaction is also reflected in coherence, control, and valence (Pearce & Cronen, 1980). In a coordinated interaction, the interpretation of one party’s acts is robust enough to guide subsequent acts. Likewise, the parties have the ability to affect the ongoing sequences of conjoint behavior in which they participate. The parties cocreate and are able to positively or negatively evaluate the emerging episode. This coordination of action and reaction is in line with Ha˚kansson and Ford’s (2002) proposition regarding the factors that influence actors’ reactions, that is, previous acts within the relationship, knowledge that the parties gained in

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other relationships, current episodes within and outside the relationship, expectations of the future, and episodes in the extended network.

Further Considerations about Using Rules Theory Rules theory offers an interpretive framework for the external observer to understand how business interaction occurs. It is achieved by looking at interaction as if the parties apply rules that give meaning and guide action. On the basis of the empirical evidence of this research, a rules theory model for analyzing business relationships is discussed in the following section. Hierarchical Levels of Context Business interactions acquire meaning in the context of their performance. The levels of context are socially constructed and exist only while social systems are in interaction. Six hierarchically organized levels of context have been identified in this research; they and their working definitions are outlined in Table 15. Episodes are groups of acts that have a beginning and an end in a period. This research has found that some recurring episodes serve as temporary levels of context in which acts or other episodes are given meaning. This does not imply that the other levels of context are permanent, but can be deemed long enduring. The levels of context as presented in Table 15 are a representation of potential levels of context that may exist for describing business interaction. Table 15.

Working Definitions for Business Relationships Levels of Context.

Level of Context

Working Definition

Industrial sector

Acceptable and unacceptable practices among the group of companies in a defined industrial sector Norms and values that the company embraces, whether explicit or implicit A person sense of self-in-interaction Norms of behavior constructed in interaction, composed of a set of episodes connecting two or more actions over time Formal norms that govern business exchange, whether they are written or not Groups of contextualized acts nameable by subjects

Company character Life script Relationships Contract Episodes

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Table 16. Elements Act Constitutive rule Regulative rule Prefigurative logical force Practical logical force Reflexivity Charmed loop Strange loop

Elements of Rules Theory. Working Definition

The processes at work. What one does to the other Rule of meaning. The interpretation of the other’s act in the context of its performance Rule of action. The process by which the counterpart feels appropriate to perform a subsequent action The person’s level of oughtness to act because of an antecedent condition The person’s level of oughtness to act to produce a desired outcome The act and the level of context swap, so the act is used to give meaning to the level of context A self-confirming reflexivity. The interpretation of the acts do not change with changing the level of context A paradox caused by contradictory interpretations of an action

Thus, depending on the case study, more or less levels of context might be found. Other Elements of Rules Theory To conclude with this section, Table 16 presents some elements of rules theory for further use of the theory in practical application.

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CHAPTER 5 STRUCTURE AND DYNAMICS OF BUSINESS-TO-BUSINESS RELATIONSHIPS Sergio Biggemann ABSTRACT This paper describes a practical method to study structure and dynamics of business relationships by applying the findings that the previous two papers outline. The focus is to provide managers with suitable tools that improve their ability to understand and manage business relationships. The paper provides templates of figures and tables, as well as instructions on how to use them to facilitate describing structure of relationships. Relationship structure is based on five multidimensional constructs composed of trust, commitment, bonds, information sharing, and distance and dynamics of relationships based on rules of meaning and action, which are called constitutive and regulative rules.

INTRODUCTION Biggemann’s other two papers in this volume discuss the outcome of multiple case study research on business-to-business relationships. Five multidimensional

Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 327–340 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016008

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constructs include trust, commitment, bonds, information sharing, and distance; they describe the structure of relationships. This study analyzes the dynamics of business relationships using an interpretive instrument called rules theory. Although the merits of both propositions are fully discussed from a theoretical perspective, the previous two chapters do not address its application in practice. This chapter describes a practical method for understanding and modeling the structure and dynamics of business relationships. The method covers research steps from gathering to analyzing data, to managing relationships.

CONTRIBUTION TO MANAGEMENT PRACTICES Academic research borrows from the practitioner’s field and contributes to the theoretical field, whereas consultancy borrows from the theoretical field to contribute to the practitioner’s field (Gummesson, 2000). This research does both. Its contributions to the theoretical field are outlined in the previous two chapters. This chapter outlines the study’s contribution to management practice. This chapter delineates a managerial methodology suitable to improve understanding of relationships with customers and suppliers. Empirical data gathered throughout this research reveals that companies do not have suitable tools for assessing and managing business relationships. Managers only identify intuitively that some features like trust and commitment are critical to relationships. They also recognize the value of relationships for improving business performance. Nevertheless, when asked to portray their relationships with valuable customers or suppliers, participants of this research found difficulties in providing a holistic description of them. Likewise it was difficult for managers to explain the reasons why they or their counterparts enact particular actions and the consequences that such actions have on relationships. Nevertheless most informants were ready to admit their interest in building their organizations’ capabilities to improve relationship management. Although one person’s information is enough to depict a company’s relationships, the information of various people (i.e., employees, customers, and suppliers) put together, permits the construal of a company’s relationship structure as well as the changes that such relationships suffer over time. Hence, replicating this research methodology is possible for helping practitioners in the day-to-day management of business relationships. The research findings that underpin the practical tool that this paper proposes include:

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FIVE CONSTRUCTS OF BUSINESS RELATIONSHIPS Five multidimensional constructs composed of trust, commitment, bonds, information sharing, and distance describe the structure of relationships. See Fig. 1 for a graphical representation. Each dimension is provided with a working definition for its practical use (Table 1). Each construct and its dimensions are derived from existing literature, but are supplemented with findings of this research. Using various dimensions for each construct, accompanied by their relevant working definitions, helps the understanding of these, otherwise complex, constructs. These five proposed constructs account for all construals of relationships found within the four case studies’ data. Thus the model has a broad scope and provides the basis to represent the most desirable features of any company’s relationship. However, it is important to bear in mind that relationships are socially constructed. Hence, other constructs may be found in addition to the five proposed while analyzing business relationships. In that case, those constructs should be added to the description of the most desirable features of relationships.

Benevolence

Honesty

Competence

Attitudinal

Trust

Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Information Sharing

Economic

Mutual Disclosure

Multi -Contact

Structural

Fig. 1.

Business-to-Business Relationships Features.

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Table 1.

Construct

Trust

Working Definitions for Dimensions of Relationship Constructs. Dimension

SubDimension

Benevolence

The belief that one party will act in a beneficial manner to the other party as well

Honesty

The belief that the other will be credible

Competence

One party’s belief that the other has the required expertise to perform the task. The capacity to keep the promise Attitudinal

One party’s positive attitudes toward the partner; their psychological attachment to the role of relationships

Instrumental

Tangible devices placed by one party such as resources allocated, physical assets, or dedicated employees

Performance

The benefits produced by the relationship. How much cake are we going to get?

Justice

Distribution of the benefits. Who gets which part of the cake?

Formal

Specific adaptations to single partner contractually agreed

Informal

Specific adaptations to single partner beyond the terms of the contract

Specific inputs

Commitment

Relationship outputs

Adaptations

Multi-contact

Establishment of various points of contact to make information flow more intensely and smoothly

Mutual disclosure

The parties’ willingness to exchange ‘‘meaningful’’ information

Economic

The condition by which the business only exists if performed in conjunction

Structural

Tangible devices that keep the parties working together

Social

Non-tangible links between the parties, such as emotional, psychological, mental, personal relationships

Geographical

Physical distance between companies’ locations

Technological

Differences in product, processes, and technologies

Cultural

Differences in norms, values, and working methods between the parties

Social

Familiarity with each other’s ways of working

Information sharing

Bonds

Working Definition

Distance

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CONDUCTING THE ENQUIRY Gaining an understanding of a company relationship requires information regarding acts and episodes occurring between the company and its counterparts, whether they are customers or suppliers. Collecting information only within the company enables the researcher to portray the company’s desired relationship management, but does not suffice to explain neither the actual structure of relationships nor the dynamic nature of them. Thus, information should be sought from within the company and from their customers and suppliers. The importance of gathering information from both sides suggests the need for an independent consultant, a facilitator to conduct the enquiry. An external person is more likely to gain access to information from third parties as well as internally. Clampitt (2005, p. 260) asserts, ‘‘Employees are often reluctant to share their true feelings with insiders because they fear identification and possible retaliation.’’ There are a number of methods for data collection that the facilitator may profit from. This research used interviews, participant observation, and documents, finding that personal interviews, preferably tape-recorded, are the method that provides more insightful information. However, the combination of interviews with the other two methods significantly enriches data. An initial list of people to be interviewed, intercompany meetings or other forms of interaction to be observed, and documents that may contain useful information is the first step to identify relevant sources of information. The interviewing process, as suggested earlier, should seek to identify significant concurrent episodes that are relevant for understanding relationships. Those subject matters emerging from conversations with participants provide guidance to refine the initial list of participants, revealing new people that should be included. The facilitator should make every effort to interview those emergent actors to deepen her understanding of relationships. The use of an interview protocol, containing probes related to the most relevant topics that the interviewer aims to discuss, is advisable. Initial probes can be based on the working definitions of the five constructs of relationships and their dimensions (Table 1). The interviewee is encouraged to explore beyond these constructs, bearing always in mind that the role of the interviewer is to keep the conversation within the boundaries of the theme of interest, aiming to obtain rich detail of the themes that have been disclosed. Information becomes richer by asking the informant to provide examples, asking for details of the interaction, exploring the parties’ accounts and explanations for acting in particular

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manner, letting the informant reflect on his acts and the acts of his counterpart too, asking ‘‘why’’ to find out if it appears that logical forces have acted, and seeking a rich description of the context. The interviewer should attempt to find answers to questions such as: are there previous acts relevant in explaining the current episodes? What are the parties’ expectations when responding to the acts of the other? Are there other actors, whether within the company or in the extended network, that influence their actions? Is the interviewee’s definition of self consistent with the current episodes? At the end of the interview, the interviewer should leave the door open to a further interview if the circumstances so require. Interview-based data should be triangulated through observation and document reviewing. Observing business practices in their natural settings is critical to improve understanding of the settings in which relationships develop. Observation can be practiced by paying attention to people’s activity while waiting for interviews, as well as by attending intercompany meetings or other forms of intercompany interaction. The researcher should pay attention to the topics discussed, as well as to other non-verbal forms of communication such as the spatial orientation of participants, that is, the researcher observes if representatives of different companies are mixed around the table or if instead it appears to be a kind of contest in which the members of one company sit at one side of the table and the others at the opposite side. The observer also notes the pitch, loudness, and timbre of verbal expressions, their rhythm and duration, the vocabulary used, as well as the type of interaction (i.e., are there interruptions? Does one dominate the other?). Relevant documents that the researcher aims to gather include contracts, exchanged letters, or other communique´s. These may provide supplementary information related to the themes of interest.

DEALING WITH DATA Soon after the data collection begins, the process of data analysis also starts. To make sense of the data, information is scrutinized, defining units of analysis, typically paragraphs or sentences. This research uses transcripts of recorded interviews and sentences as units of analysis. However, if the interview was tape-recorded but not transcribed, software for data analysis such as NVivo permits coding sections of the record, for instance ‘‘from 4.5 to 6.1 minutes an episode is uttered related toy.’’ The aim of the process

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is to determine whether the unit of analysis is describing a feature of relationship, a value of relationship or narrating an episode.

SHAPING RELATIONSHIPS Initially, for features and value of relationships, those constructs and dimensions stated in Table 1 can be used. However, given that relationships are context dependent, construals of relationships may be found that cannot be accounted for by the five proposed constructs. In that case a new dimension of relationships emergent from data might be added. Likewise, some dimensions proposed in the five-construct model might not appear to exist within the data. The benefit of this process is to define what characterizes relationships within a company and which features of relationships appear to have more importance to the parties. Relationships in which the parties experience the most desirable dimensions of relationships from a theoretical perspective can be deemed quality relationships. The recurrence of the themes can be used to classify relationship features in groups of: often, less often, and least often mentioned. Even though frequency does not imply importance, aspects of relationships recurrently mentioned can be deemed important to participants who ultimately construct relationships. In analyzing episodes, attention to the most important features will be given. Findings might be summarized using tables such as Table 2, as well as graphs such as Fig. 2. Fig. 2 provides a visual representation of the most desirable features of the company’s relationships. Table 2. Group of Importance

Most Desired Relationship Features. Dimension :

Most often mentioned

: : :

Less often mentioned

: : :

Least often mentioned

: :

Construct

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? Benevolence

Honesty

Competence ?

? Trust

Attitudinal Inputs Instrumental

Social

Performance

Cultural Commitment

Distance Technological

Outputs Justice

Relationship Features

Geographical

Formal Adaptation Informal

Social

Bonds

Information Sharing

Multi -Contact

Structural Economic

Fig. 2.

Mutual Disclosure

Most Desired Relationship Features.

Broken lines in Fig. 2 can be replaced by continuous lines to the features that were found to exist within the company’s relationships. It is also useful to differentiate the hierarchy of the dimension with different weights of the boxes, from thicker for the most important to thinner for the least. Table 2 supplements the visual representation provided in Fig. 2, in which the absence in data of some dimensions of relationships can also be illustrated, as well as any new emergent construct can be added. Up to this point, a number of tools to portray the company’s relationships in terms of its structure are suggested. This structural analysis provides benefits such as an indication of which elements of relationships appear to be important for the company and their major partners. On the contrary, this analysis shows the absence of some dimensions, which may suggest the need for actions oriented to build such dimension. For instance, a relationship characterized by less tangible dimensions may benefit from the construction of structural bonds. This characterization also provides, to the facilitator, orientation about which dimensions of features and value of relationships may be likely affected through interaction. However, knowing the dimensions that build the structure of relationship is not sufficient to

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describe the processes by which such structure was built or the changes that potentially occur as a result of business interaction.

ANALYZING EPISODES In the same way that connecting data with relationship features is made, it is necessary to go through data seeking descriptions of acts and episodes affecting relationships. The aim is to identify acts (what one does to the other) and episodes (a string of acts, nameable by subjects) that describe the dynamic interaction. Throughout the process, these questions should be asked: What is this passage related to? What is the name that people are giving to the episode? Is it an episode that somebody else has mentioned? What are the antecedents? What are the options? In which level of context is the episode occurring? What appear to be the rules of meaning? What appear to be the rules of action? This is illustrated in Fig. 3. The information from various informants should contain the answers to these questions. For instance, the levels of context in which the acts have meaning are in expressions such as: 1) Life Script may be suggested through ‘‘To mey,’’ ‘‘A person like mey,’’ ‘‘My obligation is,y’’ ‘‘I am used toy,’’ etc. Examples for this research data are: ‘‘To me it is discussion what makes good business’’ (C1, p. 119); ‘‘As a buyer what you try to do isy’’ (C6, p. 33); ‘‘I would do my best to ensure that the relationship isy’’ (G4, p. 135). 2) Company Character may be connected to expressions containing ‘‘us,’’ ‘‘we,’’ or ‘‘our company’’; although in some cases some people refer to their own organizations as ‘‘they.’’ I’ve worked in other companies in the past where they might elaborate on the truth a bit, to make sure that the customer hears what they want to hear, our company is none of that. (A4, p. 46)

3) Relationships as a level of context may be related to phrases in which two or more parties are mentioned, ‘‘In our experience with this supplier/ customery’’; ‘‘Dealing withy’’; ‘‘Between usy’’ etc., for example: ‘‘[W]hen it comes to dealing with the customery’’ (G2, p. 16); ‘‘[I]f she insists on dealing with us we are saying it is going to cost you a lot more’’ (L5, p. 58). 4) The industry group level of context may be indicated in expressions containing reference to the industry group, or sector: ‘‘We are in the building and construction market, which is the most profitable’’ (L2, p. 147).

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Rules of Action

Episode

Logical Forces

Act

Consistency or Inconsistency

Antecedents

Expectations

People Involved Level of Context

of rules with: • Life Script • Relationships • Company Character

Rules of Meaning

Fig. 3.

Mapping Episodes.

5) Contracts as a level of context connect expressions in which contract, agreement, norms regulations, and/or policy mentions. Finally, some episodes appear to have lasted longer than others or are recurrent. This may indicate that the episode itself is serving as level of context to other acts or episodes. The information can be organized as illustrated in Table 3. After defining episodes, as well as possible logical forces and rules, relationships are described using rules theory nomenclature, which is suitable not only for the description of single episodes but also to describe sets of interconnected episodes through the use of rules of meaning and action in different levels of context.

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Table 3.

Identifying Episodes and Rules.

Episode 1

Episode 2

Episode 3 y

Episode n

Name Uttered by Other people involved Level of context Antecedents Prefigurative forces Practical forces Rules of meaning Rules of action Expectations Possible outcomes

Table 4. Dimension

Changes in Relationships’ Dimensions. Change

Evidence

Improvedm Worsek No change2 : : :

CHANGES IN RELATIONSHIP FEATURES Relationships are constructed through interaction; thus, relationships are potentially reshaped through the performance of parties’ acts. This research finds that interaction changes a number of dimensions of the major constructs that portray business relationships, as well as the value assigned to relationships. Thus, some acts redefine the nature of the relationships and therefore modify the rules that would afterwards operate. After an analysis of the interaction an evaluation of the changes that some dimensions of the relationship might have suffered is pertinent. This can be done with the help of Table 4.

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Any identifiable dimension that has changed is compared with the initial relationship features illustrated using Fig. 2. Thus, the portrayal of relationships as a result of an episode or a number of episodes is redefined. If the dimensions of relationships change, rules of meaning and action may also change. However, this can only be seen in further observation of interaction.

CHECKING THE VALIDITY OF THE FINDINGS An important consideration is to make sure that what has been studied is what was intended to be studied. One method to check validity of the findings is by reporting back to the informants and obtaining confirmation or disconfirmation of the interpretation resulting from data analysis. Thus, the facilitator can be more confident that she is presenting the evidence of the case.

BENEFITS OF THE METHOD Going through this process should be thought of as a learning experience in which both facilitator and participants of the research construe how relationships are described (structure) and how they dynamically change in time (process). Describing the structure of relationships delivers a holistic view of relationships; describing business interaction as if rules of meaning and action are used by interactants delivers understanding of the processes that create such structure. Both together provide (1) a tool for understanding structure and processes, (2) a systematic way for analyzing relationships, and (3) an instrument for learning how those relationships change over time and perhaps being able to anticipate outcomes of interaction. An illustration of the use of rules theory to analyze the dynamics of business relationship can be found in Biggemann and Buttle (2007).

LIMITATIONS OF THE RESEARCH This section addresses the limitations of the research, and thus, these comments are relevant to the overall research outlined in this and the previous two papers. The main and most important limitation of this research is paradoxically also the main and most important finding. That is

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to say, as business-to-business relationships are socially constructed and context dependent, the findings of this research are context dependent and socially constructed through the researcher’s interaction with the data, both at its collection and analysis. Even though the researcher has sought validity and reliability at all times, extensively reviewing the extant literature, using both interview and observation protocols, tape-recording the interviews and subsequently fully transcribing them, triangulating the information, and seeking feedback from informants, this research delivers nothing but the researcher’s interpretation of reality based on the information to which the researcher has been able to gain access. This research is also limited by time constraints of both the interviewees as business executives and the researcher himself. As declared earlier, closure was reached after encountering saturation of data in the particular themes for which information was sought. This is valid until the data collection is finished. Any further episodes that are most likely to have occurred could not be included in this report. Siding with Evans and Gruba (2002), who assert that academic research is not a report of the late news, once the data collection process had ended no new evidence was sought; thus, it is not added to the report. As much detail as possible related to the research methodology and each case study setting was provided to permit any person who reads the research to be aware of the specifics of the research. Nevertheless, findings of this research cannot be generalized beyond the research context. A tool for use in business contexts was proposed; however, it does not imply that business relationships should be described using the same constructs and dimensions that this researcher has used, even though they are theoretically supported. Thus, it is proposed that the tool provides ‘‘analytic generalization’’ (Healy & Perry, 2000), but in no manner ‘‘the ultimate truth’’ (Gummesson, 2000). Further research should be open to include new constructs that describe relationships, and to keep, from those proposed, only those that suit the data. To a large extent this research is located in the business-to-business manufacturing context, although the focal company of one case study pictures itself as a service company. Since a tangible product is involved, the efficiency of the service can be objectively judged; thus, the case study does not notably differ from those in the manufacturing arena. Extending the use of the analytical method to service markets might require considerations with regard to the parties’ capability to judge the quality of the service and its effects on the rules of meaning and action that can be used to construct

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the nature of relationships. In the same manner, relationships in endconsumer contexts may lack interaction between parties and therefore the analytical tool might not be suitable to explain its dynamics. Another limitation of this research concerns the cross sectional nature of the study. Even though most episodes were studied taking into consideration a number of acts performed during a period of time, subsequent episodes could not be included; thus, the benefit of studying more interaction was lost. Finally this research, as most research in business environments, is limited to the information that participants of the research were willing to disclose. Even though the high ethical standards observed and the assurance of confidentiality stimulated openness, it is always possible that informants kept undisclosed information that could be valuable.

REFERENCES Biggemann, S., & Buttle, F. (2007). The ford explorer – firestone tires crisis: A rules theory analysis of relationships. Paper presented at the 23rd Industrial Marketing and Purchasing Group Conference. Exploiting the B2B Knowledge Network: New Perspectives and Core Concepts, Manchester. Clampitt, P. G. (2005). Communicating for managerial effectiveness (3rd ed.). Thousand Oaks: Sage Publications. Evans, D. G., & Gruba, P. (2002). How to write a better thesis (2nd ed.). Carlton South, Vic: Melbourne University Press. Gummesson, E. (2000). Qualitative methods in management research (2nd ed.). Thousand Oaks: Sage Publications. Healy, M., & Perry, C. (2000). Comprehensive criteria to judge validity and reliability of qualitative research within the realism paradigm. Qualitative Market Research: An International Journal, 3(3), 118–126.

CHAPTER 6 ORGANIZATIONAL INNOVATION AND OUTCOMES IN SMES Sylvie Laforet ABSTRACT This study examines organizational innovation in small- and mediumsized enterprises (SMEs) and develops an extensive framework of how innovation occurs, its end results in terms of positive, negative outcomes, and its impacts on business financial performance; using grounded methodology; interviews with entrepreneurs and executive experts from across industries. The study aims to fill gaps in the literature. Despite extensive research conducted on innovation, most focus on factors behind innovation and a company’s innovativeness. The framework is useful to SMEs considering company-wide innovation. Transparent inputs and outputs enable companies to understand innovation processes, and its outcomes better as well as help monitor and implement individual innovation activities. The framework has a wide application, particularly, in an industry where innovation is hard to capture and understand. Using the model, we can determine innovation drivers, practices, and barriers as well as innovation inputs/outputs in different industries, thus promoting better management of innovation across a wide range of applications. Governments also require a better understanding of innovation, productivity, and operational efficiency to plan their policies in the promotion of innovation.

Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 341–362 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016009

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INTRODUCTION Brown (1998) notes three streams in innovation research: economic, organization, and project-oriented. Studies of the economic-oriented stream show that small businesses represent an important driving force for innovation and are as innovative as large enterprises. Investigations into organization-oriented research stream examine factors contributing to small- and medium-sized enterprise (SME) success and factors determining SME innovation. These suggest that networking, regional support, business planning, and strategies contribute to SME innovation. Optimization of organizational structure also contributes to effective and efficient management of innovation. The project-oriented research stream place importance on customers as an important source of SME innovation. External environment, structural factors, and firm-specific characteristics affect SME innovation. With regard to the external environment, these show regional variation such as the level of activities (e.g. White, Braczyk, Ghobadian, & Niebuhr, 1988), market types (Sebora, Hartman, & Tower, 1994), sectors (Abreu, Grinevich, Kitson, & Savona, 2007; Freel & Robson, 2004), strategic orientation, market orientation, and competitive structure (e.g. Laforet, 2008; Salavou, Baltas, & Lioukas, 2004) have an impact on SME innovation. Firm-specific characteristics such as the organization, the entrepreneur, and the project team also affect SME innovation (e.g. Beaver & Prince, 2002; Brown, 1998; Gapp & Fisher, 2007; Georgellis, Joyce, & Woods, 2000; Goldsmith & Kerr, 1991; Gray, 2002; Lipparini & Sobrero, 1994; Mambula & Sawyer, 2004; Ramachandran & Ramnarayan, 1993). In addition, these find benchmarking, networking, and organizational learning have an effect on SME innovative performance. Recent studies also focus on firms’ absorptive capacity, capabilities, patterns of skills, training and education, growth, and performance related to innovation (e.g. Abreu et al., 2007; Freel & Robson, 2004; Freel, 2005a; MacDonald, Assimakopoulos, & Anderson 2007). Despite extensive innovation studies, innovation research in SMEs has a large diversity of focuses. Much remains unknown about the ingredients for successful innovation (Brown, 1998) and its inputs and outputs. Few studies also examine innovation and its effects on the business financial performance and even fewer on the outcomes of innovation. Following the British Economics and Social Research Council’s calls for research on excessive innovation, academics now recognize that innovation can have negative as well as positive impacts (refer Simpson, Siguaw, & Enz, 2006).

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This study examines organizational innovation in SMEs, by developing a comprehensive conceptual model of organizational innovation, its occurrence, positive and negative end results, and its impacts on business financial performance. The theoretical framework also ensures a more precise understanding of organizational innovation and its specific outcomes in relation to new product development, process innovation, and new ways of working. As the relative cost of innovation is more significant to a small firm than a large firm, due to the former’s limited available resources such as labor, finance, and material, consequently, the impact of innovation on SME financial performance must be relatively much higher. Therefore, small firms need to avoid unintended or harmful outcomes of innovation. The relationship between innovation, productivity, and operational efficiency at the firm level also requires better understanding. The paper includes a review of the literature, discussion of the methodology, analyses of interviews, presentation of research propositions, and conceptual model development followed by conclusions.

DRIVERS OF INNOVATION To build a comprehensive framework of organizational innovation, we need to begin by examining how innovation occurs, what drives innovation, and why companies innovate. Market environment and a firm’s strategic posture are among the driving forces behind innovation. The literature refers market environment to industry competitive structure, operating environment, technological development, and customers. Salavou et al. (2004) find that industry concentration and barriers to entry influence organizational innovation. Firms operating in more competitive environments, with lower concentration and lower barriers to entry, tend to have better performance in product innovation. These authors’ findings are in support of other academics’ views, that lack of competition curbs innovation (Dasgupta & Stiglitz, 1980; Kraft, 1989), but contradict the traditional Schumpeterian theory, which claims that competitive pressure has a negative effect on innovation. Salavou et al. (2004) further argue that nowadays the dynamic nature of most markets makes impossible to find an industry that does not engage in innovation (Hurley & Hult, 1998). Many companies also cannot remain static, because of overseas competition and/or globalization. However, for innovation to take place, other factors need considering such as funding and organizational innovation capacity.

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A firm’s operating environment and strategic posture affect innovation. O’Regan and Ghobadian (2005) show that firms place a greater emphasis on innovation in difficult operating environments, characterized by short product cycle, rapid technological change, and intense rivalry. In turbulent environments, prospectors deploy new process technologies, and leading management practices are more compared with defenders. Prospectors are firms that ‘‘continually seek opportunities, flexible to adapt, respond rapidly, and creatively to external changing environment.’’ Prospectors engage in developing new products by introducing newly patented products. Defenders are firms that ‘‘compete on the basis of price, quality, delivery or service, and operate efficiently with a strong emphasis on maintaining existing markets’’ (O’Regan & Ghobadian, 2005). Ozsomer, Calantone, and Di Bonetto (1997) associate innovative companies with a proactive strategic posture, aggressive firms, competitive, and risk takers. Proactive firms differentiate themselves from their competitors by changing their production methods and products. As customers can particularly drive innovation in SMEs, companies work closely with their customers on contractual work and often have to develop new products to meet customers’ requirements. Sometimes new ideas may come from the customers themselves. Customer orientation has an impact on product development. Their influence is particularly apparent in new product ideas, new product launches, process innovation, cross-functional teamwork, interdepartmental connection, and to a lesser extent, in business strategy (Appiah-Adu & Singh, 1998, Laforet & Tann, 2006; Laforet, 2008, 2009; Salavou et al., 2004). Research suggests that small firms that innovate increase their chances of survival and growth (Cefis & Marsili, 2003; De Jong & Marsilli, 2006). Therefore, company growth may be one innovation driving force. Freel and Robson (2004) proposes a positive relationship between novel product innovation and employment growth and a negative relationship between product innovation (both incremental and novel) and growth in sales or productivity for manufacturing firms. By contrast, growing sales and productivity are positively associated with incremental process introductions in the service sector. Wolff and Pett (2006) suggest that product improvement has a greater influence on growth and profit performance than process improvement. This proposal supports previous studies on new product development, suggesting product innovation activities are the cornerstone of better-performing companies and those with ambitious growth targets (Mosey, 2005; Mosey, Clare, & Woodcock, 2002). Finally, a number of researchers find CEOs’ commitment to innovation, their active strategic commitment to research, and technological change

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strongly determines organizational innovation (Pavitt, 1991) and promotion of innovative culture (Motwani, Dandridge, Jiang, & Soderquist, 1999).

COMPANY INNOVATION CAPACITY Innovation can only occur if the capacity to innovate exists in a company. Innovation capacity refers to availability of resources, collaborative structures, and processes to solve problems. Available resources are mainly financial and skilled workforce in the SME context; collaborative structure refers to multi-functional or cross-functional teams; processes relate to systems, technologies, and ‘‘Investors in people’’ (or IIP). Recent research also shows how absorptive capacity links to innovation. The Department of Trade and Industry (DTI) report (2007) based on Centre for Business Research (CBR) data indicates that innovation requires the appropriate human capital to raise absorptive capacity of SMEs. According to Freel (2005b), firms’ capabilities in strategizing, utilizing human and intellectual capital are also as important as their capacity. Siqueira and Cosh (2008) also indicate a relationship between product innovation, organizational capabilities, and competitive advantage; capabilities refer to organizational routines like job rotation and multi-skilling. These authors suggest that firms using job rotation or multi-skilling and introducing product innovations are more likely to be top performers in 2004. Other researchers also suggest successful innovation in SMEs depends on a flexible, open culture with short communication lines and less bureaucracy as well as being able to plan ahead, benchmarking, and networking (Barnett & Storey, 2000; Birchall, Chanaron, & Soderquist, 1996; Bowen & Ricketts, 1992; Chandler, Keller, & Lyon, 2000; Dogson & Rothwell, 1991; McAdam, McConvery, & Amstrong, 2004). Some argue that SMEs do not innovate in formally recognized ways and make much more extensive use of external links (Hoffman, Parejo, Bessant, & Perren, 1998).

INNOVATION ORIENTATION Innovation orientation is a prerequisite for organizational innovation. Research shows that innovative companies have an innovation orientation, risk-taking attitude, willingness to learn, and an innovation strategy as part

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of their overall business strategy. Important factors are a well-developed and detailed corporate strategy, as well as a balanced approach to shortand long-term objectives (Beaver & Prince, 2002; Georgellis et al., 2000; Laforet, 2009). A number of benchmarking indicators measure a company’s innovativeness such as a company’s position in the marketplace, percentage sales from products introduced in the past five years, implementation of ISO9001, performance measurement including net sale of new products, profitability of new products, and the rate of R & D investments in a given period. The UK DTI use arbitrary measure of innovativeness, based on 10 key indicators including number of new product ideas a company has in the past five years; number of new product(s) launched in the past five years; number of product(s) improvement introduced in the past five years; innovation prize(s); percentage of sales from the most recent product introduced; extent to which major customers provide specification for new product(s); level of investment in systems and technology for office; level of investment in systems, technology for shop floor; and new or improved ways of working in past five years. Hult, Hurley, and Knight (2004) define company’s innovativeness as, ‘‘capacity to introduce of some new process, product or idea in the organization.’’ Kessler and Chakrabarti (1999), Tushman and O’Reilly (1996), Va´zquez, Santos, and A´lvarez (2001) also find that innovative companies adopt more radical and incremental product innovations at a faster rate. Simpson et al. (2006) find innovative firms produce better quality products. They also suggest that innovative firms focus on successful creation and implementation of novel ideas, products, and services in the market place as well as having an ability to anticipate consumer needs and respond better than competitors. Some authors also examine company’s innovativeness in terms of product, process innovation, and innovative ways of working (refer Freel & Harrison, 2006; Laforet & Tann, 2006). Others take into account ‘‘soft’’ aspects when measuring innovation or a company’s innovativeness, such as major changes in corporate strategy, management practices, organizational structure and marketing. Several classifications of innovators also exist: first, in terms of ‘‘novel’’ and ‘‘incremental’’ innovators. Novel innovators are those who introduce at least one product/process new to the industry over a thee-year period. Incremental innovators are those who introduce at least one product/process new to the firm only during the same period, and non-innovators are those who introduce no new products/processes (Freel & Harrison, 2007). The DTI classifies innovators as either active or wider or both (refer the DTI 2005 Innovation Report).

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SYSTEM-WIDE INNOVATION In contrast to innovation literature that focuses primarily on either new product development or process innovation and factors affecting innovation, the system-wide view of innovation examines innovation at the firm and strategic level. In this conceptualization, the innovation-oriented firm continuously keeps itself abreast of competitors and markets itself through strategies, guided actions, behaviors, focusing on key organizational competencies and processes (Calantone, Cavusgil, & Yushan, 2002; Siguaw, Simpson, & Enz, 2006). This concept is therefore similar to innovation orientation. The system-wide view of innovation leads to strategic consequences or outcomes that are beyond simple innovation counts such as rate and speed (Simpson et al., 2006) discussed later in text.

OUTCOMES OF INNOVATION The current literature mainly deals with positive and negative outcomes of new product innovations, due to the high failure rate of new product introduction. The positive outcomes of new products as identified are lower costs, enhancements to existing products, extensions to product range, better customer service, more rapid delivery, product customization, and improved after sales service (Neely, Filippini, Forza, Vinelli, & Hii, 2001). Negative outcomes of new products are numerous and associate mainly with failure at launch stage, late entry, and marketing, while the relationship between innovation, growth, and performance is not clear (Freel & Robson, 2004; Wolff & Pett, 2006). Many researchers examine the link between organizational behavior and business performance but rarely the relationship between organizational innovation and its financial performance, except for Woodside (2004), focusing on system dynamics and relationship marketing perspective as a basis for understanding how firms’ innovativeness affects its performance and Freel and Robson (2004) investigating the relationship between innovation, growth, and performance but focuses only on some industries and regions as well as product innovations. Academics also do not agree on a common standard for measuring business performance. In the context of small firms, a further difficulty arises when researchers cannot obtain their financial accounts for analysis. Furthermore, respondents have different perceptions and/or abilities to comment on more sophisticated financial measurement such as profitability and return on investment, which makes it difficult to record a trend.

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Research dealing with outcomes of process innovation is scarce particularly, unintended outcomes. Simpson et al. (2006) also highlight the lack of research examining firms’ innovation orientation and its effect. They point out that most innovation studies ignore the micro-level effects of an innovation orientation on a firm’s sustained financial performance. These fail to broaden understanding of innovation and its impact on business performance. Furthermore, these studies rely on a few measured outcomes with a bias toward positive results. Unintended outcomes of an innovation orientation, especially the harmful ones, are essential in studying a firm’s innovation orientation. Simpson et al. (2006) explore firms’ innovation orientation, positive and negative outcomes for a wide range of American-based companies. They suggest that the positive consequences of an innovation orientation relate first to the type, speed, number, and quality of innovations; second to market advantages (referring to competition and customer-related aspects), employee advantages (referring to recruitment, job satisfaction, performance, and retention), and operational excellence. Negative consequences of an innovation orientation are unprofitable innovations, operating beyond a firm’s core competency; unnecessary risks and allowing followers to copy an idea; promote negative employee attitudes leading to job stress, dissatisfaction, increase turnover and costs. Using the system-wide innovation approach as a basis for explaining companies’ innovation orientation, Simpson et al. (2006) focus on the overall outcomes of innovation and have discarded those that are specific to product, process innovation, and new ways of working. This study adopts the system-wide innovation perspective to examine organizational innovation in the SME context; it also considers innovation at the product, process level, and ways of working. This examination is more relevant to firms, as it enables them to improve monitoring and implementation of each innovation type and overall.

PROPOSED FRAMEWORK OF ORGANIZATIONAL INNOVATION The conceptual framework focuses on three aspects: (1) innovation drivers; (2) positive and negative outcomes of product, process, and ways of working, and innovation at the firm level or overall; (3) impact of innovation on the business financial performance (Fig. 1). Process innovation refers to the

Profit Market Growth PLC Bmodel Competition S/T gain Quality Co/nat pride Employees’ welfare CEO drive Funding Quali workforce External sources

Fig. 1.

NPD***

New Ways of Working ** -High risks (technical, market, 2nd time) -Not working or slow down development -Damaging co reputation -Staff T/O -Uncontrollable growth -More mistakes** -Unprofitable -Increased costs* -Change beyond core competency* -Complication* -Job losses* -Unsafe working environment* -Adverse environmental impact -Product failure ***; Short-term gain*** -Fast followers*** -No market/not big enough*** -Project management problem*** - Unprotected patent***,*

Negative -Employee dissatisfaction; - Job stress

A Model of Organizational Innovation and Outcomes in SMEs.

Organizational Innovation

Process innovatio n*

Positive -Operational excellence -Expertise; -Technical ability -Employee satisfaction -Customer satisfaction -Enhance company’s image/reputation -Improved financial performance (i.e. profit margin; T/O ); -Employees’ performance -Skilled workforce acquisition -Sustain innovation -Improved co’s efficiency*, ** -Easier ways of working* -Improved WE (health, safety*, moral) -Cost benefit* -Transparent for quality purposes* -Simplification* -Better understanding of co’s objectives/ the business** -Speed***; Number***; Quality*** -Protected patent***,*, Value added

Financial Performance

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investment in and use of a system technology, machinery, equipment, and IPP to aid innovation as well as idea generation, opportunity recognition, and exploitation. New ways of working refers to administrative procedures that enable innovation to be an inherent part of companies’ operation (Laforet & Tann, 2006).

METHOD This study uses grounded theory, as few prior researches consider types of innovation and their specific outcomes in SMEs. The study attempts to develop a theoretical basis and bring new insights to the area under examination rather than relying on past research (Brown & Eisenhard, 1997; Carson, Gilmore, Perry, & Gronhaug, 2001). The methodology requires the analyses of responses from informed constituents to identify inherent patterns and specific parameters that may require further investigation (Simpson et al., 2006). The research findings can establish a sound basis for further empirical research. Fifteen individual in-depth interviews with CEOs, co-directors, and two executive experts were conducted. One expert was on board of directors of a consultancy directly involved in innovation management for large and small companies with 30 years of experience. The other expert was a principal engineer, with 20 years experience, responsible for kick starting his company’s innovation program. These individuals were best placed to observe, report potential effects of company-wide innovation, or were directly involved in setting, and monitoring firm strategy. The sample size would not affect the results of the study; as Mariampolski (2001) notes that most studies are effectively conducted with 15–30 personal in-depth interviews. Furthermore, trend and patterns emerging from the interviews form the basis for further hypothesis testing. All the interviewed companies are based in Sheffield, United Kingdom, operating mainly in manufacturing, engineering, electronic, construction industries, and business-to-business services. The company size ranged from 8 to 250 employees in size making them a SME, by definition. Each semi-structured interview took place at the company site and lasted up to one-and-a-half hour. Each established what drove a company to innovate, what innovation meant to companies, what was the perceived innovative capacity, whether and how companies measured innovation, in what ways they saw themselves as innovative, what was organizational innovation, and more importantly, what were the consequences of organizational innovation

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in relation to new product development, process innovation, and ways of working as well as the possible impacts on business performance. Using semi-structured interviews and open-ended questions allowed the interviewer probing for greater detail or clarification of answers. A record of the interview was put on tape, transcribed, and thematically analyzed, in terms of the positive, negative outcomes of overall innovation, and specifically related to individual type of innovation such as new product development, process innovation, and new ways of working. See Fig. 1 for the themes. Data were analyzed by examining similar responses. The discussion used all the responses from the interviews, areas of consensus where possible those where conflicting opinions were duly noted.

ANALYSIS OF INTERVIEWS AND RESEARCH PROPOSITIONS Drivers of Innovation The interviews identify the drivers for SMEs from the companies’ perspective. According to interviewees, market environment (refers to the market, customers, including technological change); competition at home and abroad, business growth, profit margin, and CEOs’ drive are the main driving forces behind innovation. As interviewees note: ‘‘We’re forced to innovate; it’s a drive from customers’’ (Automation Ltd); ‘‘The customer, the changing of market’’ (Enodis Group). Interviewees also highlight listening and understanding customers are most important to successful innovation through these comments: ‘‘understanding customers is good driver for businesses; depending on the market you are in’’ (Enodis Group). ‘‘Successful innovation is about listening to your customers; as well as competition, growth, and profitability’’ (Vetenary Instrumentation Ltd). ‘‘Competitive pressures in the domestic market’’ (BSSA); ‘‘High competition from overseas (Rotary Engineering UK Ltd); ‘‘Growth’’ (BSSA, IMES Ltd, EarthTech UK); ‘‘Profitability’’ (IMES Ltd) are drivers of innovation. With respect to technological change, interviewees assert that it will depend on whether the company is a leader or a follower. The ‘‘CEOs might also be the driver, and being innovative and hungry’’ said BSSA. Consistent with the literature, ‘‘Uncertainty in the marketplace’’ (Rotary Engineering UK Ltd) is another driving force. In addition, interviewees said that ‘‘Short-term orientation’’ (Rotary Engineering UK

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Ltd), business model, product life cycle, and quality are further factors behind innovation – ‘‘Our business model dictates that we have to develop new things’’; ‘‘We keep developing new products, and raising quality, and keep it interesting’’ (Vetenary Instrumentation); ‘‘Because of PLC it just can’t rely on one product to develop a stream of products’’ (JRI Ltd). CEOs interviewed also believe in success and creating for the future, keeping British industry alive and national sense of pride as well as being good to their employees (referring to corporate pride) as factors influencing innovation – ‘‘Worried being left behind’’ (BSSA), driven by ‘‘Success’’ (EarthTech UK, Rotary Engineering UK Ltd) or ‘‘Keeping people employed; keep British business alive; create something for the future’’ (AGA Lifting Services, Rotary Engineering UK Ltd), keep good working environment for employees – ‘‘We have good working conditions; we want people to enjoy coming to work; we want to be the best’’ (Rotary Engineering UK Ltd, Automation Ltd). Consistent with the literature, a good attitude to innovation is one of the main factors driving innovation, referring to Rotary Engineering UK Ltd’s. In addition to factors found by past researchers such as market environment, company growth, CEO’s drive, competition, and customerdriven, the results of the interviews indicate profit margin, short-term orientation, business model, product life cycle, quality, and corporate self-esteem are also major innovation’s drivers. With respect to quality, other researchers raise the issue but only, in the context of large firms. Corporate self-esteem refers to corporate pride and aspirations to be successful, and not lag behind. Others endeavor to keep the British industry alive, suggesting national pride and employees’ welfare as the main drivers behind innovation. As such innovation is driven by companies wanting to keep people employed and maintain good working conditions for them. The analyses of the interviews also show no distinction between innovation drivers and companies’ innovative capacity in interviewees’ perceptions. For instance, they think funding, qualified workforce, ideas, and external sources are factors driving innovation, referring to the following answers to question on innovation drivers: ‘‘The fund’’ (Yorkshire Fabrication Ltd, AGA Lifting Services, IMES Ltd, Automation Ltd), ‘‘Someone brings in new ideas’’ (Yorkshire Fabrication Ltd), ‘‘Open to ideas’’ (EarthTech UK), ‘‘an outside source’’ (Yorkshire Fabrication Ltd). ‘‘Qualified engineers make the process more efficient’’ (Automation Ltd). Arguably, these are also part of companies’ innovative capacity. The results show some consistency with the literature, which found that qualified workforce and external sources factors that drive innovation

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(e.g. Freel, 2005b). Lack of financial resources or funding was found to be a barrier to innovation in SMEs but also an innovation driver. Thus, in addition to past findings regarding to innovation drivers discussed earlier, the following statement is a new proposition for innovation drivers. P1. Profit margin, short-term orientation, business model, PLC, quality, corporate pride, and employees’ welfare are drivers of innovation in SMEs.

Organizational Innovation, Company’s Innovativeness, and Innovation Measures Most interviewees think that innovation relates to attitudes, risk-taking (Rotary Engineering UK Ltd), company strategy, culture, vision, and staff. Although, in their opinions, culture also concerns with having the right atmosphere and the right people, innovation in companies starts with staff willing to embrace change and having the support of the company; only then can new product development, process innovation, and new ways of working begin. Interviewees perceive having a strategy is the most important aspect of organizational or company-wide innovation. Once the company has the right strategy, implementation can follow. Many companies interviewed have an innovation strategy, send their staff on training courses, work with Universities on Knowledge Transfer Programs (KTPs) or spin-out projects, and are leaders in their field. Most companies interviewed see themselves as being innovative. Although they do not formally measure innovation, nor do they know how to evaluate innovation – with the exception of one company, which measures innovation in terms of ISO9000, ISO2000, and on the basis of project success or on ‘‘What we do wrong not what we do right’’ (IMES Ltd), innovation, has a number of meanings to these companies. Such as developing new products, improving processes, and delivering a customer-tailored service that may include improving customers’ efficiency or delivering value to the customer by providing a solution at the right price and/or finding new ways of helping customers. Other factors include continuous improvement, learning initiatives, quality systems, designs, ‘‘investors in people,’’ latest technology, and innovation strategy as mentioned earlier, which the literature sometimes refers to infrastructure for innovation. Being innovative is about having novel ideas, thinking outside the box, being innovative in the market, and having the right customer approach. Consistent with the literature, the findings reveal that a positive attitude to innovation and having an

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innovation strategy are essential to organizational innovation. Innovative companies also lead in knowledge transfer or spin out projects and learning initiatives, which is consistent with the literature highlighting that innovators are likely to have links with universities and support organizations (Freel & Robson, 2004).

Positive and Negative Outcomes of Organizational Innovation Simpson et al. (2006) suggest operational excellence, market advantage, and employee satisfaction as among positive outcomes of innovation, although interviewees agree that these are subject to empirical testing. In addition, most see the long-term benefits of innovation as satisfying customers, improved company image, and enhanced reputation that is also consistent with Simpson et al.’s finding. Some interviewees believe that positive innovation also leads to an improvement in financial performance [referring to an increase in profit margin and turnover (Vetenary Instrumentation)], which will help with better recruitments of skilled workforce, who in turn may bring in more expertise leading to more change or improvement in the company, which will promote a feel good factor and resulting further innovation (Rotary Engineering UK Ltd). This is a new finding, although the feel good factor can mean good environment and employees’ satisfaction that concur with past literature and Simpson et al.’s framework. The executive experts interviewed also point out that innovation allows companies to demonstrate their expertise and technical ability. Therefore, positive outcomes of innovation relate to operational excellence, market advantage, company image, reputation, and employees’ satisfaction. The analysis of interviews show that positive outcomes of innovation also relate to improved financial performance, acquisition of skilled workforce, expertise, technical ability, and further or sustained innovation. P2. Organizational innovation associates with improved companies’ financial performance, employees’ performance, skilled workforce acquisition, expertise, technical ability, and sustained innovation. All interviewees assert that an innovative culture and environment will lead to a greater enjoyment (‘‘Lead to success; interesting; challenging; achievement – we can now say we can do it; people enjoy it’’ – EarthTech UK, Rotary Engineering UK Ltd), better working conditions, selffulfillment, and job satisfaction that in turn would enhance employees’ performance, which concur with the literature to a great extent.

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Consistent with Simpson et al.’ study, most interviewees perceive negative outcomes of innovation as job stress, employee dissatisfaction, higher staff turnover, more mistakes due to employees being unfamiliar with some aspects of innovation, higher risk of technical failure, and market risks. These relate to inability to realize the full benefits of innovation, capitalize on innovation, not operating according to original concept, not meeting original objectives, or prolonged period of time required to observe the outcome of innovation. Furthermore, some interviewees mention the risk of innovation as uncontrollable business growth and higher risk of a second attempt following a first unsuccessful innovation. Regarding the risk of uncontrollable business growth, many companies particularly small companies do not know how to grow and obtain the finance they need. They lose control of the business as the business grows (referring BSSA’s comment). Other views in agreement to some extent with previous research include: ‘‘Things don’t move quickly; turmoil; change for sake of it’’ (Riverside Automation) or ‘‘It could waste money and time’’ (Rotary Engineering UK Ltd). Therefore, besides Simpson et al.’s previous proposition that negative outcomes of innovation relate to risk of failure, company image, reputation, employees’ dissatisfaction, increase in staff turnover, unprofitability, and mistakes, the analyses of interviews shows that innovation can cause uncontrollable business growth for SMEs and bring higher risk second time round. P3. Organizational innovation associate with uncontrollable business growth and higher risk the second time round.

Positive and Negative Outcomes of Process, Product Innovation, and New Ways of Working The analyses of interviews suggest that positive end results of process innovation are improved efficiency, easier ways of working, cost-benefit, for quality purposes, process simplification, improved working environment, and safety leading to employees’ satisfaction. P4. Process innovation associates with improved efficiency, easier ways of working, cost-benefit, transparent for quality, simplification, improved working environment, and safety. Although the negative consequences of process innovation include employee dissatisfaction, job stress, increased costs, change beyond the

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company’s core competency, and complication, most interviewees think that companies can avoid employees’ dissatisfaction, and job stress through better communication with the workforce, and bringing them on board. The CEOs and executive experts interviewed feel that process innovation can result in job losses and adverse environmental impact. P5. Process innovation associates with changes beyond a firm’s core competency and adverse environmental impact. One of the positive outcomes of new ways of working is operational excellence or in interviewees’ words: ‘‘increases in productivity,’’ ‘‘more efficient, and effective than competitors,’’ and ‘‘saving time, and money as a result of shorter production line, and improved processes’’ (IMES Ltd, Enodis Group). Other positive outcomes of new ways of working include a better understanding of the business, meeting company’s objective, and improved productivity (EarthTech UK, Vetenary Instrumentation). Additionally, the executive experts interviewed suggest that new ways of working have an effect on companies’ capacity to understand business implications of technological and market trends. According to interviewees, new ways of working also reduce long-winded manual ways of working, provide a more effective delivery, reduce bureaucracy by empowering employees, and by making decisions at shop floor level. However, new ways of working can lead to more mistakes. P6. New ways of working associate with improved efficiency, productivity, better understanding of the business and company’s objective. P7. New ways of working associate with more mistakes. Interviewees think that product innovation can lead to an increase in number of product launched, speed of developing new products, quality of products developed, customer satisfaction, improved customer service, product customization, and a foothold in the market, which to some extent concur with the literature. Examples of comments are: ‘‘To satisfy someone’s needs’’ (Enodis Group); ‘‘Something that solves problem; that address not one need but many needs; able to be marketed at the right price’’ (JRI Ltd). Besides previous propositions that positive outcome of product innovation relate to number, speed, product quality, the analyses of interviews also reveal product innovation can lead to patent protection that is extremely important to SME innovation.

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P8. More innovative companies have protected patent for their products. Most CEOs feel that negative consequences of product innovations are high risk, fast followers, product failure, short-term gain, insufficient market size, unprofitability, and project management problems. These findings concur with the literature. However, most interviewees believe these outcomes are avoidable. By reviewing the process before conducting the innovation, firms can minimize risks and maximize the benefits. Similarly, companies can avoid insufficient market size problems and unprofitability if they carry out a market analysis before undertaking innovation. P9. More innovative companies are better at controlling unintended outcomes, reviewing, planning for innovation resulting in more successful innovations than less innovative companies, as well as being flexible during the course of an innovation project. Conceptual Model of Organizational Innovation and Outcomes The developmental model propositions (Fig. 1) are based on the individual in-depth interviews with CEOs, and executive experts suggest that innovation in SMEs initiates for a number of reasons. From the companies’ perspective, these are profit margin, corporate pride, product life cycle, business model, short-term gain, quality, funding, qualified workforce, and external sources. Companies also make little distinction between companies’ innovation drivers and companies’ capacity. In this conceptual model, organizational innovation refers to innovation at the level of the firm, that is, innovation takes place in companies that have an innovation orientation. Organizational innovation also comprises three types of innovations: new product development, process innovation, and new ways of working. The end results, either positive or negative, relate to the overall innovation as well as to the three specific types of innovation mentioned earlier. These end results also have an effect on the business financial performance, which in turn affects innovation funding and outcomes (Fig. 1). Therefore, if the outcomes are positive, they will have a positive impact on business financial performance, which in turn helps fund future innovation, resulting in sustained innovation. The model needs validating through a quantitative survey of SMEs across a wide range of industries and tests performed on the relationships between the strength of organizational innovation (or the company innovation orientation), and the degree of positive and negative

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outcomes as well as evaluating the impact on business performance. The model allows SMEs to plan, implement, and monitor individual and overall innovation not present in other studies. Key factors are available to any business to measure the benefit of any innovation. Innovative companies can apply the model to increase the likelihood of success and concentrate on areas of innovation best suited to their requirements. In the event negative outcomes that is financial risk review, the project more frequently and concentrating one type of innovation suited to their needs.

CONCLUSIONS This study aims to advance knowledge of organizational innovation and its outcomes as well as better understanding of effective innovation in SMEs. The study develops the understanding of downside of innovation further. Positive outcomes of innovation are acquisition of skilled workforce and greater expertise, thus overcoming SMEs’ lack of R&D. Among the negative outcomes of innovation are uncontrollable growth and high financial risks. This explains lack of innovation in SMEs where benefits of innovation are not clear and perceived to be high risk. However, these findings need to be empirically confirmed. The study develops an extensive framework of organizational innovation, showing how innovation occurs, its ends results, and its impacts on business financial performance. Organizational innovation includes innovation types or activities undertaken by companies. This examination is more focused and relevant to SMEs considering company-wide innovation and its outcomes. The developed framework allows companies to plan, monitor, and implement innovation activity. Small businesses need to understand the risks and benefits of innovation to avoid unintended outcomes. Government appraisal of the costs and benefits of policies to promote innovation calls for clear understanding of innovation and its consequences. It also requires a better understanding of the relationships between innovation pro-activity and operational efficiency. Besides market and business motives, corporate pride and employees’ welfare also drive innovation. Positive outcomes of organizational innovation are improved financial performance, recruitment of skilled workforce, and greater in-house expertise leading to further improvement in the company, and better environment for innovation. Negative outcomes of innovation include management, operational and financial risks, uncontrollable growth, long-term issues, company’s image,

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loss of reputation, employees/customers’ problems, adverse health and safety, and environmental impact. New hypotheses also emerge for the specific innovations. Process innovation associates with improved efficiency, easier ways of working, cost-benefit, quality transparency, improved working environment, and safety. Process innovation also associates with changes beyond a firm’s core competency and adverse environmental impacts. New ways of working associate with improved efficiency, productivity, better understanding of the business, and company’s objective. The downside of new ways of working relate to more mistakes. More innovative companies can protect patents for their new products; this is very important to SMEs. More innovative companies are better at controlling unintended outcomes, reviewing, planning for innovation resulting in more successful innovations than less innovative companies, as well as being flexible during the course of an innovation project. In brief, the study also identifies new concerns in terms of association of innovation with health and safety and environmental impact, which are subject to further research. The study raises issues vis-a`-vis the management of negative outcomes, overall, and specific to types of innovation as well as the determination of benefits of company-wide innovation but also greater chance of success. The next stage of the study is to empirically test the model and the hypotheses developed. Finally, this study makes contributions to the understanding of organizational innovation in SMEs.

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CHAPTER 7 ANATOMY OF RELATIONSHIP SIGNIFICANCE: A CRITICAL REALIST EXPLORATION Filipe J. Sousa and Luis M. de Castro ABSTRACT Markets-as-networks (MAN) theorists contend, at least tacitly, the significance of business relationships to the firm – that is, business relationships contribute somewhat to corporate survival or growth. One does not deny the existence of significant business relationships but sustain, in contrast to the consensus within the MAN theory, that relationship significance should not be a self-evident assumption. For significance cannot be a taken-for-granted property of each and every one of the firm’s business relationships. The authors adopt explicitly a critical realist metatheoretical position in this conceptual paper and claim that relationship significance is an event of the business world, whose causes remain yet largely unidentified. Where the powers and liabilities of business relationships (i.e., relationship functions and dysfunctions) are put to work, inevitably under certain contingencies (namely the surrounding networks and markets), relationship effects ensue for the firm (often benefits in excess of sacrifices, i.e., relationship value) and as a consequence relationship significance is likely to be brought about. In addition, relationship significance can result from the dual impact that business

Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 363–404 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016010

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relationships may have on the structure and powers and liabilities of the firm, that is, on corporate nature and scope, respectively.

1. INTRODUCTION Markets-as-networks theory (henceforth ‘‘MAN theory’’), also referred to as industrial networks theory, aims to describe and explain the vertical interactions and relationships established and maintained between firms, in the role of buyers and sellers. This theory is the notorious offspring of the voluminous analytical and empirical work undertaken almost over the past four decades by the Industrial Marketing and Purchasing Group (frequently referred to as ‘‘IMP Group’’ or simply IMP), a worldwide research community dedicated to the study of interfirm or business relationships and networks (McLoughlin & Horan, 2000; Turnbull, Ford, & Cunningham, 1996). Although clearly not monolithic, MAN theory features at least three major conceptual cornerstones: the existence, connectedness, and uniqueness of business relationships (Hakansson & Ostberg, 1975); business relationships as a third type of governance structure, alternative to both hierarchies and markets (Hakansson & Johanson, 1993b); and the significance of business relationships to the firm, henceforth ‘‘relationship significance’’ (Gadde, Huemer, & Hakansson, 2003). This conceptual paper is exclusively concerned with the last of these cornerstones, in particular with the identification of the causes eventually bringing about relationship significance. The significance of a business relationship exists in relation to a particular entity, for example, the firm, supplier A or customer B. One needs to oppose to the (more or less dominant) view among MAN theorists that relationship significance should be considered in and of itself, that is to say, business relationships are significant per se and not for a specific entity. It seems however senseless to think of relationship significance in abstract. For whenever the significance of something or of someone is presumed, a question immediately arises: ‘‘significant to whom?’’ That one considers here the significance of business relationships to the firm (i.e., adopts the firm’s viewpoint) looks appropriate at least if one acknowledges that ‘‘relationships areyan important structural dimension [of the business network] as fundamental as organisations themselves’’ (Ford & Hakansson, 2006b, p. 252). This viewpoint should not be equated with the ‘‘firm-centred view of the world’’ or the ‘‘single-firm perspective’’ so commonly found in management theory, whereby the firm is presumed to be an atomistic entity

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concerned solely with own objectives and interests and having complete discretion in behavior. Although MAN theory usually endorses the perspective of the focal business relationship or the focal business network, the firm’s viewpoint needs not be at odds with a ‘‘relative world’’ within which interfirm interaction predominates (Easton & Hakansson, 1996). But what is relationship significance is all about? Relationship significance pertains to ‘‘the influence of business relationships on corporate survival or growth.’’ That one is sticking to the meaning as often assumed by MAN theorists, and not advancing a putative one, is supported by Hakansson and Snehota’s (1995, p. 267) words: ‘‘In order to survive and develop you have to have counterpartsy.’’ Ford and Hakansson (2006a, p. 22) convey the same: ‘‘Companies can choose if and how they want to do something particular relative to a specific counterpart. But they cannot choose whether or not to have relations with others, including their suppliers and customers.’’ Blois (1998, p. 256) goes even further, by stating that ‘‘it is impossible for firms not to have [vertical] relationships y .’’ The existence of the firm cannot be conceived of without business relationships, in contrast to what most orthodox economists postulate (Robertson & Dennison, 1923, p. 73). No existing (i.e., surviving) firm is ‘‘an island in a sea of arm’s-length relations’’ (Hakansson & Snehota, 1989). All the business relationships that the firm initiates, develops, sustains, and terminates with counterparts – most notably suppliers and customers – affect somewhat corporate functioning and development. In the event of deliberately terminating the business relationships in which the firm is involved (or seeing those abruptly ended by the counterparts’ will), the firm is not only somehow impeded to operate and grow, but most importantly, is likely to perish. As Ford et al. (1998, p. 13) put it: ‘‘A company’s relationships are important assets and without them it could not operate, or even exist.’’ Business relationships are one of the most valuable resources at the firm’s disposal (Easton & Araujo, 1993; Hakansson, 1989, 1987). ‘‘A [business] relationship is one of the resources the company can exploit and use in combination with other resources (other relationships) available to the company’’ (Hakansson & Snehota, 1995, p. 27). Interestingly, the most illustrious theorists of the so-called competence-based theory of the firm – the theory whose focus is on corporate resources and competences – include business relationships either as one of such resources (Barney, 1991) or as a part of the ‘‘strategic assets’’ (Amit & Schoemaker, 1993) or the ‘‘asset position’’ of the firm (Teece, Pisano, & Shuen, 1997). Business relationships are a particular kind of resource that is not unilaterally owned, but rather jointly controlled by the two parties directly involved in the relationship (Hakansson & Ford, 2002). As resources, business

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relationships are non-depreciable – for their utility or value does not necessarily decrease over time, in fact the contrary seems to be the case (Hakansson & Snehota, 1995) – and extremely difficult to replicate or substitute (Hakansson, 1989) as well as to acquire or sell across markets (Anderson, Havila, & Salmi, 2001). A business relationship, being essentially an implicit contract embedded in the identity of the involved parties without which it loses meaning (Ben-Porath, 1980), can be thus seen as an intangible and idiosyncratic (i.e., counterpart-specific) resource, not easily if at all tradable between firms (Hakansson & Snehota, 1995). Business relationships are therefore significant to the firm. Needless to say, relationship significance also exists in relation to the counterparts with which the firm is connected. Suppliers and customers are as dependent on business relationships (for survival or growth) as the firm is. Understandably, MAN theorists are inclined to admit that business relationships contribute somewhat to corporate survival and growth and stress the ‘‘strategic importance’’ or ‘‘significance’’ of business relationships (Gadde et al., 2003; Hakansson, 1989) or refer to business relationships as of ‘‘strategic status’’ (Moller & Halinen, 1999) and ‘‘critical,’’ ‘‘crucial,’’ ‘‘good,’’ ‘‘high-performing,’’ ‘‘high-quality,’’ ‘‘important,’’ ‘‘relevant,’’ ‘‘significant,’’ or ‘‘valuable’’ (Cunningham, 1980; Ford et al., 1998; Ford & McDowell, 1999; Gadde & Snehota, 2000; Hakansson, 1987; Hakansson & Snehota, 1995; Johanson & Mattsson, 1987; Kutschker, 1982; Naude & Buttle, 2000). Even the celebrated Edith Penrose (1959, p. 147, fn. 2), whose seminal research shed light on the limits to the growth and size of the firm presciently remarks ‘‘[t]he importance attached by firms to the maintenance of their existing business relationships y.’’ Very frequently significant business relationships are, more or less explicitly, likened to business relationships maintained with significant counterparts (Wiley, Wilkinson, & Young, 2006, p. 5) or business relationships held with interesting (or value-providing) counterparts (Hakansson & Snehota, 1995, pp. 202–203). The significance of a certain business relationship is not (and cannot be) explained by appealing to the significance of a particular firm, for instance, in terms of its internally available resources and competences – that would necessarily deny the suitableness of the network perspective on industrial markets and, just to mention one aspect, the impact of connected business relationships. Only recently has the (focal) firm’s significance been unequivocally recognized within the MAN theory, that is to say, the firm being as an individually significant and interdependent entity (Ford & Hakansson, 2006a, p. 7). The author’s focus of interest here is relationship significance, rather than the significance of the firm.

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Given that relationship significance is a primordial cornerstone of MAN theory, it seems paradoxical that the causes of relationship significance are for the most part left unidentified. Within any theory some issues are corroborated by previous research and thus reckoned as beyond challenge while other issues, less obvious, remain greatly unexplored. The causes of relationship significance, the authors think, are bound to be one of the ‘‘currently hidden aspects of business networks’’ pointed out by Alajoutsijarvi, Eriksson, and Tikkanen (2001). The deconstruction and analysis of the metaphorical structure of the ‘‘network talk’’ devised and deployed at large by the IMP undertaken by Alajoutsijarvi et al. (2001) can help one understand why the neglect or omission of some relevant questions and issues also happens within MAN theory. Alajoutsijarvi et al. (2001) hint that, on account of metaphors predominantly employed in the theoretical discourse of MAN theorists (and in diverse sub-discourses), some aspects of business relationships and networks are inquired while others simply remain out of investigation. Dominant metaphors guide theorists toward certain research questions and acceptable answers. Although MAN theory provides a ‘‘general picture of the significance of business relationships’’ (Ford & Hakansson, 2006b, p. 251), the authors claim that relationship significance is largely an understudied and taken-forgranted issue whose potential causes are not yet subject to a systematic and thorough analysis by MAN theorists. To the author’s best knowledge, Wiley et al.’s (2006) and Wiley, Wilkinson, and Young’s (2003) empirical research on the ‘‘sources’’ of relationship significance (as perceived only by suppliers) in Sweden, Germany, and China is a meritorious exception. Several MAN theorists assert and reiterate relationship significance but seldom if ever discuss the issue in depth. Such a discussion is allegedly unneeded because all research conducted by the IMP is ‘‘about the various ways in which business relationships are significant,’’ to cite an anonymous reviewer’s comments to the authors’ arguments in an earlier version of this paper. Or, even more emphatically, MAN theorists may argue that ‘‘the IMP research confirmed the significance of lasting customer-supplier relationships’’ (Blankenburg-Holm & Johanson, 1992, p. 6). Such foundationalist position, for sure dispensable, is easy to explain. MAN theorists take business relationships to be almost by definition significant to the firm. The reasoning is basically the following: if business relationships are de facto deliberately initiated, nurtured, and sustained by the firm, then a fortiori business relationships must have some usefulness (i.e., be somewhat significant) for that purposive entity. MAN theorists observe and report recurrently the firm as willingly related to and heavily dependent on several counterparts,

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inferring therefore that business relationships ought to be significant to some extent to the firm. In a nutshell, MAN theorists have taken the pervasive existence of business relationships as a secure warrant of relationship significance. The taken-for-grantedness of relationship significance is attested by the absence of explicit debate within MAN theory and is made clear by Hakansson and Snehota (1995, p. 330) who contend that the foci of interest of MAN theorists are ‘‘the important [vertical] relationships’’ to the disfavor of ‘‘uninteresting [and unimportant]’’ ones, as if business relationships are a priori significant to the firm while arm’s-length or purely transactional relations with suppliers and customers are as a rule insignificant to the firm. One does not deny the existence of significant business relationships but argue, contra the consensus within MAN theory, that relationship significance should not be an axiom. For ‘‘significance’’ cannot be a property of each and every one of the firm’s business relationships. Relationship significance is real but does not exist always and at all times – that is, business relationships need not all be necessarily significant to some extent to the firm. Business relationships are not inevitably ‘‘islands of significance in a sea of ordinariness’’ (cf. Ford & Hakansson, 2006a, p. 11), since relationship significance is liable to change over time and business relationships can even become on occasion burdens or liabilities to the firm (Hakansson & Snehota, 1998). That the firm is likely to have but a few (highly) significant business relationships is corroborated by the frequent observation made by MAN theorists that a limited number of suppliers and customers account for the majority of firms’ total purchases and sales respectively, the so-called 80/20 rule. The authors adopt explicitly a critical realist perspective here and claim that relationship significance is a notorious event of the business world, taking place intermittently (with no easily or unambiguously identified beginning and end) and ‘‘here and there’’ – an event that co-exists with other events (e.g., transactional interfirm relations) and is not always rightly perceived as such by the firm, let alone other firms. Surely, the occurrence of that event does not depend on the existence of any perception, correct or not. Each business relationship is what it is – highly significant, totally insignificant, or somewhere in between – regardless of any perceptions or knowledge held in that regard by the firm or any other firm. Ford and Hakansson’s (2006a) enumeration of the core features of vertical interfirm interaction include the ‘‘subjective interpretation’’ of individuals and groups within the firm. For the sake of simplicity, one considers here the anthropomorphic perception of the firm concerning the significance of business relationships – acknowledging that relationship significance as

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perceived by the firm needs not match exactly the real relationship significance. Even though the firm’s perceptions per se do not make a business relationship significant or contrariwise, the possibility that such perceptions may have repercussions on the degree of significance of that relationship (and possibly on the degree of significance of other, connected business relationships) in the future should not be excluded altogether. For instance, the firm can misjudge the (averagely significant) business relationship with supplier A as completely insignificant and as a consequence, decide not to nurture that business relationship, possibly leading to the relationship’s fading over time, or even take deliberate steps to end it. Although relationship significance is unlikely to be objectively identified by firms, it is ‘‘something’’ – an event – that can or cannot result on account of (mostly unidentified) causes. Therefore, the main objective of this paper is to identify in a tentative manner the causes (i.e., the structures and powers) potentially responsible for bringing about such event of the business world. The paper is organized as follows. The next section addresses the authors’ meta-theoretical point of departure, namely critical realism. While the third section offers a brief outlook of the business world (and constitutive entities and events), the fourth section tentatively advances underlying causes of relationship significance. The last section features the concluding remarks, namely theoretical and managerial implications and limitations of the paper as well as a research agenda for the future.

2. THE META-THEORETICAL POINT OF DEPARTURE Scholars and researchers build necessarily upon a particular set of assumptions when investigating the world, that is, a ‘‘meta-theory’’ or ‘‘philosophy of science’’: the way the world is (i.e., ontology), how the world can be known (i.e., epistemology), which methods and techniques can be employed in the world’s inquiry (i.e., methodology), and what causes the world to be as it is (i.e., etiology). Questions formulated as well as answers tentatively offered by scholars and researchers are likely to differ on account of different metatheoretical commitments. Each and every scholar and researcher adopts often in an implicit way one of three meta-theories: positivism, postmodernism, or (critical) realism. Positivists see the world as a closed system wherein determinism prevails and cause-effect relations can be empirically observed and recorded, whereas postmodernists argue that the world ‘‘lies in the eyes of the beholder,’’ being

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fully socially constructed by humankind through discourse or interpersonal interaction and convention. For critical realists, on the contrary, the world as a whole is an open system that exists regardless of any knowledge one may have of or develop about the world and – as the ‘‘critical’’ label suggests – social scientists should be critical of the social world on which provide tentative descriptions and explanations. Critical realism takes the world to be composed of a myriad of entities and events, both of which need not be confined to the realm of the observable. Entities exhibit peculiar structures, that is, sets of interrelated properties that make them the kind of entities that are and not anything else. In virtue of structures, entities necessarily possess (though may not exercise) emergent powers and liabilities, hence being both capable of doing some things and incapable of doing others. The powers and liabilities of an entity emerge mostly from the powers and liabilities of individual structural constituents but also from the powers and liabilities of relations that the entity maintains with other entities. Nevertheless, the powers and liabilities of an entity are irreducible to any of (i.e., are more than the sum of) the powers and liabilities of both constituents and relations. Not only entities have a structure and, as a consequence, powers and liabilities. Some relations that entities establish and maintain among themselves possess a particular structure, hence being endowed with powers and liabilities. The powers and liabilities of any relation derive at large from the powers and liabilities of the interrelated entities, primarily the powers and liabilities of the two parties directly connected through the relation but also of others directly and indirectly connected to them. The world’s events result when the powers of entities are exercised (or, on the contrary, liabilities are impeded) under specific contingencies, namely particular geo-historical conditions or the presence (or absence) of other entities and the activation (or obstruction) of powers and liabilities. One example usually given to illustrate the critical realist view is that of human beings. Humans, by virtue of an intricate physiological, anatomical, and social make-up (e.g., brains, respiratory systems, arms, legs, status, and so on), have the outstanding powers to think, talk, listen, run, jump, and swim – powers put to work always under (restrictive or enabling) spatial and temporal conditions (e.g., a man cannot speak fluently a foreign language without proper and lengthy instruction and repeated practice nor can play tennis in the absence of either a court, an opponent, a racket, or a reasonable knowledge of the game). Ontological, epistemological, methodological, and etiological assumptions of the three mutually exclusive meta-theories mentioned earlier are summarized, for instance, by Sousa (this volume).

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2.1. The Suitability of a Critical Realist Approach The world is usually seen as divided in two: the natural and the social, that is, nature and society. The authors stand with those that believe that the world largely predates all human beings, for the world has existed and still exists at large independently of human knowledge or identification of it. While holding the realist conviction – that the world at large is what it is regardless of what humans choose to say, think, or write – one must also acknowledge the social construction of some parts of the world. The social world (and in particular, the business world on which the authors are mostly interested) is to some degree socially constructed by humans through discourse or interpersonal interaction and convention (e.g., theories, rules, symbols, and so forth). Contra the arguments of those espousing a ‘‘strong social constructivist’’ or postmodernist stance, one needs to acknowledge that the social world is not merely a tour de force of humankind or the feasible aftermath of human intents and actions. The authors adopt explicitly a critical realist approach throughout this paper – an approach which is suitable by bearing in mind not only the foregoing meta-theoretical assumptions but also the research’s unit of analysis, namely business relationships (as notorious entities of the business world).

3. ENTITIES AND EVENTS OF THE BUSINESS WORLD One should acknowledge that the world exists for the most part independently of what anyone may think, say, or write about it, for the world’s entities and events exist and endure regardless of any human identification or knowledge of them. One also recognizes that the social world in general – and the business world in particular – is to some extent a social construction of humankind through theories, frameworks, or concepts. In respect of business relationships’ creation, see for instance Blois’ (2003) arguments. The conventional depiction of the business world is that of neoclassical economics whereby firms are portrayed as atomistic units, hence operating in markets (i.e., placing bids and replying to asks). Markets, naturally faceless, are aggregates of the arm’s-length relations established instantly and frictionlessly among numerous buyers and sellers. In such a stylized picture, one can only find firms and vertical pure market relations (and the markets that these transactions overall form). However, the business world

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Interfirm relations

Horizontal (with competitors)

Competition

Vertical (with suppliers or customers)

Cooperation (i.e., inter-organizational relationships or business relationships)

Fig. 1.

Exchange (i.e., arm’s-length relations)

Types and Forms of Interfirm Relations.

is not like that at all, being composed of firms that are interdependent units (with a strongly interconnected behavior and performance), necessarily developing and sustaining multiple kinds of relations among themselves (Fig. 1). As Allyn Young (1928) wisely advances, the division of labor takes place not only within firms but also among them. That is to say, specialization and ‘‘integration’’ (typically in the form of interfirm cooperation) go hand in hand, with the former both requiring and propelling the latter (Blois, 1972; Piore, 1992). Specialization and integration are two indissociable features of the division of labor, whose benefits are first pointed out by Adam Smith (1776 [1999]). George Richardson (1972) extends Smith’s pioneering analysis by claiming that the division of labor does not take place either in firms or in markets. Richardson rejects the ‘‘distorted view’’ of standard theories of firm and of markets in which the governance (or management) of economic activities is carried out either through hierarchical direction (within firms) or by the price mechanism (operating spontaneously among firms). Richardson alludes to pervasive phenomena of the business world, arguing for the existence of a governance structure alternative to the ‘‘visible hand’’ of firms and the ‘‘invisible hand’’ of markets: ‘‘interfirm cooperation.’’ The usually ‘‘close, complex and ramified’’ (vertical) cooperation is clearly distinguishable from markets (and the constitutive interfirm transactions) wherein ‘‘there is no continuing

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association, no give and take, but an isolated act of purchase and saley’’ (Richardson, 1972, p. 891). The business world is composed of multiple and complexly interrelated entities and events, not just the ones alluded to by neoclassical economists. Besides the prominent firms and the markets in which these operate, one should acknowledge that (horizontal and vertical) interfirm cooperative relations – so-called inter-organizational relationships and business relationships, respectively – are also notorious entities of the business world. And besides the oft-noted exchange transactions of firms (i.e., arm’s-length relations), one is bound to find relationship significance as a pervasive event of the business world. The arm’s-length relation (also referred to as ‘‘purely transactional relation’’ or ‘‘interfirm transaction’’) is a basic constituent of the market in the same way as the business relationship (or ‘‘interfirm interaction’’) is a basic constituent of the network. The dichotomous view of the vertical interfirm linkages (including either arm’s-length relations or business relationships, i.e., either isolated transactions or enmeshed interactions, respectively) can be deemed by some scholars and researchers as overly simplifying. One challenging perspective is that of Macneil (1980) who postulates a continuum ranging from ‘‘discrete’’ to ‘‘relational’’ exchanges within which the majority of interfirm exchanges fall, arguing in favor of the unlikely existence of purely discrete transactions between firms. That Macneil’s – and Macaulay’s (1963) – relational contract theory can be of great help in the conceptualization of the business world is attested by, for instance, Dwyer, Schurr, and Oh (1987) and Blois (2002). Whereas firms and business relationships (and networks) and markets are all entities of the business world, arm’s-length relations between firms are mere phenomena devoid of any structure and powers (i.e., transitory events taking place). The authors address briefly in turn these entities and events, giving particular emphasis to both firms and business relationships (and the structure and powers that these entities commonly display) while ruling inter-organizational relationships out of discussion. The horizontal cooperative relationships that firms develop mostly with direct competitors but also with ‘‘complementors’’ (i.e., producers of complementary products) (Nalebuff & Brandenburger, 1996) and third parties (e.g., universities, technological centers, or trade associations), usually exhibit a distinctive set of characteristics, are established for specific and clearly delimited purposes, formal (i.e., ruled by written, detailed, and legally enforcing contracts), and rather short-termed. Inter-organizational relationships can take various forms, for example, alliances, consortia, interlocking directorates, joint

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ventures, strategic networks, and trade associations (Barringer & Harrison, 2000). Such entities of the business world are likely to have some powers and liabilities (e.g., can foster the development of new products and allow free-riding by a partner, respectively) on account of the aforementioned structural features. This kind of interfirm cooperation – horizontal, formal, and momentary – is much less predominant in the business world than the vertical, informal, and lasting interfirm cooperation (Hakansson & Johanson, 1988). For an overview of the literature on inter-organizational relationships, see the Organization Science 9(3), 1998 or the Strategic Management Journal 21(3), 2000. The authors’ decision to leave out of discussion the structure and powers and liabilities of inter-organizational relationships (and the potential impact of these relationships upon the structure, powers, and liabilities of firms) is accounted for by the primary focus here being the description and explanation of the causes potentially responsible for bringing about relationship significance, an event which is not directly related to the firm’s inter-organizational relationships – as will be seen in Section 4. 3.1. Firms Firms are heterogeneous entities exhibiting complex structures and therefore powers and liabilities. Firms include a myriad of resources and competences, for the most part internally owned and controlled, but also externally accessed and explored (Penrose, 1959). Several degrees of authority and empowerment, hierarchical levels, communication channels, rites, explicit rules, tacit conventions, and so forth can also be found within firms. Owing to such complexly interrelated constituents (especially resources and competences, both internal and external), firms are entities potentially endowed with certain powers and liabilities, for instance, being able to perform activities and generate goods, services, cash-flows, or profits. Firms are surely interconnected entities, establishing, developing, sustaining, and terminating several types and forms of relations with one another. Interestingly, almost all the interfirm relations are themselves entities, mostly immaterial ones – the exception being arm’s-length relations that are events (see Section 3.2). Interfirm relations, interrelated to some degree and not necessarily in a reinforcing manner, can be classified for one as horizontal or vertical. Horizontal interfirm relations display competition and cooperation facets, whereas vertical interfirm relations feature exchange and cooperation. In general competition is the basic feature of horizontal interfirm relations and cooperation prevails in vertical ones. But that needs

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not be the case, and horizontal cooperation and vertical exchange are also found in the business world (Fig. 1). These fourfold interfirm relations are now described briefly. First, firms often compete with one another for business with (common) suppliers and customers, primarily for acquisition of inputs or sale of outputs. Competition is likely to be a more or less notorious relation between firms aiming to effect exchange or engage in cooperation with counterparts, presently or in the future. Arguably, competitive relations impact – differently and to diverse extents – upon the exchange and cooperative interfirm relations. One offers two illustrative examples: given the limitedness of the firm’s resources and competences, to undertake transaction A (with a certain supplier) often means not to undertake transaction B (with another supplier), presuming the acquisition of substitute products, and to effect cooperation with counterpart C may impede (or at least constrain) the cooperation with counterpart D. Some arm’s-length relations as well as some business relationships rival with one another to some extent, vying for the limited resources and competences of firms – and these two forms of vertical interfirm linkages are themselves ‘‘rivals,’’ for example, the firm’s transaction with counterpart E may preclude cooperation with that same or with another counterpart (or vice-versa). Although one considers competitive interfirm relations to be entities of the business world (showing characteristics, some of them that are commonly found in vertical cooperative relations, e.g., high degrees of informality and continuity), the structure and powers and liabilities of those entities are not addressed in detail here – for the same reasons that inter-organizational relationships are neglected. Second, although competitors ‘‘rival’’ most of the time, horizontal (formalized and short-lived) cooperation is likely to emerge, for instance, aiming at new product co-development. Third, firms engage in purely transactional relations with suppliers and customers, buying inputs and selling outputs only at arm’s-length distance. And finally, firms are often committed to lasting, informal, complex, and symmetrical relationships with (important) suppliers and customers. In sum, interfirm relations boil down to competition, cooperation (horizontal or vertical, i.e., inter-organizational relationships or business relationships), and exchange (i.e., arm’s-length relations). Given the interrelatedness of firms (mostly vertical but also horizontal), corporate structures and consequential powers and liabilities are themselves connected to each other. That is to say, the structure, powers, and liabilities of each and every firm affect and are affected by, to varying extents and in different ways, the structure, powers, and liabilities of counterparts to which firms are directly or indirectly connected (mostly suppliers and customers

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but also competitors) – what Ford et al. (1998) refer to as the ‘‘co-evolution’’ feature of business networks. Most importantly, and seemingly a pivotal argument of this paper, the structure, powers, and liabilities of firms are likely to be somewhat affected (i.e., enhanced or impaired) by the structure, powers, and liabilities of the linkages that firms establish, develop, and sustain among themselves over time – that impact being possibly stronger in the case of business relationships. Surely, the reverse is valid: the structure, powers, and liabilities of firms are bound to affect differently and to different degrees the structure, powers, and liabilities of interfirm relations, most notably business relationships (Ford, Gadde, Hakansson, Snehota, & Waluszewski, 2008).

3.2. Markets and Arm’s-Length Relations All firms are vertically linked, upstream with suppliers and downstream with customers. Firms’ vertical linkages can however differ sharply, ranging from almost instant exchanges undertaken in markets (i.e., arm’s-length or purely transactional relations) to the lasting and complex relationships in networks (i.e., business relationships). Firms have in general the option to engage in either (instantaneous) transactions or (recurring) interactions with each of suppliers and customers. That is, firms either choose to effect discrete, on-off transactions governed by the price mechanism wherein price and quantity prevail at large or instead establish and develop a pattern of interactions with suppliers or customers wherein parties exchange both economic and social elements, and mutual trust and commitment, reciprocity, and future interaction all matter. A firm’s decision to transact with a certain counterpart implies necessarily the decision of not to interact with that same entity. Although exchange and cooperation are mutually exclusive linkages (at least with regard to a specific counterpart), arm’s-length relations often precede business relationships – for only after repeated (purely economic) purchases and sales can firms begin to get to know each other and decide to develop a cooperative relationship that goes far beyond mere interfirm exchanges. Yet not always do firms have the option to develop business relationships, for instance because of counterparts’ lack of interest or decreased commitment in the development of such relationships (Biong, Wathne, & Parvatiyar, 1997). These two forms of vertical linkages feature dissimilar contents, thus serving utterly different purposes. Although arm’s-length relations enable the acquisition or sale in markets of standardized resources, business

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relationships allow firms to access and explore (complementary) resources and competences of counterparts (e.g., a customer’s reputation or a supplier’s know-how in a field of expertise, respectively). In essence, arm’s-length relations are but fleeting (and naturally structureless and powerless) events that come about whenever at least two firms demonstrate the will to and agree in bringing to completion an exchange – a transaction that is (almost) instantly initiated and terminated. Although one can (more or less) easily point out the beginning and end of an arm’s-length relation, that task can hardly or unequivocally be done in the case of a business relationship. This view of interfirm transactional relations as potential events is not completely strange to economists, being endorsed for instance by Alfred Marshall (1890 [1997], p. 182): ‘‘An exchange is an eventyit is something that happens. A market is a setting within which exchange may take place y.’’ Yet, those same economists are prone to neglect grossly the existence of prominent entities of the business world, in particular business relationships and the overall networks in which firms are deeply embedded. As the authors argue for in the following section, such (intricate and evolving) vertical cooperative relationships are entities, surely not transitory events. More awkwardly, economists fail to acknowledge that markets (i.e., aggregates of interfirm transactions) are themselves entities – the exception being those that argue that markets are ‘‘institutions’’ constructed, reproduced, and transformed by firms (Loasby, 2000). Markets comprise inter alia all the intermittent events constituting (and taking place in) them, that is, the set of transactional relations instantly linking firms. Markets include necessarily a large number of other elements that are to some extent indispensable for framing and governing the undertaking of interfirm transactions such as physical spaces (marketplaces), legal or contractual rules, cultural conventions, and technologies.

3.3. Networks and Business Relationships Business relationships go beyond purely economic transactions between firms. Such ‘‘substantial’’ vertical relationships entail multiple personal interaction episodes – face-to-face or through telephone, fax, or email – that involve the exchange of both economic and non-economic elements (e.g., money and products, and trust, commitment, and knowledge, respectively). Business relationships are ‘‘patterns of (previous and current) interaction and interdependence between two firms, vertically connected and reciprocally

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committed to each other’’ (Ford, Hakansson, & Johanson, 1986, p. 390; Hakansson & Snehota, 1995, p. 25, 2000, p. 38). Business relationships are not only direct relationships that the firm initiates, develops, and maintains upstream with suppliers and downstream with customers, including all the other vertical yet indirect relationships (e.g., those between the firm and suppliers’ suppliers or customers’ customers). ‘‘An indirect relationship is most simply described as the relationship between two firms which are not directly related but which is mediated by a third firm with which they both have [direct] relationships’’ (Easton, 1992, p. 15). Understandably, indirect business relationships far outnumber direct ones. In contrast to the discreteness of arm’s-length relations, business relationships are necessarily interconnected in many ways, not only directly or indirectly (as mentioned), but also positively or negatively – that is to say, interfirm interaction in one business relationship depends respectively on the existence or absence of interaction in another business relationship. The ‘‘generalised connectedness’’ of business relationships brings about co-produced, self-organizing, and adaptive macrostructures, the so-called (business) networks whose evolution is beyond any firm’s control or intent and in which all firms seek to manage (Easton, Wilkinson, & Georgieva, 1997; Wilkinson, 2006). Networks are formed and modified through multiplex interaction, thus being partly opaque (even to participant firms), ‘‘centerless’’, and unbounded (Johanson & Hallen, 1989). The development of any business relationship is a time-consuming, pathdependent, and costly process (Johanson & Mattsson, 1985). Business relationships are developed over time as: reciprocal investments are made in the relationship; the ‘‘distance’’ that normally exists at an early phase of interaction (e.g., of a social, cultural, technological, temporal, or geographical basis) and the reluctance of firms to cooperate (partially related to the uncertainty regarding counterparts’ actual intentions or future behavior) are greatly reduced; and interdependence, mutual trust, and commitment, and expectations of future interaction all gradually increase among the parties (Ford et al., 1986). One may be thus prone to consider that business relationships always develop toward an ideal state – ‘‘a successful marriage’’ – where interfirm conflict is totally absent, as the likes of Ford (1980) and Dwyer et al. (1987) do in traditional life cycle models of relationship development. Yet one is unable to find a totally cooperative business relationship, and some business relationships may even fail to develop or are eventually terminated, owing largely to persistent barriers to interaction (e.g., mismatches between firms in terms of organizational culture or strategy, conflicting expectations, or behavior of individuals) (Cunningham, 1982).

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Business relationships evolve gradually over time (though not toward any pre-determined end), as firms learn to ‘‘dance’’ with one another, both leading and following (Wilkinson & Young, 1994). Both history and structure matter in business relationships. Current interfirm interaction is strongly rooted in the past and shapes future interaction. Firms interact with an eye on the future of the business relationship but always remembering previous interaction episodes. As Axelrod (1981) notes, cooperation can emerge and thrive in a world of individual egoists and without the assistance of a central authority. Friendship, mutual interests and objectives, or trust may all be necessary but are not sufficient conditions for the development of cooperation. Although may at first seem counterintuitive, reciprocity – which can come close to the avoidance of retaliation or ‘‘tit for tat’’ – is the indispensable base for cooperation. Although Axelrod is focused on cooperation among self-centered individuals in society, he believes that his theory is equally applicable to the business world (Axelrod, 1981, pp. 178–179). In this regard, the incentive of firms to cooperate at a given point in time (e.g., through business relationships) comes largely from the existence of a history of previous, mutually rewarding interactions and a large ‘‘shadow of the future’’ (i.e., the parties’ anticipation of mutually rewarding interactions in the future) (Axelrod, 1984; Johanson & Smith, 1992). Finally, the surrounding structure of interactions – that is, connected business relationships and even the overall business network – impact upon the extant interaction among firms, either reinforcing or hindering that interaction. 3.3.1. Structure, Powers, and Liabilities of Business Relationships Business relationships, on account of the aforementioned development process, are likely to exhibit a peculiar and changeable nature or structure. For sure, business relationships do not change on their own. Only firms are capable of effecting changes in the structure of business relationships, for example, by increasing mutual adaptations, reducing the extent of interpersonal contacts, and so forth. Hakansson and Snehota (1995) list the (more or less easily perceptible) eight features of business relationships: continuity, complexity, symmetry, informality, adaptations, ‘‘coopetition,’’ social interaction, and routinization. That is to say, business relationships are long-lasting, entail a multiplex interpersonal contact pattern between firms and can be deployed to pursue different corporate objectives, are symmetrical in terms of parties’ interest to develop and sustain them, are ruled by implicit and incomplete contracts, involve a large amount of relationship-specific investments

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(so-called ‘‘adaptations’’), display both cooperative and competitive facets, involve a myriad of extensive and interlinked social bonds between individuals and groups of both parties, and give rise to norms of mutual conduct and institutionalized rights and duties. Owing at large to such an intricate structure (and to a smaller extent to relationship connectedness), business relationships are likely to exhibit a sixfold set of emergent powers and liabilities and are thus capable to produce positive and negative effects for firms. In general, MAN theorists refer to the powers and liabilities of business relationships and the effects resulting from exercising those powers and liabilities as ‘‘functions’’ and ‘‘dysfunctions’’ (or ‘‘non-functions’’), and ‘‘benefits’’ and ‘‘sacrifices,’’ respectively (Hakansson & Johanson, 1993a; Walter, Muller, Helfert, & Ritter, 2003; Walter & Ritter, 2003; Walter, Ritter, & Gemunden, 2001). The authors stick here to the realist terminology of powers and liabilities, though taking advantage of the ‘‘benefits-sacrifices’’ dichotomy to address relationship effects. Like any other structured and powerful entity of the business world, business relationships are ‘‘causally efficacious’’ entities. Business relationships have the potential to be causal, that is, can bring about to diverse degrees change anywhere in the business world including within other entities (e.g., enhance the structure of firms directly linked, impair the powers of third parties directly and indirectly linked to the cooperating parties, or even hinder the exercise of liabilities in connected business relationships) and in transitory events (e.g., impede cooperating parties to establish new arm’s-length relations with other entities or contribute to the decrease in the degree of significance of a connected business relationship). Business relationships are established, developed, and maintained mostly because of the rewarding powers that perform (or are expected to perform in the future) and, as a result, the actual benefits that result (or the potential benefits that are likely to result) mostly for firms directly involved in those cooperative relationships but also for indirectly connected counterparts (Kalwani & Narayandas, 1995). Benefits, however, can only be obtained by firms at the expense of some (actual or potential) sacrifices that are in part related to the liabilities of business relationships – this is not to say that the possibility of temporary free-riding by opportunistic firms, benefiting without incurring any sacrifice whatsoever, is not real. Potential (yet inactive) powers and liabilities of business relationships (and the respective benefits and sacrifices resulting thereof) can be as crucial as actual ones in firms’ decisions to nurture and sustain business relationships.

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Business relationships are bound to display six main powers, namely ‘‘access,’’ ‘‘control,’’ ‘‘efficiency,’’ ‘‘innovation,’’ ‘‘stability,’’ and ‘‘networking.’’ That is to say, business relationships can have the power to provide firms with, respectively, access to and exploration of (and sometimes even development of) counterparts’ complementary resources and competences (Pfeffer & Salancik, 1978); increase of influence over (or reduction of dependence on) counterparts or promotion (or block) of relationship or network change (Lundgren, 1992; Mattsson & Johanson, 1992); reduction of production or transaction costs (Mouzas, 2006); identification of previously unknown characteristics of resources and competences or discovery of new ways of employing or new uses for those same resources and competences, or the stand-alone or co-development of new ones (Hakansson, 1989; Hakansson & Waluszewski, 2007); learning and reduction of environmental uncertainty (Hakansson, Havila, & Pedersen, 1999; Hakansson & Johanson, 2001); and management of interdependences at resource and activity levels (Hakansson & Ford, 2002). Business relationships are likely to display likewise six liabilities: those of failure in each (though not necessarily all) of the aforementioned relationship powers. Liabilities follow whenever some powers are left unexercised – powers expected or desired by firms to be put to work at a given point in time, in a certain business relationship or in other, connected relationships. For instance, the firm’s business relationship with customer A may not activate the access power (as wanted by the firm) or merely hinders the exercise of the control power in the firm’s relationship with supplier C. 3.3.2. Relationship Benefits and Sacrifices Relationship benefits and sacrifices are two sides of the same coin. Benefits are not obtained automatically, easily or costless, being partly dependent on sacrifices. Sacrifices (at the very least costs) need to be incurred before benefits can be harvested by firms (Araujo, Dubois, & Gadde, 1999; Gadde & Snehota, 2000). Relationship benefits include all the positive effects ensuing to firms from the activation of any of the referred powers, for instance, access to and exploration of external resources and competences (Anderson, Hakansson, & Johanson, 1994). Relationship sacrifices, on the contrary, encompass both costs incurred by firms (indispensable to obtain benefits) and deleterious effects that may result to firms from being involved in business relationships. Three relationship costs are usually borne by all firms (Blois, 1999): opportunity costs (e.g., the firm’s relationship with customer A precludes the obtainment of benefits in the business relationship with customer B or

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hinders the appropriation of greater benefits or lower sacrifices in the business relationship with supplier C); ‘‘relationship handling costs’’ (i.e., costs of establishing, developing, maintaining, and terminating each of the firm’s business relationships); and ‘‘network handling costs’’ (i.e., overhead costs incurred with all or most of the firm’s business relationships). Relationship deleterious effects include (Araujo & Harrison, 2002): lock-in effects (e.g., the firm’s business relationship with supplier D impedes the development of a business relationship with supplier E); opportunistic behavior of counterparts (e.g., ‘‘free-riding’’ or ‘‘hold-up’’ problems) (Biong et al., 1997); and several other harmful consequences (e.g., damaging effects on reputation and attractiveness as a potential partner resulting from the firm’s business relationship with supplier F) (Mattsson, 1989). 3.3.3. Potentiality and Connectedness of Relationship Powers, Liabilities, Benefits, and Sacrifices Not all business relationships necessarily exhibit all the aforementioned sixfold set of powers and liabilities. Each business relationship may be endowed with and put into practice different powers and liabilities over time, whereas similar powers and liabilities (bringing about similar benefits and sacrifices) can be exercised in different business relationships. Some powers and liabilities of a certain business relationship may be at work simultaneously at a given point in time, whereas others may remain dormant. Inasmuch as business relationships are connected to one another in multiple ways (directly or indirectly, positively or negatively), relationship structures and powers and liabilities, as well as relationship benefits and sacrifices, are likely to be complexly interrelated to varying extents. For instance, the exercise of access power (and the resulting effect) in the firm’s business relationship with supplier A may – directly and positively – affect and be affected by the exercise of both access and innovation powers (and the resulting effects) in the firm’s business relationships with supplier B and customer C, respectively; and the incapacity or failure to put to work the control power (and the non-resulting effect) in the firm’s business relationship with customer D may – only indirectly – be conducive to the incapacity or failure to put to work the stability power (and the non-resulting effect) in the firm’s business relationship with supplier E. The connectedness of business relationships has two important implications with regard to relationship powers and liabilities and consequently the ensuing benefits and sacrifices: the obtainment of benefits and sacrifices in a business relationship can be dependent not only on the exercise of the respective powers and liabilities in that relationship but most importantly may require

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the exercise of powers and liabilities in other, connected business relationships, and the exercise of powers and liabilities (and thus the obtainment of benefits and sacrifices) in a business relationship can obstruct or impair the exercise of powers and liabilities in connected business relationships and therefore impede or impair the obtainment of (other) benefits and sacrifices. The firm can safeguard itself against likely changes in surrounding contingencies – what can be referred to as ‘‘showery weather’’ – by drafting umbrella agreements that ‘‘transform implicit norms which are embedded in customs and commercial practices into explicit, basic norms for interaction’’, thus ‘‘providing flexible guidance for future contractual decisionsy’’ (Mouzas & Ford, 2006, pp. 1249–1250). Such written agreements feature ‘‘re-negotiation [clauses dealing with sensitive issues, e.g., those of exclusivity, confidentiality, or warranty] and the inclusion of extreme contextual contingencies in the form of force majeurey’’ and ‘‘regulate continuing interaction between actors and translate the consequences of fulfilling or breaching exchange promises’’ (Mouzas & Ford, 2006, p. 1250). In sum, business relationships are heterogeneous entities of the business world facing a set of diverse contingencies. Relationship powers and liabilities are inevitably put into practice under (and relationship structure may be altered by) a myriad of different and varying surrounding conditions, primarily connected business relationships but also arm’s-length relations and inter-organizational relationships in which each or both of the parties may be involved. As a consequence, relationship powers and liabilities do not necessarily generate the events that are in general brought about whenever put to work. When a certain power of a business relationship is exercised at some point in time, ‘‘usual’’ effects are not necessarily brought to be (i.e., the ‘‘tendency’’ remains unfulfilled) on account of other – more or equally powerful – counteracting powers at work in connected business relationships. A power ‘‘does not always bring about certain effects, but it always tends to. Hence, it acts transfactually.’’ (Fleetwood, 2001, p. 212, emphasis in original). Entities’ powers may act transfactually owing to several and changeable contingencies (e.g., geo-historical conditions). When a certain power is exercised, ‘‘normal’’ outcomes (i.e., the effects that generally ensue whenever that power is put to work) may be impeded to result because of certain prevailing contingencies, namely the exercise of countervailing powers (e.g., an aircraft with the power to fly can fail to do so in the presence of severe atmospherical conditions). Nevertheless, a power acts ‘‘factually’’ whenever usual effects are not deflected or countervailed by the exercise of other powers (or the effects brought about). Effects resulting from the exercise of a power cannot be known a priori, although scholars and

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researchers are usually able to identify a power’s tendency, that is, which effects that power tends to generate. The realist conception of tendency is different from that of positivists that often employ the term to connote the statistical character of (nearly law-like) event regularities styled, for example, as ‘‘whenever event X, event Y tends to follow.’’ That relationship benefits and sacrifices are often interconnected, mediate (i.e., obtained in the future, sometimes long after relationship powers and liabilities are put to work), and partly intangible, helps explain why relationship effects can neither be unequivocally identified by firms ex ante nor are easily prone to quantification ex post. 3.3.4. Relationship Significance In opposition to a common stance within MAN theory, relationship significance should not be taken as a given. The authors challenge here the presumption of the ubiquitous significance of business relationships and claim instead that relationship significance is but one of the business world’s events and, as such is eventually brought about whenever certain causes are at work. Those causes are the focus of the next section.

4. HOW IS RELATIONSHIP SIGNIFICANCE BROUGHT ABOUT? 4.1. Relationship Benefits and Sacrifices Appropriated by the Firm as a Potential Cause of Relationship Significance Relationship significance is commonly taken to be self-evident, or at the very least, its causes are not made explicit within MAN theory. One recognizes nevertheless that in case of any formal attempts to be made by MAN theorists to justify relationship significance, such attempts are likely to allude to benefits and sacrifices resulting from the exercise of relationship powers and liabilities. MAN theorists are prone to claim tacitly that relationship significance is brought about by either or both of two causes: relationship benefits outweigh (related) sacrifices in a particular business relationship, that is, ‘‘relationship value’’ is co-created and partly appropriated by the firm; and relationship benefits are greater than and/or relationship sacrifices less than benefits and sacrifices (a) expected by the firm (when experience with similar business relationships in the past is taken into account) or (b) potentially stemming from alternatives to the business

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relationship in question, that is, substitute business relationships or conventional governance structures (such as hierarchies and markets). Relationship benefits are usually weighted against sacrifices (mostly costs) needed to attain the former. And very often, relationship benefits exceed sacrifices and as a result relationship value results for the firm. Relationship value is the positive, for the most part perceived trade-off between all the benefits and sacrifices ensuing from the involvement in a business relationship, whatever those relationship effects may be (Anderson, 1995; Wilson & Jantrania, 1994). The subjectivity of relationship value is related to the incommensurability of both relationship benefits and sacrifices. How is relationship value co-produced and afterwards distributed as well as how can be assessed or measured by cooperating parties, remain objects of dissension within MAN Theory and no deliberate attempt is made here to shed light on the matter. On relationship value, see for instance the Industrial Marketing Management, 30(4), 2001. In addition to (or sometimes, instead of) relationship benefits and sacrifices being estimated or compared to each other, the firm can contrast those relationship outcomes with (a) expected effects, by bearing in mind the benefits and sacrifices brought about in similar business relationships in the past and/or potentially generated in next-best substitute relationships – benefits and sacrifices which are referred to as ‘‘comparison level’’ and ‘‘comparison level for alternatives,’’ that is, CL and CLalt respectively, or (b) benefits and sacrifices likely to emerge in alternative governance structures, that is, if the firm decides to vertically integrate a counterpart or instead engage in an arm’s-length relation with that counterpart, respectively (Anderson et al., 1994; Zajac & Olsen, 1993). Although benefits and sacrifices potentially obtainable in hierarchies and in markets are exhaustively detailed elsewhere, for example, in the property rights approach (Grossman & Hart, 1986; Hart & Moore, 1990) and transaction cost economics, respectively (Coase, 1937; Williamson, 1985, 1981), the authors address here briefly in turn these benefits and sacrifices. The ‘‘costs of using the price mechanism’’ (i.e., ‘‘the costs of discovering what the relevant prices are’’ and ‘‘the costs of negotiating, making, and concluding a separate contract for the supply of each article or service’’) are presciently discovered by Coase (1937, pp. 390–391). So-called marketing costs are claimed by Coase to be the crucial factor explaining the existence of the firm, being later referred to ‘‘costs of transacting’’ (Demsetz, 1968) and ‘‘transaction costs’’ (Williamson, 1981). With regard to benefits associated with the firm’s engagement in purely transactional relations with counterparts, one is likely to point out the reduction of transaction costs

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(at least when ‘‘asset specificity’’ and ‘‘uncertainty’’ are both low and ‘‘transaction frequency’’ is high) (Williamson, 1981). Benefits of employing hierarchies often include (Grossman & Hart, 1986) the provision of incentives’ alignment, hence mitigating hold-up problems (and other potential opportunistic behaviors); the reduction of transaction costs (in face of highly specific assets); or the minimization of ex post losses related to ex ante investment distortions (on account of contracts’ incompleteness). Sacrifices of vertically integrating counterparts are the following: diseconomies of scope (e.g., ‘‘diminishing returns to management’’), increasingly internal governance costs (e.g., deriving from individuals’ pursuit of own self-interest), or incentives’ impairment (mostly for the acquired party) and consequently the need for monitoring costs on behalf of the acquiring firm (Grossman & Hart, 1986). To the authors’ best knowledge, benefits and sacrifices of hierarchical and market governance structures are only explicitly contrasted by Phelan and Lewin (2000). One agrees with the implicit claim of MAN theorists that relationship benefits and sacrifices per se or comparatively (i.e., relationship benefits versus sacrifices or relationship benefits and sacrifices versus relationship benefits and sacrifices expected or resulting from alternatives to the business relationship in question, respectively) are a potential cause bringing about relationship significance. Yet other causes can account for relationship significance. In the authors’ viewpoint, at least one other cause (that underlies somewhat the aforementioned ‘‘functional’’ cause – as this cause is related to relationship functions) can produce relationship significance: the strong impact that business relationships may have on the structure, powers, and liabilities of the firm or, in other words, on corporate nature and scope (i.e., firm’s resources and competences, and activities, respectively). One can find management scholars and researchers referring to the structure and powers and liabilities of firms as corporate nature and scope respectively – for the distinguishing constituents of firms are resources and competences (explaining largely corporate heterogeneity) and on account of those constituents, corporate activities can be performed. The failure to acknowledge this ‘‘competence-based’’ cause – as the cause pertains to corporate nature and scope – may be justified by the spatial boundaries of MAN theory, that is, theorists’ main units of analysis being the ‘‘interaction,’’ ‘‘relationship,’’ or ‘‘network’’ (Easton & Hakansson, 1996). All theories, conceptual frameworks or models are necessarily bounded in space and in time given the existence of certain spatial and temporal conditions under which are argued to hold (Bacharach, 1989).

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4.2. Impact of Business Relationships on Corporate Nature and Scope as Another Potential Cause of Relationship Significance Relationship powers and liabilities are in principle sixfold each. Although the authors do not wish to advance a hierarchy of those powers and liabilities, two of them (namely access and innovation ones) are more consequential than all others, by affecting the nature and scope of the firm. Access and innovation powers (and liabilities) supply the firm with (or impede it to obtain) respectively: access to and exploration (and on occasion development) of external, often complementary resources and competences; and identification of formerly unrecognized features of resources and competences, discovery of new ways of deploying or novel uses for those resources and competences, or stand-alone or co-development of new resources and competences. Exercising these two relationship powers, and most importantly resulting effects, shape to a considerable extent the resources, competences, and activities of the firm (both internal and external, actual and potential), that is to say, the ‘‘inputs’’ to and the ‘‘things’’ that the firm does by itself and the ‘‘things’’ that gets done by others at present and in the future. 4.2.1. The Firm Does Only Some Things by Itself The firm is a complexly structured, powerful, and interrelated entity of the business world. In a similar but mundane vein, one can depict a` la Loasby (1998) the firm as a specialized system of resources and competences operating in faceless markets and deeply embedded in intricate networks – markets and networks wherein external resources and competences are available for acquisition or sale and for access and exploration, respectively. The firm has but a limited set of internal resources and competences, thus ‘‘knowing how to do only a limited number of things’’ (Patel & Pavitt, 1997). The firm is necessarily devoted to a certain set of activities (i.e., scope), undertaking only those activities for which has required resources and competences. That is, the firm is bound to be specialized in certain activities for which corporate resources and competences – internally developed, acquired, and/or accessed and explored – offer some sort of ‘‘comparative advantage’’ (Richardson, 1972, p. 891). The firm’s common decision to specialize (i.e., be increasingly competent only at some activities within a given field of expertise), and therefore appropriation of specialization gains (e.g., in the form of experience curve effects), implies that the firm deliberately relies on the specialisms of others (Young, 1928). Since in general the firm knows how to do only a few things, the firm needs to ‘‘know how to get (other) things done by others’’

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(Nelson & Winter, 1982) – notably by counterparts to which the firm is (or will be) vertically connected, that is, current (and prospective) suppliers and/or customers. The firm’s specialization (in scope) thus requires and propels ‘‘integration’’ with counterparts, for the most part through cooperation but on occasion through exchange.

4.2.2. The Firm Gets Some Things Done by Others, Through Cooperation or Exchange The firm’s proneness to cooperation (mostly vertical), that is, to establish, develop, and sustain business relationships with suppliers and customers, is explained at large by the fact that the firm owns and controls a limited set of resources and competences within (vertical) boundaries. The firm has also the possibility of getting some things done by others through exchange, that is, by engaging in arm’s-length relations with counterparts. Although the firm can get things done in either or both of ways, business relationships and arm’s-length relations fulfill different roles. Access to and exploration (and potential development) of external resources and competences – to be effected in networks – are accomplished only through interfirm cooperation. Exchange – taking place in markets – offers a very different route, namely internalization of external (and disposal of internal) resources and competences typically embodied in final products. Core competences of others – the closely complementary competences that the firm is commonly in need of – can be accessed and explored only through business relationships. In alternative, arm’s-length relations provides the firm merely with the possibility to internalize external resources from (or dispose of internal resources to) counterparts or buy final products (which embody to some degree external competences) of or sell productive outputs (embodying somewhat the firm’s internal competences) to others. For counterparts’ products (e.g., high-quality printers or premium software applications) may be all that the firm wants or needs. That the firm engages in arm’s-length relations with suppliers and customers is generally because the firm is unable (or chooses not) to access and explore external resources and competences through (costlier but potentially more beneficial) business relationships. Business relationships presently developed and sustained with suppliers and customers are often preceded by the firm’s engagement in arm’s-length relations with those same counterparts in the past. In short, the firm gets different kinds of things done through cooperation and exchange with counterparts – and it is likely that the firm needs both of these kinds of things to diverse extents, over time.

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The firm gets things done by others at present and in the future because of (current and upcoming) participation in business relationships and, to a probably smaller extent, engagement in arm’s-length relations. The things that the firm gets done, in particular external resources and competences subject to access and exploration, are inextricably tied to business relationships that the firm is able (and chooses) to initiate, develop, and sustain with counterparts. More interestingly, the things that the firm does – largely owing to a combined deployment of internal resources and competences – are in part affected by the business relationships (and to a smaller extent, by the arm’s-length relations) that the firm is unable (or even if capable, decides not) to establish and develop with counterparts. The firm may do some things by itself that cannot or does not want to get done by others. The authors find advisable to distinguish between business relationships that the firm is able and chooses to develop and sustain and those relationships that the firm (even if able to effect) decides not to. Not always does the firm have possibility to participate in vertical cooperation for one or various reasons, for example, because the firm neither is endowed with sufficient resources to devote to the development of a business relationship nor possesses necessary relational or network competences to effect relationship management or the firm is simply unaware of the existence of a competent, willingly cooperative counterpart. Even when the firm has the possibility of developing the business relationship with a supplier or customer, the firm may prefer instead to engage in an arm’s-length relation with that counterpart (e.g., by virtue of facing significant opportunity costs in that business relationship or perhaps because participation in that business relationship would be perceived by one of present suppliers or customers as a threat to established, lasting cooperation). The firm may do some things by itself that cannot or does not want to get done by others. So, and what seems to be a neglected issue within MAN theory, the things that the firm does and the things that the firm gets done are likely to be interrelated to some extent, over time. For the firm does things – that is capable of doing (i.e., performs activities for which has the necessary resources and competences) and – that on occasion is unable to get done elsewhere (and unable to persuade others to do, timely or competently). Sometimes the firm needs resources and competences that do not have in-house nor can acquire in the market or access and exploit through business relationships. In the absence of needed external resources and competences, the firm may either choose to develop internally those resources and competences or instead convince others – judged by the firm

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to be potentially more resourceful and competent – to effect such development. The latter solution is likely to be preferred whenever low ‘‘dynamic transaction costs’’ are incurred by the firm – these costs are ‘‘the costs of not having the [resources and] capabilities you need when you need them y,’’ that is, ‘‘the costs of persuading, negotiating, coordinating with, and teaching outside suppliers [to develop needed yet inexistent external resources and competences]’’ (Langlois, 1992, p. 113). The firm is always in need of some things – things that can only be found outside firm’s boundaries. The firm then chooses often to get those things done through business relationships or arm’s-length relations, instead of internalizing things through vertical integration (of counterparts). Assume, for instance, that the firm demands a particular set of resources and competences that are dissimilar but closely complementary to those owned and controlled internally and that this set of resources and competences is externally available, that is, housed within a counterpart’s boundaries. Why should the firm internalize those resources and competences or instead develop them internally ab initio? No advantage seems to result for the firm if those resources and competences are brought within boundaries – or in other words, benefits of employing hierarchical or market governance structures are less than (or/and sacrifices are greater than) the ones attained in a relational governance structure. As Barney (1999) stresses, the firm usually takes into consideration the costliness of acquisition (or sale) and/or of internal development – and in many cases, costs of buying (or selling) in markets and/or of organic development are likely to exceed the costs of access and exploration through vertical cooperation. 4.2.3. Business Relationships and the Evolution of Corporate Vertical Boundaries: The Firm’s ‘‘Make-or-Buy-or-Access’’ Decisions Vertical boundaries circumscribe internal resources, competences, and activities of the firm, therefore demarcating the things that the firm does from the things that gets done by suppliers and customers. Vertical boundaries delimit corporate nature and define at large corporate scope. These boundaries are prone to display two features: changeability and fuzziness (Araujo et al., 1999; Hakansson & Snehota, 1989). First, vertical boundaries are changeable, being subject to expansion or reduction over time (e.g., in accord with ‘‘make-or-buy’’ decisions taken by the firm). Second, vertical boundaries are fuzzy owing to the continued existence of business relationships and the significance of external resources and competences for corporate survival or growth. Given the extent of interfirm cooperation, it is difficult to trace at least unequivocally ‘‘‘where the firm

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ends’ and ‘where suppliers and customers begin.’’’ And it is meaningless to draw vertical boundaries just by bearing in mind the ‘‘ownership and control’’ criteria, as if only internal resources, competences, and activities are included within the firm’s boundaries. Vertical boundaries not only separate the firm from suppliers and customers but also bring these cooperating parties together – boundaries display ‘‘buffer’’ and ‘‘bridge’’ functions (Araujo, Dubois, & Gadde, 2003; Thompson, 1967). The dual impact of business relationships on (the inputs to and most importantly) the things that the firm does and the things that gets done is naturally implicated in the exercise of (and the effects resulting from) access and innovation relationship powers and liabilities. Business relationships are bound to impact the firm’s vertical boundaries, in particular by exerting a substantial influence over where the (changeable and blurred) vertical boundaries are to be drawn. That impact is corroborated by theoretical and empirical research conducted by MAN theorists (Araujo et al., 2003; Ford, Cotton, Farmer, Gross, & Wilkinson, 1993; Mota & de Castro, 2004, 2005) as well as other scholars and researchers (Barney, 1999; Langlois & Robertson, 1995). By keeping that impact in mind, make-or-buy decisions of the firm – about which resources, competences, and activities reside (or are to be brought within) and which ones remain outside vertical boundaries – are transformed. Delimitation of corporate vertical boundaries is not reduced to a series of discrete make-or-buy decisions. Contrary to what is traditionally assumed (e.g., by Williamson, 1981, 1975), those decisions are not static, independent, or dichotomous. The firm’s make-or-buy decisions are closely and dynamically connected to each other over time (e.g., the decision to ‘‘make X’’ may imply the decision of not to ‘‘buy Y’’ later on) and most importantly, incorporate a third option, ‘‘access’’ (Gibbons, 2001). As an illustrative example, consider the firm’s decision to integrate supplier A with negative and null repercussions, respectively, on the business relationship with supplier B and on the arm’s-length relation with customer C. The firm is not always obliged to either develop or internalize all the external resources and competences that needs – to do the things that the firm does or intends to do in the future – since the firm has usually the possibility of (continually) accessing and exploring those resources and competences (whenever residing outside corporate boundaries) through cooperation with suppliers and customers. Boundary decisions of the firm are hence about ‘‘making-or-buying-oraccessing,’’ that is to say: internally developing resources, competences, and activities; acquiring resources, competences, and activities (through engagement in arm’s-length relations with or even vertically integrating

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counterparts); or accessing and exploring external resources and competences (through development of business relationships), respectively. One can identify an alternative to make or buy conventional options, namely access to and exploration of external resources and competences (through vertical cooperation), and that alternative allows the possibility to expand (or reduce) the nature and scope of the firm while leaving unaltered corporate vertical boundaries. Although opting for make or buy or access is necessarily conducive to enlargement of the firm’s nature and scope, the making or buying options effect the expansion of corporate vertical boundaries while the accessing option leaves those boundaries unaltered. The nature and scope of the firm are therefore not defined once and for all by corporate vertical boundaries (given that corporate nature and scope can be enlarged or reduced while vertical boundaries remain the same, for instance, when the firm develops or terminates business relationships, respectively) but are largely the outcome of multiple and complexly interrelated make-or-buy-or-access decisions taken over time. In other words, the structure, powers, and liabilities of the firm are likely to be affected to a great extent by the structure, powers, and liabilities of business relationships that the firm develops and sustains with counterparts. So, the primary constituents of the firm and the things that the firm does by itself and gets done by others (i.e., corporate resources, competences, and activities respectively) are all strongly impacted upon by business relationships established, nurtured, and maintained with several suppliers and customers over time. The conspicuous yet unarticulated impact of business relationships on corporate nature and scope over time is another potential cause of relationship significance – in addition to the aforementioned cause that emphasizes the effects resulting from exercise of relationship powers and liabilities and being appropriated by the firm.

5. CONCLUDING REMARKS This conceptual paper builds explicitly upon a critical realist meta-theory, thus acknowledging the largely mind-independence and openness of the business world composed of a myriad of entities (endowed with own structures and exhibiting powers and liabilities, all somewhat interconnected) and events (likely to be brought about whenever powers and liabilities are put to work, under varying contingencies). The authors attempt here to perform an exploration into the causes of relationship

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significance, that significance being a pervasive and yet insufficiently inquired event of the business world.

5.1. Theoretical Contributions 5.1.1. The Business World: Firms, Markets, and Networks The paper provides a realist-inspired view of the business world, a part of the social world that one inhabits. Firms are complexly structured and powerful entities, the most prominent of the entities existing in the business world given that are responsible for bringing into existence other entities (notably, inter-organizational relationships, business relationships, and even networks and markets) as well as some events (namely arm’s-length relations). Firms comprise a diversity of components, the most important of which are resources and competences. Owing to such intricate structures, firms are endowed with several powers and liabilities and thus capable of performing activities and producing outputs, cash flows, or profits. Given the limitedness of corporate resources and competences, firms are prone to embark on different kinds of linkages with one another, mostly through vertical cooperation but also through exchange. Vertical cooperation is more prevalent than horizontal cooperation in the business world, that is, business relationships are more frequently developed and sustained by firms than inter-organizational relationships. Business relationships are entities that exhibit an intricate structure (e.g., are long-lasting, ruled by informal contracts, entail multiplex interpersonal contacts, and so forth) and therefore a sixfold set of powers and liabilities (namely access, control, efficiency, innovation, stability, and networking). Networks are entangled webs of connected business relationships and firms. Exchange, ruled by the price mechanism, is also commonly found in the business world. These interfirm relations at arm’s-length distance are mere on-off events constituting, together with other elements that frame and govern such transactions (e.g., technologies, marketplaces, and contractual rules), other entities of the business world (namely markets). Firms’ interrelatedness (through cooperation and exchange) implies that corporate structures, powers, and liabilities are necessarily connected to one another. Corporate powers and liabilities are exercised under particular contingencies, especially business relationships and networks but also arm’s-length relations and markets.

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5.1.2. Potential Causes of Relationship Significance Relationship significance pertains to the influence that business relationships have on corporate survival or growth. Relationship significance exists even when the firm is totally unaware of it – though, as the authors acknowledge earlier, a potential and mediate influence of corporate perceptions or knowledge (and subsequent decisions and actions) on relationship significance exists. Relationship significance is a basic conceptual cornerstone of MAN theory. In general MAN theorists consider relationship significance to be (almost) an axiom, taking in uncritical fashion that significance to be a corollary of the ubiquitous existence of business relationships in the business world. The authors challenge here such a foundationalist position for the mere existence of business relationships does not mandate automatically relationship significance (to the firm or any other counterpart). Despite business relationships being potentially significant to the firm, not all those vertical cooperative linkages are so all the time. Significance is not a given attribute of each and every business relationship of the firm. Relationship significance is not a regularity of the business world, being instead a potential event that may be brought about by certain causes and enduring for the most part regardless of any perception or knowledge (even that of any of the parties involved). Relationship significance varies along a continuum (rather than being a dichotomy), since one is able to find a diversity of business relationships in the business world, ranging from absolutely insignificant through lowly significant and averagely significant to highly significant ones. The authors’ main claims here are that relationship significance is brought about by either or both of two causes: first, relationship powers and liabilities are put to work under changeable contingencies (e.g., connected business relationships) and as a consequence benefits in excess of sacrifices (i.e., relationship value) are appropriated by the firm or relationship benefits are respectively greater than and/or relationship sacrifices are less than benefits and sacrifices expected by the firm (when takes into account benefits and sacrifices obtained in similar business relationships in the past) or eventually resulting from alternatives (i.e., substitute business relationships or alternative governance structures such as hierarchies and markets); and second, the effects resulting from the exercise of access and innovation powers and liabilities of business relationships impact upon corporate structure, powers, and liabilities, that is to say, impact upon internal and external resources and competences at the firm’s disposal (nature) and the activities that performs (scope).

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The latter of these causes demands particular attention for is in line with the intuitive view that business relationships are privileged means by which the powers and liabilities of counterparts are made available to the firm for access and exploration. Participation in business relationships (and the effects resulting from the exercise of relationship powers and liabilities, in particular the access and innovation ones) can help the firm to alter own structure (e.g., to modify internal resources or explore new external competences) and as a result – with considerable importance to corporate survival or growth – to modify corporate powers and liabilities (e.g., to increase efficiency in the performance of marketing activities).

5.2. Managerial Implications The authors’ analysis here is of a conceptual kind. First, the indisputability of relationship significance is called into question and then a causal account of potential causes for that significance is provided. The main objectives of this paper are description and explanation, not prediction. The authors attempt to answer a major research question: ‘‘why are business relationships significant to some extent to the firm?’’ or in other words, ‘‘how is relationship significance brought about?’’ Since the causes of relationship significance are only tentatively advanced here, only tentative answers can be given. And no definitive answers can be provided to questions such as ‘‘which business relationships are in general significant to the firm? to what extent?’’ or ‘‘is the business relationship with counterpart A highly significant to the firm at present? when is that degree of relationship significance likely to change?’’ For even fallible knowledge on causes of relationship, significance can give the ability to offer ‘‘tendential predictions’’ about the event’s future occurrence (e.g., ‘‘why is it likely that relationship significance is ever brought about in the firm’s relationship with supplier A?’’) or issue normative guidelines (e.g., ‘‘what needs to be done in order to increase the actual degree of significance in the business relationship with customer B?’’). That the main contributions are here theoretical does not imply that managerial implications are entirely absent from the paper. The authors aim to add directly to a more robust knowledge about – and indirectly to a more effective and efficient management of – the business relationships and networks in which the firm is deeply embedded. Given that business relationships differ in the relative degree of significance (over time) and the firm is endowed with limited resources and competences (and consequently, can be highly involved with only a limited number of counterparts), ‘‘there is

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a need for giving certain [business] relationships priority over others’ (Hakansson & Snehota, 1995, p. 131). Easton (1992, p. 25) asserts the same point: ‘‘[The firm] must choose how much, and in what fashion, it will devote to each [business] relationship, potential or actual.’’ Prioritizing, however, is not only about assigning both high priorities to certain business relationships and low priorities to others. The firm needs to get (similar) priorities from the counterparts with which interacts through those business relationships (Hakansson & Snehota, 1995, p. 202). The firm is likely to employ some criteria when prioritizing business relationships. A possible criterion is the degree of trust and commitment of the counterpart, explicitly declared or somehow inferred from the counterpart’s behavior – for instance, the firm assigns a higher priority only to business relationships with trustworthy and highly committed counterparts (Hakansson & Snehota, 1995, p. 265). Another very reasonable criterion which is likely to be used by the firm is (the mostly perceived) relationship significance, either presently or in the future. To prioritize business relationships boils down to ‘‘single out the significant ones’’ (Hakansson & Snehota, 1995, p. 125). The firm is advised to be rather selective in the development and maintenance of business relationships. That is, different priorities are (or should be) attributed to and attained in differently significant business relationships. This means that the firm needs to effect a differentiated ‘‘relationship posture’’ in business relationships (Gadde & Snehota, 2000). Relationship posture pertains to the firm’s degree of involvement in a particular business relationship. The best way for the firm to ‘‘make the most’’ of diverse business relationships is to establish, nurture, and sustain both low- and high-involvement relationships, committing lesser and greater amounts of resources and competences respectively to such relationships. The firm is in general strongly committed to business relationships that are (or can become) highly significant. A low-involvement posture, on the contrary, is likely to be adopted by the firm in business relationships that are (or merely perceived as of) low in significance. The message is clear: business relationships should be managed in varied ways by the firm, in accordance with (present and/or future) degree of relationship significance. Differentiation in relationship posture, in essence relationship and network management (Moller & Halinen, 1999; Ritter, Wilkinson, & Johnston, 2004), can be implemented only when the firm is able to identify which business relationships are (or will be) significant and to what degree and most importantly, understand why that is the case. Only by probing into relationship significance and identifying tentatively potential causes can the

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firm acquire or improve corporate understanding concerning the individual and collective management of business relationships. Independently of the field of study, advances in knowledge go hand in hand with improvements in practice. ‘‘By extending and improving firms’ understanding and sensitivity regarding relationship and network issues, better performing firms and networks will emerge’’ (Wilkinson & Young, 2002, p. 127).

5.3. Limitations and Future Research 5.3.1. Interplay Between Business Relationships and Inter-Organizational Relationships No matter how thorough research efforts are, some issues are unconsciously neglected or intended set aside by scholars and researchers. Much is inevitably left unaddressed in any piece of research, and this paper is no exception. Time and other resources available play a crucial role in the incompleteness of research as well as the usually narrow foci of interest of scholars and researchers. The authors address in turn the aspects that are somewhat overlooked by or only briefly discussed in this paper. One is certain to find among the multiple entities of the business world, inter-organizational relationships that the firm develops and maintains for the most part with competitors. Interfirm horizontal cooperation differs from vertical cooperative relationships in structure, powers, and liabilities respects. Inter-organizational relationships are often ruled by explicit contracts, shortlived, and aiming at clear objectives (e.g., new product co-development). The horizontal and vertical cooperative relationships of the firm are necessarily interrelated to some extent: despite being sought for diverse motives, interorganizational relationships and business relationships ‘‘compete’’ for the firm’s limited resources and competences, in particular resources and competences dedicated to effecting cooperation with counterparts. Inasmuch as firms are responsible for bringing about business relationships and inter-organizational relationships, the structure, powers, and liabilities of both business relationships and inter-organizational relationships are heavily affected by (and affect) the structure, powers, and liabilities of firms responsible for the establishment, development, and maintenance of those cooperative relationships. For instance, the firm’s commitment to consolidate the structure and thus powers of inter-organizational relationships are likely conducive to the absence of commitment to strengthen the structure and thus powers of business relationships, on account of the

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limitedness of corporate resources and competences. The interaction between the structure, powers, and liabilities of both inter-organizational relationships and business relationships is not here given the attention that probably deserves. 5.3.2. Relationship Significance: A Subject on Need of Further Research The absence of empirical research and findings is a shortcoming recurrently pointed out to conceptual papers. Although ‘‘research is likely to involve a division of labor between theorists and empirical researchers’’ (Ackroyd, 2004, p. 158), unpretentious scholars and researchers are in general expected to immerse in empirical sources and gather evidences to corroborate or refute a postulated hypothesis or theory, by undertaking case studies or surveys or employing any other methodological tools. Those scholars and researchers are not urged to devise, extend, or improve the current state-ofthe-art of scientific knowledge by using conceptualization. Contrary to positivist conceptions of science, (critical) realists take purely conceptual analyses – such as the authors’ analysis here – not to be sterile, for such analyses can help to shed light on matters of interest. Tsoukas (1989, p. 558) synthesizes this point very eloquently, by claiming that both ‘‘up in the clouds’’ (i.e., analytical) and ‘‘down to earth’’ (i.e., empirical) research are necessary. This paper has called into question the taken-for-grantedness of relationship significance, providing a tentative account of potential causes bringing about this notorious event of the business world. One of the paper’s major thrusts is to trigger some discussion over the (usually taken-forgranted) relationship significance, expecting that a near future contemplates more conceptual and empirical research, with each feeding back the other. First, it is desirable that other conceptual works on the subject are carried out. This paper is only a starting point and the authors hope that the arguments here can draw enough interest to be analytically reviewed, criticized, modified, or extended (e.g., by resorting to other bodies of knowledge). Second, relationship significance needs to be subject to empirical investigations, for instance, concerning the heterogeneous contingencies faced by the firm (namely intricate networks of business interactions and faceless markets of transactions) and how potential causes of relationship significance evolve, are put to work under (and interact over time with) these changing contingencies. A diversity of more specific questions may guide empirical research: ‘‘in what ways do prevailing contingent conditions (e.g., relationship connectedness) impact on the significance of the firm’s business relationship

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with customer A?’’ or ‘‘which dominant powers presently at work, bring about the significance of the firm’s business relationship with supplier B?’’ ‘‘what enhances or impairs the exercise of the ‘networking’ power of the business relationship with supplier C?’’ or ‘‘how do access and control powers of the firm’s business relationship with customer D, interact over time?’’ In a nutshell, a (critical realist) spiral-like approach to theory and evidence is as opposite here as in social sciences at large. Analytical explanations of the world’s causes need to be complemented with intensive case studies of causes’ operation under a diverse set of contingencies. So far, relationship significance can be adequately depicted as a ‘‘black box’’ on the grounds that its causes are for the most part left unidentified. MAN theorists are therefore urged to open up tentatively that box, by describing and explaining the structure, powers, and liabilities potentially responsible for bringing about relationship significance. That is what the authors attempt to do here.

ACKNOWLEDGMENTS The authors’ reasoning has benefited from the comments of Carlos Brito, Helder Valente, Per Servais, Ian Wilkinson, Joao Proenca, Aino Halinen, and Paul Matthyssens at an early stage and with the valuable insights of Luis Araujo, Keith Blois, Geoff Easton, Steve Fleetwood, Hakan Hakansson, Lars-Gunnar Mattsson, Joao Mota, Thomas Ritter, Malcolm Cunningham, Steve Fleetwood, Nuno Martins, and Mario Graca Moura. Needless to say, all inaccuracies remain with the authors. The first author acknowledges the financial support of Centro de Cieˆncia e Tecnologia da Madeira (CITMA), through the European Union’s Social European Fund (SFE).

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CHAPTER 8 MARKETS-AS-NETWORKS THEORY: A REVIEW Filipe J. Sousa ABSTRACT This paper exposes the development of markets-as-networks theory from formal inception in the mid-1970s until 2010 state-of-the-art, en route presenting its historical roots. This largely European-based theory challenges the conventional, dichotomous view of the business world as including firms and markets, arguing for the existence of relational governance structures (the so-called ‘‘interfirm cooperation’’) in addition to hierarchical and transactional ones.

1. INTRODUCTION The ‘‘Industrial and Marketing Purchasing Group’’ (or ‘‘IMP Group,’’ henceforth IMP) is the most prominent worldwide research community dedicated to the study of vertical cooperative linkages – so-called business relationships – established, developed, and maintained between firms in the business world. The origins of IMP, according to one of its founding fathers (Cunningham, 1980), can be traced back to the mid-1970s when several junior marketing researchers – from France (Jean Paul Valla and Michel Perrin, Institut de Recherche de l’Entreprise in Lyon), Germany Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 405–454 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016011

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(Michael Kutschker, University of Munich), Italy (Ivan Snehota, Isvor-Fiat Institute in Turin), Sweden (Hakan Hakansson, Lars Hallen, Jan Johanson and Bjorn Wootz, University of Uppsala), and the United Kingdom (Malcolm Cunningham, Elling House, and Peter Turnbull, University of Manchester Institute of Science and Technology and David Ford, University of Bath) – dissatisfied with the explanatory power of marketing theory (deeply rooted in microeconomics), started to challenge the conventional view of (both atomistic and faceless) business-to-business (B2B) markets with the empirical findings of research undertaken in Europe. Some seminal contributions can be identified, for instance, Blois (1972), Ford (1978), Hakansson (1975), Mattsson (1973), among others. IMP currently comprises more than 300 scholars and researchers mostly from Europe, but also from Australia, Japan, and the United States of America. Hakansson and Snehota’s (2000, p. 35) characterization of IMP is insightful: ‘‘The IMP is a prime example of what it is also studying – a flexible network organization with floating boundaries but built around some strong relationships that connect and permit cross-fertilisation of various streams of ideas and research.’’ IMP’s main discussion fora are its annual conferences, held since 1984. For more details, see the website http://www.impgroup.org. The extensive conceptual and empirical body of knowledge developed by IMP members over the last four decades draws upon many analytical frameworks and theories – for instance, social exchange theory (Blau, 1964), interorganizational theory (Negandhi, 1975), relational contracting theory (Macneil, 1980), resource dependence theory (Pfeffer & Salancik, 1978), organizational theory (March & Simon, 1958), or even transaction cost economics (Williamson, 1985), just to mention a few. Whenever discussing or reviewing this 40-year-old body of knowledge, many scholars and researchers diverge with regard to its denomination: whereas some call it ‘‘an approach’’ (Hakansson, 1987) or ‘‘a paradigm’’ (Easton, 1992), others see it as ‘‘an European-based research tradition’’ (Johanson & Mattsson, 1994), ‘‘a school of thought’’ (Araujo & Easton, 1996), ‘‘a perspective’’ (Turnbull, Ford, & Cunningham, 1996), or a relatively new ‘‘theoretical territory’’ in the marketing landscape (Easton & Hakansson, 1996). Some IMP members even take a postmodernist stance by collapsing this body of knowledge into the IMP itself, strangely confusing the former with ‘‘a social enterprise’’ (Axelsson, 1992b) or ‘‘a social grouping’’ sharing similar interests and assumptions (Easton & Araujo, 1989). In contrast to these varying terminologies (and positions), the author explicitly contends that this body of knowledge constitutes as a whole a

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theory, namely the so-called markets-as-networks theory (henceforth ‘‘MAN theory’’), also often referred to as industrial networks theory. The author argues that the body of knowledge produced by the IMP is a ‘‘theoretical system of constructs and variables’’ (e.g., ‘‘actor,’’ ‘‘adaptation,’’ ‘‘net,’’ and so forth), ‘‘linked by propositions and hypotheses’’ (e.g., concerning ‘‘the existence, connectedness, and uniqueness of business relationships in the business world’’). Accordingly, this body of knowledge constitutes a theory – at least if one adopts Bacharach’s (1989) robust definition of ‘‘theory.’’ The recognition of a full-fledged MAN theory (cf. Hakansson & Snehota, 2000, p. 46) is shared – at least implicitly – by many IMP members (see, e.g., McLoughlin & Horan, 2002; Moller & Halinen, 1999). The difficulty to acknowledge the existence of a holistic theory of B2B markets is probably related to, as Melin (1989) stresses, the need for that theory to address the multiple ambiguities observed in business relationships and networks (e.g., coexistence of cooperation and conflict and of stability and change within the same business relationship). As Easton (1992) argues, MAN theory handles quite well both the inconsistency and complexity inherent in business relationships and markets. MAN theory tentatively describes and explains the inner workings of business networks and the vertical cooperative relationships between firms that these networks include. The ‘‘interaction,’’ ‘‘relationship,’’ and ‘‘network’’ are the theory’s main units of analysis (Easton & Hakansson, 1996). Manifold MAN theory features at least three major conceptual cornerstones: the existence, connectedness, and uniqueness of business relationships (Ford, 1980); business relationships as a third type of governance structure, alternative to both hierarchies and markets (Richardson, 1972); and the significance of business relationships to the firm (Johanson & Mattsson, 1987) – the potential causes bringing about ‘‘relationship significance’’ are addressed in detail by Sousa and Castro (this volume). To the best of the author’s knowledge, MAN theory is not yet subject to a solid articulation and explicit codification – even when one acknowledges the first attempts of some MAN theorists (e.g., Johanson & Mattsson, 1994; McLoughlin & Horan, 2000a; Ritter & Gemunden, 2003a; Turnbull et al., 1996). This paper thus attempts to fill a conceptual gap in the related MAN literature. Section 2 presents the historical roots of MAN theory, going back to the seminal works of Smith, Young, and Richardson who paved the ground for the subsequent analytical and empirical research. The theoretical development process as well as the dissemination and largely descriptive character of the theory are described in Section 3. MAN theory’s current

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state-of-the-art, basically the postulated network view of the business world, is presented in Section 4.

2. HISTORICAL ROOTS OF MAN THEORY Although MAN theory flourishes from the 1970s onward (mostly owing to the prolific research of the IMP), the deepest of its roots can be traced back to the seminal works of Adam Smith (1776 [1999]), Allyn Young (1928), and George B. Richardson (1972) who lay (in this chronological order) some of the theory’s primordial foundations.

2.1. Division of Labor Within and Among Firms: Smith and Young on Specialization and Integration Smith’s pioneering inquiry leads him to conclude that the division of labor, that is, the separation of complex work (performed by a single worker) in a multitude of simpler tasks (in the hands of different workers), is the key factor in the economic development of any country. Division of labor necessarily gives rise to substantial increases in the productivity of a country’s varied ‘‘trades’’ and ‘‘businesses’’ – in Smith’s 18th century terminology. Such positive effects – in the form of a greater output of work and/or reductions in productive costs (i.e., scale economies) – are brought about by two factors: first, the increasing dexterity, efficacy, and efficiency of workers in the (repeated) performance of specific tasks over time; and second, technological innovations (e.g., time-saving and high-throughput machinery) often introduced by machinery producers but on occasion devised by inventors or even common factory workers (Smith, 1776 [1999], pp. 112–125). Smith asserts that the division of labor is not the aftermath of human wisdom but results instead from the ‘‘[human] power of, and disposition to exchange one thing for another’’ (p. 117). Individuals find to own advantage to first, concentrate on what are capable of producing and then, exchange the surplus of production (above consumption needs) for what one needs or wants, that is to say, the product of other individuals’ labor. Human self-interest does not preclude exchanges; on the contrary, self-interest contributes heavily to the engagement in mutually agreed exchanges, for (more or less) dissimilar outcomes of one’s labor are of use to someone else (p. 119).

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Smith therefore argues, in opposition to previously thought, that the notorious inequality concerning human ‘‘talents’’ and ‘‘geniuses’’ is not the primary cause of division of labor. That inequality, Smith claims, is likely to be more of an effect than a cause of division of labor and tends to widen over time as the division of labor increases (p. 120). Division of labor has hence an important role in reinforcing specialisms – specialisms that, as one knows, in part also bring about the division of labor. Smith therefore derives the well-known theorem that the degree to which division of labor is effected is limited by the extent of the market (i.e., overall demand for products resulting from individuals undertaking subdivided tasks) (p. 121). The division of labor is likely to expand into several trades and businesses insofar as the (consumer) market grows (driven, e.g., by reductions in transportation costs). Smith alludes to the rise of British commerce with both inland regions and foreign countries, by the end of the 18th century: the market grew as transportation costs decreased, mainly owing to substitution of water carriage for land carriage (p. 123). In short, Adam Smith’s thesis is that the division of labor (and the increasing productivity that it gives rise to) ultimately brings about wealth – and in the case of a fair society, wealth generated by the whole nation is in principle distributed fairly among individual of all societal classes (p. 115). Smith’s work is extended only more than 150 years later when Allyn Young, a 20th century American economist, provides explanations on ‘‘increasing returns.’’ Young (1928, p. 529) starts where Smith leaves off: unlike the trades and businesses so characteristic of the late 18th century (on which Smith focuses), Young turns attention to the manufacturing industries that emerged in England and in the United States at the beginning of the 19th century with the Industrial Revolution. For Young, the division of labor accounts for the obtainment of increasing returns and thus for economic progress – and that increase returns and economic progress are in turn likely to lead to a further division of labor. Young argues that the main outcomes accruing from division of labor, namely greater productivity, are obtained whenever high-throughput machinery is deployed in work. That is, the principal economies obtained with the division of labor – what Young calls ‘‘the economies of roundabout methods of production’’ – are those of ‘‘(y) using labor in roundabout or indirect ways (y)’’, for instance, as in ‘‘(y) Mr. [Henry] Ford’s [production] methods (y)’’ (pp. 530–531, 539). The division of labor, according to Young, triggers a series of changes (e.g., in the form of new competences, activities, products, or even new firms and industries) that progressively propagate throughout firms and the industries of which are a part (p. 533). In this respect, one can – as, for

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instance, Araujo and Kerndrup (2001) do – recast that series of changes (both of a qualitative and quantitative nature) as a cascade of connected teaching and learning processes taking place inside as well as across corporate boundaries, considering at the same time that interfirm vertical linkages (mostly business relationships) are primary platforms for effecting such processes. With the division of labor, internal economies of (otherwise extremely large and multiproduct) firms give way to internal and external economies of (specialized and single-product) firms (p. 538). As Young (p. 528) puts it, ‘‘(y) the economies of some firms (y) figure as the external economies of other firms (y).’’ Alfred Marshall (1890 [1997]) provides a fruitful distinction between the internal economies that the firm is able to explore (especially when operates at a large scale, e.g., of production) and the economies that are external to the firm. The ‘‘Marshallian’’ firm is a medium through which (productive) economies are obtained and ‘‘transferred’’ to the market, with those economies being in part visible in the price of products on sale. The firm, therefore, is likely to profit from own (scale and scope) economies and from (scale and scope) economies appropriated by connected counterparts, of the same or related industries. Young seems to allude to the connectedness of firms and industries when claims that external economies do not add up to – in fact are greater than – the sum of all firms’ internal economies (p. 528) and notes that the growth of some industries is contingent on the growth of other, ancillary industries (p. 538). Most importantly, Young argues for the division of labor to occur not only within but also among firms and industries (p. 529). Young addresses an important (yet usually neglected) feature of division of labor. Although the essence of division of labor is the specialization taking place inside firms and industries, ‘‘integration’’ (typically in form of cooperation) among firms and industries surely follows. The specialization–integration duality inherent in the division of labor is captured by Young’s (p. 538) instructive outlook on industries: ‘‘It is sufficiently obvious (y) that over a large part of the field of industry an increasingly intricate nexus of [highly] specialised undertakings has inserted itself between the producer of raw materials and the consumer of the final product.’’ Even Adam Smith (1776 [1999], pp. 116–117) apparently refers to that concomitant integration when says that final products are the joint outcomes of a diversity of (interrelated) labor endeavors. Piore (1992), however, is probably the first scholar to list explicitly corporate specialization and integration (i.e., interfirm cooperation) as indissociable characteristics of the division of labor. To the (increasing) division and subdivision of activities, one often replies with

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(increasing) attempts to integrate activity outcomes. Patterns of integration and ‘‘disintegration’’ taking place over time (especially at a vertical level, i.e., within arm’s-length relations and/or business relationships between buyers and sellers) are described and justified at length, for instance, by Langlois and Robertson (1995). Main effects of specialization and integration can be summarized as follows: the former brings about (i) a higher productive efficiency of the firm (Marshall, 1890 [1997]; Young, 1928), (ii) the potential enhancement of existing corporate competences or development of new ones (Richardson, 1972), and (iii) innovation (e.g., new attributes of or uses for corporate resources) (Penrose, 1959); the latter, on the other hand, results in a higher efficiency (with respect to the firm’s costs of transacting or interacting with counterparts, via arm’s-length relations and business relationships, respectively) (Hakansson & Snehota, 1995; Williamson, 1979) and allows the firm to access and explore external, complementary resources and competences (Hakansson & Snehota, 1989). Finally, one needs to recognize that integration is also found within the firm, for the interdependence between firm’s departments, divisions, and activities grows and strengthens over time as specialization is underway within corporate boundaries (Piore, 1992). Young (p. 539) makes the same point on firm’s (internal) interdependence: ‘‘What is required is that industrial operations be seen as an interrelated whole.’’ Understandably, the (corporate) whole is ‘‘greater than the sum of parts.’’

2.2. Firm, Market, and Interfirm Cooperation as Governance Structures: The Richardsonian Insight The conventional perspective of self-sufficient firms only competing in (faceless) markets is first challenged in explicit manner almost 40 years ago. George B. Richardson, in the 1972 path-breaking ‘‘The organisation of industry,’’ alerts to the ‘‘highly misleading account’’ or ‘‘distorted view’’ (commonly found in standard theories of the firm and of markets) concerning the way in which each and every industry is de facto organized (pp. 883–884). Division of labor, according to such theories, entails the choice between firms and markets, that is to say, between hierarchies and arm’s-length relations established between firms, respectively. Coordination of economic activities is effected either via ‘‘direction’’ (within firms) or through the ‘‘invisible hand’’ (operating spontaneously between firms). While the invisible hand of markets features prominently in Adam Smith’s

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(1776 [1999]) work, the ‘‘visible hand’’ of firms is only given emphasis in the 20th century, for instance, by the business historian doyen Alfred Chandler (1977). Above-mentioned standard theories of the firm and markets, Richardson continues, build upon a sharp firm–market dichotomy and exhibit two deficiencies: first, theories assume (yet do not account for) the principle of the division of labor between firms and markets, that is to say, theories fall short of explanations on which activities are coordinated by corporate ‘‘directed planning’’ and which activities are left to the ‘‘spontaneous coordination’’ of the ‘‘price mechanism’’; and, second, theories fail to notice a pervasive phenomena of the business world, namely ‘‘interfirm cooperation’’ which – as Richardson claims – provides an alternative mode of coordinating economic activities, in addition to hierarchical and market governance structures. Richardson alludes to ‘‘(y) the ingredient of cooperation being very commonly present, in some degree, in the relationship between buyer and seller’’ (p. 886) as well as ‘‘(y) the dense network of cooperation and affiliation by which firms are interrelated’’ (p. 883). Richardson (1972) distinguishes clearly between interfirm cooperation and pure market transactions (between firms). Cooperation in ‘‘(y) traditional links between buyers and sellers (y) found in most markets (y)’’ is ‘‘close, complex and ramified’’ (pp. 884, 891). In such ‘‘cooperative arrangements’’ (p. 886), ‘‘reciprocal undertakings’’ (p. 891) or ‘‘business relations’’ (p. 895), both parties accept the obligation of (and give implicit assurance concerning) firms’ nonopportunistic behavior presently and in the future. In purely transactional interfirm relations, on the contrary, ‘‘(y) there is no continuing association, no give and take, but an isolated act of purchase and sale (y)’’ (p. 891). For Richardson, the principle governing the division of labor (or, in other words, the coordination of economic activities in firms, markets, or interfirm cooperation) can be grasped only when two elements are brought into the forefront: corporate activities and related competences (or ‘‘capabilities’’ as Richardson mentions). Richardson views each industry as composed of a large number of interrelated activities (e.g., research and development, purchasing, production, marketing, and so on). Corporate activities are only carried out by firms endowed with appropriate competences, that is, the know-how to do things effectively and efficiently (p. 888). Activities fall under two types (pp. 888–889): ‘‘similar’’ and ‘‘complementary.’’ While similar activities demand the same resources and competences for undertaking, complementary activities (as a rule ‘‘dissimilar’’) represent different stages of a productive process and need to be coordinated in level or

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specification. Activities may even be ‘‘closely complementary’’ if mandate both quantitative and qualitative coordination (p. 891). Firms are necessarily devoted to a certain range or scope, undertaking only those activities for which have the required resources and competences. That is, firms tend to specialize in certain activities for which corporate resources and competences (internally developed, acquired, and/or accessed and exploited via cooperation) offer some ‘‘comparative advantage’’ (p. 891). Given the limitedness of (internal) corporate resources and competences, it is to firms’ advantage to concentrate in (and possibly expand into) activities which firms are in fact capable of performing. So, activities within corporate boundaries are in general similar – this is not to say that firms cannot produce several products and thus compete in different product markets (pp. 888–889). Two obstacles impede the coordination of all activities to be effected within a single, large, and necessarily self-sufficient firm. First, corporate activities display economies (and diseconomies) of scale and scope. The scale at which an activity is performed (i.e., the volume of output that activity generates) affects the activity’s efficiency given that for the most part there are not ‘‘constant returns to scale’’ or, in other words, there is an ‘‘optimum’’ point until which ‘‘increasing returns to scale’’ (e.g., reductions in per-unit productive costs) are obtained and from that point onward, the firm incurs ‘‘decreasing returns to scale’’ (e.g., increases in per-unit marketing costs). For instance, Penrose (1959) explicates in detail the limits to corporate growth and size, pointing out ‘‘decreasing returns to management’’ and ‘‘bureaucratic costs’’ inter alia as explanatory factors. Second, the performance of activities does not necessarily require similar corporate competences. By bearing in mind these two obstacles, one can argue that Richardson (1972, pp. 890–891) offers a competence-based answer to Ronald Coase’s (1937) famous questions, namely ‘‘why do firms exist at all (when markets can in principle coordinate all activities)?’’ and ‘‘why does not exist only one extremely large firm (instead of the myriad of firms observed in the business world)?’’. Richardson (p. 896) himself considers the ‘‘Coasian’’ explanation on the existence of firms – that there are substantial costs of ‘‘using’’ markets to effect the coordination of economic activities, costs that may exceed those associated with coordination within hierarchies – to be consistent with and providing a solid basis for own rationale (for Richardson is explicit about factors that may affect those ‘‘relative’’ costs, of hierarchies versus markets). However, a notorious difference between Richardson and Coase can be found: only the former acknowledges explicitly interfirm cooperation as a distinct governance structure (p. 896).

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In short, it pays off to leave the coordination of some activities – especially complementary ones, which may be dissimilar – to the responsibility of several firms, either resorting (as adequate) to purely transactional relations or to lasting and complex interfirm cooperative linkages. One can rely on markets’ ‘‘law of large numbers’’ – that owing to the presence of aggregates of suppliers and customers, overall supply tends to equal overall demand – for carrying out the qualitative coordination of complementary activities. Dissimilar yet closely complementary (i.e., demand not only quantitative but also qualitative coordination), on the other hand, need to be coordinated by interfirm cooperation. Richardson (p. 892) hence arrives at the raison d’eˆtre for interfirm cooperation: ‘‘Here then we have the prime reason for the existence of co-operation and association the existence of which we noted earlier. They exist because of the need to co-ordinate closely complementary but dissimilar activities. This coordination cannot be left entirely to direction within firms because the activities are dissimilar, and cannot be left to market forces in that it requires not the balancing of the aggregate supply of something with the aggregate demand for it but rather the matching, both qualitative and quantitative, of individual enterprise plans.’’ Richardson’s enlightening insight is that the division of labor is effected by one of three alternative (yet not completely distinguishable) modes of coordinating economic activities. Richardson posits a continuum of governance structures, ranging from firms through interfirm cooperation to markets: ‘‘It is important, moreover, not to draw too sharp lines of distinction between the techniques of coordination themselves. Co-operation may come close to direction when one of the parties is clearly predominant; and some degree of ex ante matching of plans [i.e., cooperation] is to be found in all markets in which firms place orders in advance’’ (p. 896, emphasis in original). Finally, Richardson makes two relevant points: ‘‘And just as the presence of co-operation [within both interfirm cooperation and market transactions] is a matter of degree [for cooperation is minimal in the latter governance structure], so also is the sovereignty [i.e., direction] that any nominally independent firm is able to exercise on a de facto basis (y)’’ (p. 887). With interfirm cooperation on hand, firms should be no longer seen either as ‘‘(y) islands of planned coordination in a sea of market relations (y)’’, that is, as ‘‘(y) autonomous units buying and selling at arm’s-length in markets (y)’’ (p. 883). One needs to reject unrealistic depictions of the business world such as this: ‘‘Here and there, it is true, we have found islands of conscious power in this ocean of unconscious co-operation, like lumps of butter coagulating in a pail of buttermilk’’ (Robertson & Dennison, 1923, p. 73).

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3. DEVELOPMENT, DISSEMINATION, AND ORIENTATION OF MAN THEORY 3.1. The European Alternative to the (Dominant) American View of B2B Markets Two research traditions can be found in the field of industrial marketing and purchasing. The first research tradition, developed in America since the 1960s and still dominant in the field, features the application – problematic, to say the least – of ‘‘consumer marketing theory’’ in B2B settings (e.g., see Bonoma & Zaltman, 1978; Bonoma, Zaltman, & Johnston, 1977; Nicosia & Wind, 1977; Robinson, Faris, & Wind, 1967; Sheth, 1977; Webster & Wind, 1972a; Wind, 1978). This American view of (seller-dominated and atomistic) B2B markets – wherein firms deploy ‘‘marketing-mix’’ parameters (namely ‘‘product,’’ ‘‘price,’’ ‘‘distribution,’’ and ‘‘promotion’’) and anonymous buyers respond (by buying or not the products on sale) – is challenged since the mid-1970s by another, largely European research tradition. The most notorious offspring of the latter tradition is MAN theory. Antecedents of MAN theory can be found in three strands of research: first, earlier studies in distribution channels, particularly on ‘‘power’’ and ‘‘control’’ issues between channel members (e.g., Bucklin, 1965; El-Ansary & Stern, 1972; Rosenberg & Stern, 1970; Stern & Reve, 1980; Webster, 1976; Wilkinson, 1976, 1973, 1979); second, studies in the firm’s internationalization process (e.g., Johanson & Vahlne, 1977; Johanson & WiedersheimPaul, 1975); and finally, a vast array of studies in both ‘‘industrial buying behavior’’ (e.g., Blois, 1970; Cunningham & Kettlewood, 1976; Cunningham & White, 1974a, 1973; Hakansson & Wootz, 1975a, 1975b; Jarvis & Wilcox, 1977; Johnston & Bonoma, 1981; Luffman, 1974; Pettigrew, 1975; Sheth, 1973; Spekman & Stern, 1979; Webster, 1965; Webster & Wind, 1972b; Wind, 1970; Woodside & Sammuel, 1981) and ‘‘industrial marketing processes’’ (e.g., Blois, 1977; Cunningham & White, 1974b; Ford, 1978; Hakansson, 1980; Hakansson, Johanson, & Wootz, 1976; Hakansson & Ostberg, 1975; Hakansson, Wootz, Andersson, & Hangard, 1979; Mattsson, 1973; Reve & Stern, 1979; Turnbull, 1974). MAN theorists also take advantage of (more or less) distant but stimulating sources of ideas on interdependence and interfirm cooperation (e.g., Aiken & Hage, 1968; Aldrich, 1976; Blau, 1964; Chamberlain, 1968; Dill, 1958; Emerson, 1962; Emery & Trist, 1965; Evan, 1966; Granovetter, 1985; Jacobs, 1974; Levine & White, 1961; Lincoln, 1982; Litwak & Hylton, 1962; Macauley, 1963; Macneil, 1980; Miles, Snow, & Pfeffer, 1974;

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Negandhi, 1975; Phillips, 1960; Telser, 1980; Van de Ven, 1976, Van de Ven & Koenig, 1975; Warren, 1967; Whetten & Leung, 1979). Other inspirational fountainheads are mentioned in the overview of MAN theory’s state-of-the-art (Section 4).

3.2. IMP1 and IMP2 Research Projects, the Interaction Approach, and the ARA Model MAN theory’s development parallels the qualitative research (mainly case studies) undertaken by the IMP over the last four decades. Several reviews on precursors, evolution, assumptions, implications, and future agenda of MAN theory are available (see, e.g., Easton, 1992; Ford & Hakansson, 2006b; Gemunden, 1997; Hakansson & Snehota, 2000; Johanson & Mattsson, 1994; Mattsson, 2004; Mattsson & Johanson, 2006; Mattsson & Naert, 1985; McLoughlin & Horan, 2000a, 2002, 2000b; Ritter & Gemunden, 2003a; Turnbull et al., 1996; Wilkinson, 2001; Wilkinson, Morlacchi, & Young, 2005a; Young, 2002). MAN theory’s formal genesis (as well as the creation of IMP) is traced to 1976 when the ‘‘International/Industrial Marketing and Purchasing’’ – so-called ‘‘IMP1’’ – research project began. IMP1 is born from the dissatisfaction of about 20 junior European scholars and researchers with the explanatory power of marketing theory concerning industrial buying and selling – see, for instance, Monthoux’s (1975) reasons on this matter. Those European scholars and researchers share the conviction that marketing theory provides a very limited (if not unrealistic) understanding of how B2B markets really work in practice. IMP lasts 6 years during which about one thousand buyer–seller relationships – ‘‘industrial systems’’ of goods, within and mostly across five European countries (namely, France, Germany, Italy, Sweden, and the UK) – are inquired via structured interviews with representatives of both suppliers and customers. IMP1’s methodological design and findings are detailed in Cunningham (1980) and Hallen and Johanson (1989), respectively. IMP1’s empirical and theoretical results comprehend a large database of business relationships’ features and in-depth case studies, and a conceptual framework referred to as ‘‘the interaction approach’’ (Campbell, 1985; Hakansson, 1982a), respectively. The interaction approach consubstantiates two basic empirical findings of IMP1. First, industrial purchasing and marketing are not necessarily market transactions (i.e., isolated events of ‘‘action’’ and ‘‘reaction,’’ respectively), but are instead part of a lasting pattern of ‘‘interactions’’ between buyers

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and sellers (active, both). As Ford (Ford, 1984, 1980) alerts, mainstream views of industrial marketing and purchasing as discrete events are the natural consequence of studies (pertaining to the way firms carry out buying episodes) being conducted independently of inquiries (about how sellers influence buying processes to their advantage). Second, and as a consequence of the first research finding, B2B markets are neither faceless nor atomistic (i.e., featuring a large number of anonymous customers and consisting of unconnected buyers and sellers, respectively), often including close and longstanding business relationships. ‘‘Industrial markets are characterized by stability instead of change, long lasting relationships instead of short business transactions and closeness instead of distance’’ (Hakansson, 1982b, p. 6). Interdependences (among business relationships) observed in IMP1 serve as thrust for researchers to embark on a second project, the ‘‘IMP2’’ initiated in 1986. Whereas IMP1 focuses on buyer–seller relationships (i.e., dyads), IMP2’s primary units of analysis are the complex networks that such relationships overall form. IMP2 is methodologically similar to IMP1 (with intensive deployment of case research), being carried out by researchers from Australia, Japan, and the United States, besides most of the researchers responsible for undertaking IMP1. IMP2’s main outcomes are a large database of buyer–seller relationships and several in-depth case studies and, most importantly, the ‘‘Actors-Resources-Activities (ARA) model’’ that depicts B2B markets as strongly interwoven networks of actors, resources, and activities (Hakansson, 1989, 1987; Hakansson & Johanson, 1992) – see Section 4.4.2.

3.3. Books and Papers as Main Dissemination Vehicles of MAN Theory MAN theory is diffused (as well as extended or even criticized and rejected) at large via scientific journals, books and book chapters, and the proceedings of IMP annual conferences. Analytical and empirical results of qualitative research undertaken by MAN theorists are featured in a multitude of papers, mostly in the industrial marketing field [e.g., European Journal of Marketing (EJM), Industrial Marketing Management (IMM), International Journal of Research in Marketing (IJRM), International Marketing Review (IMR), Journal of Business and Industrial Marketing (JBIM), Journal of Business-to-Business Marketing (JBBM), Journal of Marketing (JM), Journal of Marketing Research (JMR), Journal of Marketing Management (JMM), Journal of Strategic Marketing (JSM), Marketing Theory (MT), the recently founded

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IMP Journal, or the extinct Industrial Marketing and Purchasing], but also in the management science area [e.g., International Business Review (IBR), Journal of Business Research (JBR), Journal of Management Studies (JMS), Management Learning (ML), Organization (O), Scandinavian Journal of Management (SJM), or Strategic Management Journal (SMJ)]. Nevertheless, the major milestones in the dissemination of MAN theory are the publication of three books: Hakansson’s (1982b) formalization of the interaction approach, and Axelsson and Easton’s (1992) and Hakansson and Snehota’s (1995) comprehensive introductions to MAN theory (and B2B practice). An extensive list of other books and book chapters drawing on or promulgating MAN theory can be identified. On books see, for instance, Dubois (1998), Ford (2002, 1990), Ford et al. (1998), Forsgren & Johanson (1992), Gadde and Hakansson (1993, 2001), Gemunden, Ritter, and Walter (1997), Hakansson (1989, 1987, 1975), Hakansson, Harrison, and Waluszewski (2004), Hakansson and Johanson (2001), Hakansson and Waluszewski (2007), Hallen and Johanson (1989), Havila, Forsgren, and Hakansson (2002), Laage-Hellman (1997), Lundgren (1994), Moller and Wilson (1995), Naude and Turnbull (1998), Turnbull and Cunningham (1981), Turnbull and Paliwoda (1986), and Turnbull and Valla (1986). As illustrative examples of book chapters, check Araujo and Easton (1996), Easton (2000), Ford, McDowell, and Tomkins (1996), Hakansson (1993), Hakansson and Johanson (1988, 1984, 1993b), Hakansson and Snehota (2000), Johanson and Mattsson (1994), and Mattsson (1985, 2004, 1987). According to McLoughlin and Horan (2002, 2000b), MAN theorists’ preference to publish in book format is supported by three motives. First, the thought-provoking nature of MAN theory – that by providing ‘‘a new view of reality,’’ as Axelsson and Easton’s (1992) edited book title puts it, challenges the orthodoxy of mainstream purchasing and marketing theories – adds greatly to the usual difficulties of exposing unprecedented ideas in a journal paper format (i.e., overcoming referees’ resistance to novelties). Second, books have a slight advantage over journals because they allow the dissemination of knowledge to a wider audience and make possible the generation of dialogues with other disciplines and related theories. Since MAN theory springs from theoretical cross-fertilization, as MAN theorists recognize (e.g., Hakansson & Snehota, 2000; Wilkinson, 2001), it is likely that further cross-fertilization is searched for – and cross-fertilization can be more easily achieved through books. Third, as qualitative research (mostly case studies) is far more employed than quantitative methods (Easton, 1995), research findings are bound to be larger and thus unsuited to publication in the relatively restricted 8,000

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(or less) words space of a journal paper. With respect to the predominance of qualitative research undertaken by MAN theorists, Easton (2000) argues for the epistemological validity of case research in the inquiry of business relationships and networks.

3.4. MAN Theory’s Largely Positive Orientation The primary goal of MAN theory is to describe and explain the business relationships and networks in which firms are deeply embedded. The charge of an overly descriptive focus is usually placed on MAN theory, despite its great explanatory power (Moller, 1994; Wensley, 1995). Another limitation commonly pointed to MAN theory is the neglect of the ‘‘dark side’’ of business relationships, given the excessive emphasis on relationship ‘‘functions’’ and ‘‘benefits.’’ This limitation is compensated by recent work on the ‘‘dysfunctions’’ and ‘‘sacrifices’’ of business relationships (e.g., see Hakansson & Snehota, 1998). MAN theory is inductively developed from qualitative research without any kind of prescriptive concern (Brennan & Turnbull, 2002). Hakansson’s (1987, p. 210) position is elucidative: ‘‘We have met many managers who have been very skilled in their way of handling networks as a result of experience of a life-time spent in networks. As a consequence we will avoid giving detailed advice regarding the practical handling of networks. Instead, we believe that we can be of much more help by identifying and discussing more general network issues. Thus my contribution is rather to integrate known details to a more comprehensive body of knowledge.’’ The positive orientation of MAN theory stems from two motives. First, MAN theorists share the conviction that to improve the practice of industrial purchasing and marketing, one needs first of all a better understanding of business relationships and networks observed recurrently in B2B markets (Wilkinson & Young, 2002). MAN theorists argue that ‘‘good’’ theory is in principle conducive to ‘‘good’’ practice. Second, the units of analysis of (as well as the sort of research questions posed by) MAN theorists do not to lend themselves to the issuance of managerial prescriptions. As Easton and Hakansson (1996) stress, in order to be normative, MAN theory needs to adopt a narrower perspective (e.g., by adopting the firm as object of study). Another difficulty pertains to the fact that toolkits for relationship and network management are difficult to formulate. Given that diversity is a conspicuous feature of B2B markets (Hakansson & Snehota, 1995), ‘‘best’’

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or ‘‘optimal’’ practices are not likely to apply. ‘‘Business researchers can aim to construct tools to help managers to understand their world, not tell them what decisions to take or what to do. Business researchers cannot predict the direction of development of a network, nor forecast the final effects of any network action. (y) [As] networks are built on variety [(e.g., of interests, expectations, and goals)] (y) the answers to managers’ questions about their interactions will always depend on the specific situation and context. There are no nice neat solutions or standardized approaches to strategic network success’’ (Hakansson & Ford, 2002, p. 138). That description is given importance to the disfavor of prescription (Gemunden, 1997) is not tantamount to say that MAN theory is purely descriptive or ‘‘managerially empty’’ (Moller & Halinen, 1999). As Easton (1992) argues, normative implications flow from, but do not drive, MAN theory. The concern of MAN theorists with managerial guidelines is nevertheless growing since the mid-1990s. For Ritter, Wilkinson, and Johnston (2004), a shift – from understanding business relationships and networks to offering advices on to how manage those intricate interfirm linkages – is taking place within MAN theory. Over the last two decades, an increasing number of works are focused on helping practitioners in relationship and network management tasks (e.g., Ford et al., 1998; Ford & McDowell, 1999; Moller & Svahn, 2003). This normative turn is understandable. Regardless of the phenomenon under study, description necessarily precedes prescription. For prescription per se is useless without some kind of previous understanding: ‘‘One cannot choose what course of action to prescribe without knowing what events each course of action will lead to’’ (Easton & Hakansson, 1996, p. 409).

4. MAN THEORY’S STATE-OF-THE-ART 4.1. Development Process of Business Relationships The development of any business relationship is a costly and time-consuming process (Hakansson & Snehota, 2000). Business relationships are constantly in need of investments for establishment, development, maintenance, and even termination, thus competing for firms’ limited resources. Easton (1992) lists two other factors that are decisive for developing business relationships: expectations held by both parties concerning the actual or potential value of the business relationship (i.e., whether relationship benefits exceed or are

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likely to outweigh related sacrifices), and the existence of complementarity or compatibility between both parties’ objectives (namely, whether each party feels confident that the other reciprocates and is not a free-rider). Some degree of ‘‘attraction’’ between parties also enters firms’ decision to nurture and sustain a business relationship (Wilkinson, Young, & Freytag, 2005b) – that attraction being a function of firms’ ‘‘attractiveness’’ to others. Mattsson (1989) claims that the firm’s ‘‘attractiveness’’ depends not only on internal endowments (mostly, corporate resources and competences) but also on corporate propensity to cooperate (deduced somewhat from firm’s history of interaction). There is a trade-off between attractiveness and freedom of choice: in order to be attractive, the firm has in part to maintain several business relationships and thus is likely to increase dependence on counterparts. ‘‘The company that possesses no relationships is theoretically free to enter into collaboration with anyone at all, but in fact it is difficult to find anyone who is interested. The company that has already entered into a number of relationships will find it much easier to interest a partner, but its choices will be far more limited. (y) In general, established relationships are a vital condition for the initiation of [further] successful collaboration’’ (Hakansson, 1989, p. 124). Business relationships evolve over time as reciprocal investments are made by parties and interdependence, and mutual trust and commitment gradually increase. Trust, commitment, and the expectation of future interaction go usually hand in hand: ‘‘Trust is a necessary condition for commitment and commitment only makes sense if tomorrow matters’’ (Hakansson & Snehota, 1995, p. 198). Check, for example, Pressey and Mathews (2004) and Wilson and Mummaleneni (1986), respectively, on trust and commitment in business relationships. Parties’ initial reluctance to cooperate is in part related to the uncertainty regarding counterpart’s intents and future behavior. The ‘‘distance’’ (of a social, cultural, technological, temporal, or geographical basis) that normally exists between the firm and counterpart at early stages of interaction is likely to be diminished as both parties gradually get to know and trust each other and invest in the development of the business relationship. Ford (1980) and Dwyer, Schurr, and Oh (1987) propose two models for the relationship development process, according to which business relationships go through a series of stages: the ‘‘pre-relationship,’’ ‘‘early,’’ ‘‘development,’’ ‘‘long-term,’’ and ‘‘final’’ stages in the former model; and the ‘‘awareness,’’ ‘‘exploration,’’ ‘‘expansion,’’ ‘‘commitment,’’ and ‘‘dissolution’’ stages in the latter model. These relationship development models make an implicit use of the ‘‘marriage’’ metaphor, thus presuming

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that business relationships necessarily develop toward an ideal state – ‘‘the successful marriage’’ – characterized by a high degree of cooperation (and a low degree of conflict) between parties. Wilkinson and Young’s (1994) empirical research on more than 600 business relationships offer strong evidences that relationship development does not follow such ideal path – from ‘‘poor,’’ highly competitive business relationships to ‘‘good,’’ totally cooperative ones – as suggested in the above-mentioned ‘‘life cycle’’ models of relationship development. Business relationships may fail to develop and are eventually terminated, owing to persistent ‘‘barriers to interaction,’’ for instance arising from economic, political, social, or cultural features of the countries in which firms operate or deriving from mismatches between parties (in terms of size, organizational culture, objectives, decisions, or actions) or conflicting expectations and behaviors of individuals and groups involved in business relationships (Cunningham, 1982). These barriers, in general transitory, can be removed (e.g., through deepening interpersonal contacts) but always at a cost. Biong, Wathne, and Parvatiyar (1997) offer two other reasons that can account for relationship dissolution: lack of relational orientation and mutual commitment by (or changed requirements of ) one or both of parties involved; and a nonpositive relationship value (i.e., relationship sacrifices more than offset, or simply equate benefits), for one if not both of parties. On the termination of business relationships, and its determinants and consequences, see Alajoutsijarvi, Moller, and Tahtinen (2000), Giller and Matear (2001), Gronhaug, Henjesand, & Koveland (1999), Halinen and Tahtinen (2002), Tahtinen and Halinen (2002), Tahtinen and Havila (2004), Tahtinen and Vaaland (2006), Tuusjarvi and Blois (2004), Vaaland (2004), and Vaaland, Haugland, and Purchase (2004). The development of business relationships in the business world is, therefore, best described, not by resorting to the marriage metaphor, but instead by deploying a ‘‘dancing’’ analogy whereby leading of and following by parties is presumed (Wilkinson & Young, 1994).

4.2. Substance of Business Relationships Each and every business relationship comprises multiple short-term ‘‘interaction episodes’’ (e.g., face-to-face meetings, negotiations via telephone or email, deliveries, and payments) in which some content is exchanged between buyer and seller (Hakansson, 1982a). Interaction episodes are difficult to delimit in time for each episode’s beginning and end cannot be unambiguously identified even by cooperating firms

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(Ford & Hakansson, 2006a). Business relationships allow goods and/or services to be traded for money but also entail mutual exchange of knowledge and social values (i.e., trust and commitment) between parties. Axelrod (1984) advances two necessary conditions for the development and sustainment of business relationships: first, a (largely perceived) history of rewarding and trustworthy cooperation in the past; and second, a large ‘‘shadow of the future’’ (i.e., existence of mutual and converging expectations concerning valuable cooperation in the future). This is not to say that overall structure of business networks (i.e., connected business relationships) do not affect relationship nature (and development) (Ford, Hakansson, & Johanson, 1986). The ‘‘substance’’ of business relationships includes a set of several characteristics: some that are readily perceptible at first glance, while others can only be discovered after in-depth look (Hakansson & Snehota, 1995). Perceptible, so-called ‘‘structural’’ characteristics – namely ‘‘informality,’’ ‘‘continuity,’’ ‘‘symmetry,’’ and ‘‘complexity’’ – give business relationships a sense of stability. Yet when looked at more carefully, business relationships turn out to be quite dynamic. The ‘‘process’’ features of business relationships are ‘‘adaptations,’’ ‘‘coopetition,’’ ‘‘social interaction,’’ and ‘‘routinization.’’ Business relationships are stable but not completely static phenomena (Easton, 1992). 4.2.1. Structural Features 4.2.1.1. Informality. Like other forms of cooperation, interfirm cooperation does not require formal agreements between parties, with a large shadow of the future (for both firms) being sufficient. Business relationships are not in general governed by legal contracts, relying instead on implicit self-enforcement mechanisms – such as trust, commitment, and mutuality (Hakansson & Johanson, 1988) – or at the very least, exhibiting a low degree of formalization. As Macneil (1978) warns, formal contracts are unlikely to be effective in coping with the conflicts and uncertainties necessarily arising between both parties over time. The informality commonly present in business relationships in fact contributes to the continuity of those vertical cooperative linkages. 4.2.1.2. Continuity. Business relationships are long-lasting phenomena of the business, often developed and maintained over more than 10 years (Johanson & Hallen, 1989), and built on intricate patterns of interpersonal contacts and social liaisons permeating several functions and hierarchical levels in both parties involved (Cunningham & Turnbull, 1982).

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4.2.1.3. Symmetry. Business relationships are (more or less) symmetrical in terms of both parties’ initiative and interest to develop and sustain that interfirm cooperation. Despite the symmetry of initiatives and interests, business relationships are often asymmetrical with respect to power and dependence issues. One knows that dependence is inversely associated with possession of power (Emerson, 1962), for the greater the power that the firm has in the business network, the less the firm is likely to depend on others with which maintains business relationships. ‘‘The dependencies may be mutual, but are not necessarily so; in general, it may be assumed that they are more or less asymmetrical in the sense that one party is more dependent on the relationship than the other’’ (Johanson & Mattsson, 1987, p. 39). Inasmuch as some firms are more ‘‘powerful’’ than others (e.g., owing to possession of valuable resources and competences or holding a dominant network position), asymmetries characterize business relationships – for instance, explaining why relationship benefits are unevenly distributed between cooperative parties. Yet business relationships can never be unilaterally dominated by one of parties, no matter how great that party’s power is and no matter how great control or influence that party exerts over the other (Hakansson & Snehota, 1995). 4.2.1.4. Complexity. The complex nature of business relationships derives from the number of individuals and groups involved in contact patterns between firms (and the diverse and potentially conflicting roles, statuses, expectations, interests, intents, perceptions, and interpretations of those individuals and groups), and most importantly, from the different functions that business relationships can perform for both parties involved (e.g., to access and exploration external resources and competences). 4.2.2. Process Features 4.2.2.1. Adaptations. Adaptations are relationship-specific investments made by two cooperative parties over time in order to achieve fit to one another (Brennan & Canning, 2002; Brennan & Turnbull, 1998, 1999). Firms adjust products, production processes, scheduling routines, administrative procedures, and payment systems toward one another, strengthening interdependence and generating mutual trust and commitment, thus permitting easier resolution of potential conflicts arising within business relationships. Given the extent of adaptations effected, the firm becomes increasingly ‘‘particularized’’ to counterpart and vice versa – so-called ‘‘particularity’’ feature of interaction (Ford et al., 1986).

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Many adaptations are effected in an unplanned way, being largely invisible to (and, as a result, seldom monitored by) firms’ top management. Adaptations are usually known only by personnel directly involved in the management of business relationships, namely of marketing and purchasing departments. Adaptations emerge ad hoc so that firms may cope with issues arising as business relationships develop over time; notwithstanding, adaptations can be subject to ex post formalization if contractually agreed by parties (Ford, 1980). Although mutual adaptations are the rule in business relationships, adaptations can be on occasion unilateral (e.g., the firm is forced to acquire a new supply IT platform in response to the pressure of a powerful supplier). While one is prone to claim that unilateral adaptations by each of parties often precede mutual adaptations, Hallen, Johanson, and Seyed-Mohamed (1991, p. 34) alert to the difficulty of clearly identifying that each of these two kinds of adaptations is not without reason: ‘‘Partly the adaptations are made unilaterally as a consequence of imbalance in the interfirm power relation, and partly the adaptations are reciprocal demonstrations of commitment and trust in the relationship.’’ One needs to note that adaptations are necessarily interrelated to some extent since business relationships compete for the limited resources of both parties. For instance, adaptation in one business relationship may imply ‘‘maladaptation’’ in another, connected business relationship (Ritter, 1999). For the often substantial amounts of money and time devoted by parties to a specific business relationship are unlikely to be transferred to other relationships – that is, have low or zero value in alternative uses, that is, sunk costs – and are therefore likely to involve considerable opportunity costs for firms. 4.2.2.2. Coopetition. Inasmuch as firms have common and conflicting interests, coopetition thrives within business relationships (Bengtsson & Kock, 2000; Nalebuff & Brandenburger, 1996). Richardson (1972, p. 895) is probably the first to stress that competition and cooperation coexist within business relationships. ‘‘I have sought to stress the co-operative element in business relations but by no means take the view that where there is co-operation, competition is no more.’’ Easton and Araujo (1992) attempt to describe the different degrees to which diametrically different ‘‘logics’’ of interaction (namely cooperation and competition) can be found simultaneously in the ‘‘atmosphere’’ of business relationships, by hypothesizing five stages of a ‘‘corelation’’ dimension: ‘‘conflict’’ (i.e., both parties merely seek to destroy one another), ‘‘competition’’ (i.e., each party only aspires to remain ahead of the other,

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taken as a rival), ‘‘coexistence’’ (i.e., parties are unaware of each other’s existence or if aware, choose not to compete), ‘‘cooperation’’ (i.e., both parties collaborate in order to attain common or compatible goals), and ‘‘collusion’’ (i.e., parties agree to cooperate with the purpose of damaging others’ welfare, e.g., of customers or common competitors). These five stages give support to the heterogeneity of business relationships – that exhibit cooperation, but also feature coexistence, conflict, or even collusion to diverse extents.

4.2.2.3. Social Interaction. Business relationships entail prominently extensive social contacts between individuals and groups of both parties. Hakansson and Snehota (1995, p. 10) stress eloquently the social nature of business relationships: ‘‘Machine-like relationships do not exist.’’ Through individual and groups bonds, ‘‘(y) information is exchanged, adaptations are agreed, negotiations are performed, [and] crises are overcome (y)’’ (Turnbull et al., 1996, p. 57). Interpersonal bonds that firms’ members establish, develop, and sustain over time make business relationships capable of withstanding disruptive forces (e.g., a short episode of opportunistic behavior by a counterpart) (Easton & Araujo, 1986; Wilson & Mummaleneni, 1986). In Hirschman’s (1970) terminology, one may say that parties usually prefer ‘‘voice’’ to ‘‘exit’’ – the former option being a better conflict-resolution mechanism than the latter, which is neither easy nor costless. Business relationships display mutual orientation inasmuch as both parties have mutual knowledge of, and respect for each others’ strategies, interests, ambitions, and the like and are willing to refrain in part self-interest (and fall short of attaining own goals) in order to pursue common or compatible objectives (Ford et al., 1986). Mutuality or ‘‘jointness’’ helps to counterbalance the conflict of interests inevitably arising between parties (Ford & Hakansson, 2006a). Multiplex interpersonal contacts between firms over time are responsible for developing the atmosphere of business relationships, an atmosphere framing all interfirm interactions. ‘‘This atmosphere can be described in terms of the power-dependence relationship which exists between the companies, the state of conflict or cooperation and overall closeness or distance of the relationship as well as by the companies’ mutual expectations’’ (Hakansson, 1982a, p. 21). The development of business relationships is strongly dependent on the respective atmosphere, that is to say, the intensity and width of parties’ interpersonal contacts.

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4.2.2.4. Routinization. The routinization of interaction episodes over time leads to the development of expectations about the roles that each party expects the other to perform – a long-term process known as ‘‘institutionalization’’ (Ford et al., 1986). Rights and duties of both parties become informally institutionalized (i.e., self-policing and self-enforcing), somewhat materialized in norms of proper conduct. Institutionalization, however, is not without problems. On occasion routine patterns of operation give the wrong impression that parties are less committed to each other, as each evolving needs and requirements are not being continually attended to (Ford, 1980). In these cases, mutual commitment (despite being eventually at a maximum) is perceived by both parties to be minimal – with potential effects on each party’s future behavior and consequently input into the business relationship.

4.3. Role of Business Relationships One is likely to find at the root of business relationships a ‘‘what can you do for me? what can I do for you?’’ kind of reasoning (Ford et al., 1986). By means of a business relationship, both parties are able to obtain ‘‘something’’ that would or could not obtain alone or at a reasonable cost or timely, and that is to some extent worthwhile – something that resembles Alchian and Demsetz’s (1972) ‘‘team effects.’’ But what propels the firm and the counterpart into a business relationship? Or, as Ford et al. (1998) put it, what can parties offer to as well as demand from each other? The role of business relationships is strongly dependent on relationship nature (Blankenburg-Holm, Eriksson, & Johanson, 1999; Naude & Buttle, 2000; Walter & Ritter, 2003). That is, only ‘‘substantial’’ business relationships (entailing high degrees of mutual trust, commitment, adaptations, and interdependence) are likely to generate more positive than negative outcomes for the firm. This is not to say that the role of a business relationship has no effect on its nature (see, e.g., Ulaga & Eggert, 2006; Walter, Muller, Helfert, & Ritter, 2003; Walter, Ritter, & Gemunden, 2001). One expects that a mutually rewarding business relationship is continually nurtured and sustained by both parties, that is, relationship nature is contingent on relationship role. The nature and role of business relationships change over time owing to: first, firm’s internal change or of counterpart; second, shared initiative of parties; or finally, change taking

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place elsewhere, for instance, in supplier’s suppliers or within indirectly connected business relationships (Hakansson & Snehota, 1995). Business relationships are established, developed, and maintained largely owing to rewarding ‘‘functions’’ that perform presently (or are likely to perform in the future) and the positive outcomes (i.e., ‘‘benefits’’) that are appropriated by both parties. Nevertheless, relationship ‘‘dysfunctions’’ or ‘‘nonfunctions’’ are often performed and thus some negative outcomes (i.e., ‘‘sacrifices’’) invariably ensue to both parties. 4.3.1. Relationship Functions, Dysfunctions, Benefits, and Sacrifices A certain business relationship can perform, at a given point in time, more than one function for the firm. That same business relationship is likely to perform different functions over time and similar relationship functions can be performed in different business relationships of the firm. Relationship functions can be of two types: ‘‘primary’’ or ‘‘secondary.’’ Primary functions bring about relationship benefits and sacrifices that are immediately obtained by the firm and/or ensue independently of connected business relationships or counterparts; secondary functions, on the other hand, generate relationship benefits and sacrifices only in the future and/or depending on connected business relationships or counterparts, respectively (Hakansson & Johanson, 1993a). Secondary relationship functions can be as important to the firm as primary ones (Anderson, Hakansson, & Johanson, 1994). This argument is corroborated by Hakansson and Snehota (1995) who claim that business relationships accomplish functions not only for each and both of the parties involved, but also for other firms directly and indirectly connected to the former. Relationship dysfunctions pertain to the fact that the business relationship does not perform (some or all) functions expected or desired by the firm and/or precludes the performance of expected or desired functions in other, connected business relationships. Relationship benefits include all the positive outcomes accruing to the firm from the performance of any of relationship functions (Anderson et al., 1994). Relationship sacrifices encompass both the costs incurred by the firm and the deleterious outcomes that necessarily result from being involved in business relationships. Relationship benefits and sacrifices are not unconnected: benefits are not obtained automatically, easily or for free, being partly dependent on sacrifices (Gadde & Snehota, 2000). Relationship outcomes, namely benefits and sacrifices, can neither be totally predicted ex ante nor fully quantified ex post by the firm. ‘‘Some [relationship] consequences are quite easy to exposure, measure and quantify; others are

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less obvious, more indirect and more difficult to measure, but no less important’’ (Gadde & Snehota, 2000, p. 307). Diverse benefits and sacrifices are typically expected in different business relationships (Wiley, Wilkinson, & Young, 2006). The division of benefits and sacrifices between parties is not necessarily equitable, depending, for instance, on what is contractually agreed by or the relative power of the parties involved. Relationship benefits are usually weighted against the sacrifices (mostly costs) needed to attain the former (Hakansson & Snehota, 1995). The firm is able to appropriate ‘‘relationship value’’ whenever relationship benefits exceed sacrifices (Anderson, 1995; Blois, 2004, 1999, 2003; Wilson & Jantrania, 1994). Relationship benefits and sacrifices can also be compared to the ‘‘comparison level’’ (CL) and/or to the ‘‘comparison level for alternatives’’ (CLalt), that is, expected relationship benefits and sacrifices (by taking into account the firm’s experience with similar business relationships in the past) and benefits and sacrifices potentially available in next-best substitute business relationships, respectively, (Anderson et al., 1994); and benefits and sacrifices potentially obtainable in alternative governance structures such as hierarchies and markets, that is, if the firm decides to vertically integrate, or instead engage in arm’s-length relations with counterparts, respectively (Zajac & Olsen, 1993). See Sousa and Castro (this volume) on a sixfold list of relationship functions and dysfunctions, and related benefits and sacrifices.

4.4. The Network View of the Business World 4.4.1. Generalized Connectedness One of the basic claims of MAN theory is that B2B markets are not completely atomistic and faceless, for firms do establish, develop, and maintain business relationships with one another. MAN theorists argue thus for both the interrelatedness or embeddedness of firms and the ‘‘generalized connectedness’’ of business relationships (Blankenburg-Holm & Johanson, 1992; Ritter, 2000). The firm’s survival and growth is influenced by and influences to a large degree the survival and growth of counterparts – so-called ‘‘coevolution’’ feature of business networks (Ford et al., 1998). Relationship connectedness implies that what happens within each business relationship affects and is affected by what happens within other business relationships with which the former is (directly or indirectly, positively or negatively) connected to. Business relationships can be indirectly connected (e.g., when two business

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relationships’ connection is mediated by a third business relationship) or positively or negatively connected (e.g., when interaction in one business relationship is dependent upon the existence or absence of interaction in other business relationships).

4.4.2. Networks’ Structure and Development Owing to the notorious connectedness of business relationships, B2B markets are frequently referred to as ‘‘industrial systems’’ or ‘‘industrial networks,’’ thus depicted as intricate networks composed essentially of a myriad of ‘‘actor bonds,’’ ‘‘resource ties,’’ and ‘‘activity links’’ – the three ‘‘substance layers’’ of business relationships postulated in the ARA Model (Hakansson & Johanson, 1992). The ARA model draws upon Cyert and March’s (1963) behavioral theory (e.g., assuming the bounded rationality of actors) while retaining strong Penrose (1959) and Richardson (1972) flavors on corporate resources and activities, respectively. In ARA’s model main assumptions are (Hakansson, 1989, 1987) as follows: actors (namely, firms as a whole or individuals, groups, and departments within firms or even groups of firms) perform activities via deployment of directly and/or indirectly controlled resources (i.e., resources owned by the actor and/or resources accessed and explored via business relationships with other actors, respectively); all three substance layers of business relationships are interrelated, for instance, by strengthening actor bonds one obtains both stronger activity links and resource ties, or vice versa; and firms are ‘‘collective, purposeful actors,’’ ‘‘resource collections,’’ and ‘‘activity structures’’ deeply embedded in networks, which are in turn ‘‘webs of actors,’’ ‘‘resource constellations,’’ and ‘‘activity chains.’’ Business networks are likely to display four prominent features (Hakansson & Johanson, 1988, 1993b): first, business networks are not designed by a single firm and imposed on others, being instead formed and modified through multiplex interaction among firms; second, business networks are opaque for firms have unclear (and not necessarily similar) views of own and of others’ actor bonds, resource ties, and activity links, that is to say, of the network’s overall structure; third, business networks do not have a center, for instance, a firm serving as a network captain or hub; and fourth, business networks do not have clearly defined boundaries (for network boundaries are arbitrary, e.g., drawn in accord to focal actor, technology, country, or product type) – in fact, business networks are unbounded as can extend without limits given the connectedness of business relationships.

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Business networks are elaborate structures wherein stability coexists with change. Within business networks, patterns of ‘‘structuring’’ and ‘‘hierarchization’’ (i.e., stability) are counterbalanced by waves of ‘‘heterogenizing’’ and ‘‘externalization’’ (i.e., change). Hakansson (1992) describes these network processes as follows: structuring as the improved use of known resource dimensions; heterogenizing as the exploration of new resource dimensions or use of known dimensions in novel ways; hierarchization as the increase in control over resources; and externalization (or ‘‘extrication’’) as the decrease in resources’ control. Stability in business networks results from the institutionalization taking place within business relationships through which reciprocal norms of conduct are agreed by parties (review Section 4.2.2.4). Stability – sometimes even inertia – is also a consequence of the (usually high) costs of change faced by firms within business relationships (e.g., switching costs involved in the termination of the firm’s business relationship with supplier A and the initiation of a new business relationship with supplier B). ‘‘Because [business] relationships are substantial, they are not easy to change quickly and changes are likely to incur significant costs, both in disruption and in developing new relationships. This tends to make business markets rather stable.’’ (Ford et al., 1998, p. 43, emphasis in original). Facilitating or blocking a network change is always costly and typically requires the mobilization of other firms and of corporate resources (Lundgren, 1992). Unless mobilizes other firms and resources (through business relationships), the firm will face enormous costs of change and inertia is bound to prevail – the ‘‘heaviness’’ of the network (Hakansson & Ford, 2002). The stability of networks, however, is only apparent insofar as incessant change takes place both within firms and business relationships. Stability is a prerequisite to change – stability (e.g., in actor bonds) reduces the uncertainties of firms, thereby increasing corporate propensity to participate actively in the production and promotion of change (Lundgren, 1992). Change, in turn, is vital for stability. For instance, a change in certain activity links at a given point in time can be crucial for the stability of some actor bonds in the future. Network change is usually incremental and strongly related to the past, that is, path-dependent (Araujo & Harrison, 2002; Hakansson & Waluszewski, 2002), though on occasion can be of a disruptive or revolutionary kind. Connectedness of business relationships implies that any change – occurring at firm or relationship levels – is propagated in a nondeterministic chain effect throughout the business network (Hertz, 1998). Propagation of network change does not ensue in a preordered way

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(e.g., as determined by a powerful firm) or can be absorbed or reflected instead of being transmitted to others. For Easton and Lundgren (1992), firms are both sources and recipients of network change and business networks are sets of ‘‘nodes’’ through which change flows somehow (is reflected, adapted to, absorbed, transmitted, or transformed). One can thus identify five alternative propagation modes for network change: ‘‘reflection’’ (i.e., change initiated by the firm is nullified or reflected by counterparts), ‘‘adaptation’’ (i.e., change remains only within a certain dyad, thus does not affect other firms or business relationships, being modified through bilateral negotiations), ‘‘absorption’’ (i.e., the firm ‘‘incorporates’’ the change only within boundaries, not transmitting it to others), ‘‘transmission’’ (i.e., the firm transmits the received change with minimal or no modifications to the rest of the network), and ‘‘transmutation’’ (i.e., the firm ‘‘transforms’’ the change and then propagates it to other firms). The firm’s behavior toward a certain network change (e.g., reflecting or absorbing it) differs according to the degree to which the change relates to firm’s interests and ambitions and the atmosphere of the business relationship that the firm has with the initiator of that change. Business networks are composed of different types of nodes, therefore reflecting, adapting to, absorbing, transmitting, and transforming network change. The existence of only one type of nodes (e.g., reflecting or transforming ones) would make business networks either totally unchangeable or very unstable. Business networks are neither fixed nor chaotic structures (Wilkinson & Young, 2002). 4.4.3. Managing in Business Networks Business networks are coproduced, self-organizing, and adaptive systems wherein cooperation predominates despite corporate power being unevenly distributed among firms (Wilkinson & Young, 2002). Business networks are characterized by the prevalence of ‘‘political’’ processes by which firms strive with one another and seek support for own interests and objectives. All firms have limited control over counterparts and consequently no single firm controls unilaterally the business network – despite multiple attempts of each of firms in order to increase control over the business network. Business networks thus feature a fierce struggle for network control, a struggle that takes place not only between firms but also within firms – for multiple actors exist at different organizational levels. ‘‘Network control is reached through control over resources and/or activities. Increased control over resources is a matter of increasing the control of resources directly, of increasing the indirect control over other resources via relationships, and

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of reducing indirect control [of resources] by other actors through relationships, that is increasing autonomy. Control of activities is a matter of control over resources and [possession of] knowledge’’ (Hakansson & Johanson, 1992, p. 29). An increase in the firm’s network control is in general achieved at the expense of other firms’ network control but that needs not be always the case. Indeed ‘‘(y) the increased control of one actor may (y) lead to an increased control of some other actors in the network’’ (Hakansson & Johanson, 1992, p. 30). One should not confuse the ‘‘lobbying’’ actions of firms (to increase network power) with the influence of political entities on the establishment, development, and sustainment of business relationships and networks (see, e.g., Hadjikhani, 2000; Hadjikhani & Hakansson, 1996; Hadjikhani & Sharma, 1999; Welch & Wilkinson, 2004 on the latter). The evolution of business networks is continually shaped by a collective networking process beyond any firm’s power or intents. Business networks evolve as multiple interfirm interactions take place over time. Network (macro) order is determined by innumerable dyadic (micro) interactions (Wilkinson & Young, 2002). No firm or coalition of firms can alone influence that undirected process of network evolution to own advantage. ‘‘No-one manages the network, but many have to try to manage in it’’ (Ford et al., 1998, p. 270, emphasis in original). Each firm is but one of many actors having partial influence on both the structure and functioning of business networks. Total control over a business network would render it a extremely large hierarchy (i.e., a firm), probably inflexible and less responsive to change initiated elsewhere (Hakansson & Ford, 2002). Operating in business networks (i.e., networking) is not a straightforward task for firms, as entails ‘‘(y) initiating and responding, acting and reacting, leading and following, influencing and being influenced, planning and (y) improvising, forcing and adapting’’ (Ritter et al., 2004, p. 178). Networking requires simultaneously the combination of cooperation and conflict and the pursuit of self and mutual interests. As Ford et al. (1998, p. 1, emphasis in original) say, networking is about ‘‘(y) working with other companies, but it also involves working against them, through them and often in spite of them.’’ For Hakansson and Ford (2002), networking pertains to coping with three paradoxes intrinsic to the structure of business networks, namely: exploring multiple opportunities while avoiding or minimizing unavoidable threats, influencing and being influenced by counterparts, and increasing and losing control over the business network. Ford, Gadde, Hakansson, and Snehota (2002) elaborate on these three networking tasks, contending that the firm needs to confront or conform to

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the prevailing status quo in the network; consolidate existing or create new network positions; and coerce or concede to counterparts’ goals and intents, respectively.

4.4.4. The Embedded Firm’s Context and Boundaries Empirical studies of MAN theorists demonstrate that the firm is not an isolated and totally independent entity operating in atomistic and faceless markets, by exchanging with counterparts only at arm’s-length distance. The ‘‘real’’ firm is semi-autonomous, being deeply embedded in a variegated texture of interdependences, mostly of an economic, social, and technical kind. The firm itself, as some MAN theorists recognize (e.g., Ritter et al., 2004), is but a network of internal relationships (across diverse hierarchical levels, departments, or functions) somewhat purposefully designed to bring about goods or services (Krackhart & Hanson, 1993). The firm is endowed with only limited resources and competences, thus being in need of external (often complementary) resources and competences for survival and growth. Corporate heterogeneity is both result of and cause for firms’ embeddedness (Dubois & Torvatn, 2002; Hakansson & Snehota, 1989). Whereas some resources and competences are internally developed by the firm, other resources and competences are acquired or accessed and explored through cooperation. The resource and competence base of the firm can be enlarged (or reduced) via purely transactional relations and business relationships with counterparts, respectively. As Ford et al. (1986) note, the firm is not a unilateral ‘‘decision-maker’’ and ‘‘resource controller.’’ Instead of being a mere ‘‘production function,’’ the firm is effectively an ‘‘interaction-oriented’’ unit (Hakansson & Snehota, 1989). The firm does not operate only in a fully hostile and uncontrollable environment somewhere ‘‘out there’’ and comprising a large number of forces (e.g., of political, economical, technological, and social kinds) that exert a strong influence on corporate survival and growth. Besides this broad and faceless environment (that lasts independently of the firm), one needs to acknowledge the existence of a ‘‘context’’ (Hakansson & Snehota, 1989) – or ‘‘an interacted environment,’’ as some MAN theorists call it (Ford et al., 1986). The firm is surrounded by a context, that is to say, a finite set of distinct yet clearly identifiable counterparts with which establishes, develops, maintains, and terminates diverse linkages over time – suppliers, customers, suppliers’ suppliers, customers’ customers, competitors, and so forth. Each context is unique, being co-created and shaped to some extent by the firm and each and every of counterparts – two firms’

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contexts, however, can be partly overlapped (for instance, supplier A and customer B are both a part of the contexts of the firm and of counterpart C). Corporate boundaries – in particular vertical boundaries, separating the firm upward from suppliers and downward from customers – are usually drawn by the hierarchical control of resources and competences. Ownership defined by property rights unambiguously delimitates vertical corporate boundaries (Hart & Moore, 1990). A clear-cut dividing line thus separates the firm from whatever surrounds it (for the most part, an environment). The firm-environment dividing line is one of ‘‘cooperation-competition’’: cooperation only taking place within the firm, and competition only occurring outside it. Two reasons allow one to call into question the realism of such atomistic view: though cooperative efforts abound within the firm, intrafirm political struggles are also frequently witnessed (e.g., Mintzberg, 1985; Pettigrew, 1973), and cooperation necessarily thrives outside the firm (for instance, in the multiple business relationships that the firm and competitors develop and maintain with common suppliers and customers). The firm is not a completely autonomous and clearly bounded entity surrounded by a wider environment over which has in general no influence. On the contrary, the firm is a networked entity without rigid vertical boundaries for is ‘‘constituted’’ to a large degree by the resources and competences owned by all the counterparts existing in context (Hakansson & Snehota, 1995). Corporate vertical boundaries are not fixed once and for all, being instead blurred (owing to the great importance of external resources and competences) and changeable (for those boundaries are continually shaped via the firm’s interaction with counterparts). Some MAN theorists go even further by claiming that the firm is ‘‘boundaryless’’ (e.g., Hakansson & Snehota, 1989). Resources and competences, both internal and external, are critical to the firm’s survival and growth. The borderline between internal and external resources and competences is increasingly fuzzy given the amount and extent of prevailing firms’ interdependences. Internally owned resources and competences are in part out of the firm’s control, while external resources and competences (accessed and explored through business relationships) are partly subject to the firm’s control. The firm holds a particular position in the network (e.g., central or peripheral) – though often is said to occupy several network positions according to diverse vantage points adopted, for instance, by an outside observer or network actor. Network positions result from lengthy, costly, cumulative, and interdependent investment processes (Mattsson, 1989) and are interrelated to diverse extents – not only a change in a firm’s network

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position is likely to have repercussions on the network positions of counterparts but also the firm’s network positions (past and current) restrict as well as offer possibilities for developing network positions and new business relationships in the future. A network position is defined by the several business relationships maintained (and the nature of these relationships and the network position of counterparts), setting limits on the firm’s behavior and enforcing rights and obligations in the network both at present and in the future (Henders, 1992) and providing the firm with a peculiar ‘‘network identity’’ and ‘‘network theory’’ as well as narrowing ‘‘network pictures’’ within or beyond the firm’s ‘‘network horizon.’’ The firm has an identity of its own in the business network in which it is embedded. Network identity is developed through interaction with counterparts and ‘‘(y) refers to the views – both inside and outside the firm – about the firm’s role and position in relation to other firms in the industrial network’’ (Hakansson & Johanson, 1988, p. 373). Alternatively, Anderson et al. (1994) take network identity as the perceived attractiveness (or ‘‘repulsiveness’’) of the firm as a business partner, that perception being of the firm itself and of other firms (i.e., actual and potential counterparts). The firm’s network theory draws to a large extent upon information channeled through business relationships and comprises corporate perceptions, expectations, and intentions regarding existing and potential business relationships (Mattsson & Johanson, 1992). Network theory can be used to influence the network theories of counterparts (e.g., by changing counterparts’ perceptions about whether, and to what extent certain business relationships are complementary or rival), or to create a new or redefine the prevailing dominant network theory (shared to some degree by all firms in a business network). Network theory influences to some extent the firm’s and counterparts’ decisions and actions in business networks. The firm has but a limited knowledge of the surrounding business network in which it is deeply embedded. This limited knowledge is accounted for by the network positions and consequent network horizon of the firm, both of which are likely to change over time. Moller and Halinen (1999, p. 417) emphasize that knowledge generation about business networks is problematic for the firm, while claiming that in-depth knowledge can only be generated by taking part of the business network, that is, by having business relationships with (knowledgeable) counterparts. Nevertheless, the firm is able to ‘‘make sense of’’ the business network via network pictures subjectively devised by managers (Ford & Redwood, 2005). Network pictures are usually pictorial (more or less ‘‘realistic’’) representations of the firm’s immediate context and of what is beyond the

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firm’s network horizon (i.e., the ‘‘visible’’ or ‘‘known’’ part of the overall network) and constitute an important input in the decision making underlying the firm’s networking processes (Henneberg, Mouzas, & Naude, 2006). Richer network pictures are necessarily narrow, addressing the firm’s network horizon and context in detail. Multiple network pictures can be found within the firm, whereas overlaps between the network pictures of multiple firms are also common. Network horizon pertains to ‘‘(y) the part of the network that a firm is aware of and thereby can take into account’’ (Holmen & Pedersen, 2003, p. 409). The firm is necessarily myopic and thus its network horizon is more or less narrow. The firm’s network horizon is capable of being extended or diminished, with the increase or decrease in the firm’s experience in the business network (e.g., by reinforcing existing or developing new actor bonds, resource ties, and activity links). Although the network horizon is often mingled with that of network context – for instance, ‘‘[t]he part of the network within the horizon that the actor considers relevant is the actor’s network context (y)’’ (Anderson et al., 1994, p. 4) – one can argue that network context can include several counterparts of which the firm is unaware of but which affect it in some way. That is, the firm’s context is far more comprehensive than its network horizon (i.e., the counterparts and business relationships that the firm knows about or merely acknowledges). In order to operate effectively in its network context, the firm makes use of ‘‘indirect’’ or ‘‘relational’’ or ‘‘network competences’’ (Ritter & Gemunden, 2003b). These competences are found within all firms to a greater or lesser degree, and can be divided into ‘‘relationship-specific’’ (i.e., dyadic) and ‘‘cross-relational’’ (i.e., ‘‘portfolio’’ and ‘‘net’’) competences (Ritter, 1999). That is to say, network competences are deployed at different levels, enabling the firm to manage: each of business relationships in isolation (and their constitutive interaction episodes), and the portfolio or net of business relationships (i.e., only the firm’s business relationships that are similar, typically supplier and customer relationship portfolios, or all of the business relationships in which the firm is directly involved in, respectively) (Ritter & Gemunden, 2003a). Moller and Halinen (1999) argue for the existence of four types of network competences: ‘‘relationship management competences’’ to establish, develop, maintain, and terminate each of the firm’s business relationships, thus helping to build, protect, or alter positions in the network; ‘‘portfolio management competences’’ to manage (suboptimally) supplier and customer portfolios of the firm; ‘‘net management competences’’ in order to mobilize counterparts (e.g., to promote a desired network change);

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and ‘‘network visioning competences’’ that permit the firm to develop valid knowledge of the business network’s composition and evolution (i.e., by constructing and revising network pictures), hence possibly extending the firm’s network horizon and contributing to the continuous upgrading of the firm’s network theory and the reinforcement (or change) of its network identity. Network competences, like any other competences of the firm, erode over time. So, network competences need to be nurtured by the firm, for instance, through investments on internal resources specifically devoted to the management of business relationships (e.g., up-to-date IT, highly qualified marketing personnel), or continuous efforts in the open-mindedness of organizational culture (e.g., promoting empowerment and informality in work liaisons) (Ritter, 1999). 4.4.5. Strategizing in Business Networks Mainstream theories of strategic management – for example, the ‘‘resourcebased view of the firm’’ (Barney, 1991; Wernerfelt, 1984) or the ‘‘industry and competitive analysis’’ (Porter, 1985, 1980) – depict strategy [intuitively referred to as ‘‘a plan,’’ often of a formal nature, that is to say, a detailed listing of objectives and akin courses of action set to achieve the former (Chandler, 1962)] as an important part of the general manager’s or chief executive officer’s toolkit, to deploy at will with the primary aim of improving the financial performance of the firm (or of corporate businesses) and consequently enhance the likelihood of corporate survival or growth. Strategy, one argues, revolves around the ‘‘most important’’ decisions regarding ‘‘(y) the nature of the business in which a company is to engage and the kind of company it is to be’’ (Learned, Christensen, Andrews, & Guth, 1965, p. 9). The anatomy of corporate strategy (as part of individual and collective commitments to the firm’s present and future) is tentatively set out: ‘‘As the [evolving] outcome of the [never-ending and shared strategy-making] decision process [presided over by executives] (y), corporate strategy is the pattern of decisions in a company that (1) shapes and reveals its [long-term] objectives, purposes, or goals, (2) produces the principal policies and plans for achieving these goals, and (3) defines the business the company intends to be in and the kind of economic and human organization it intends to be’’ (Learned et al., 1965, p. 125). Strategy as such articulated, meticulous plan results from a long-range or strategic planning endeavor, that is, a time-consuming and carefully devised analysis that normally includes market research, competitive intelligence, and environmental surveillance. Top management devises a plan (or a plot)

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that is capable of dealing with the expected trends in customers, competitors, and environmental forces and, most importantly, with the potential impact of those entities and forces on the firm. A stated strategy necessarily includes clear, long-term goals and objectives (e.g., reputation and market share, respectively) and the timed actions by which these goals and objectives are to be attained. Inasmuch as strategy is explicit, it conveys ‘‘(y) both what the company is trying to achieve and how it hopes to achieve it’’ (Christensen, Berg, Salter, & Stevenson, 1951, p. 20). All in all, corporate strategy is clearly rooted in means–ends relations, with the ends being reduced to cut-throat competition of chosen products in selected markets (Ansoff, 1965). Strategy must be formulated in a way that ‘‘fits’’ the uniqueness of the firm regarding its environment; internal resources; managers’ preferences and beliefs; and corporate–social responsibility (Uyterhoeven, Ackerman, & Rosenblum, 1973). That is to say, strategy ought to be tailored to the predicted evolution of opportunities and threats (e.g., posed by political, economic, social, technological, and other environmental forces as well as by the moves of competitors); to take advantage of the firm’s strengths and mitigate its weaknesses, vis-a`-vis those of rivals; to account for the individual idiosyncrasies (e.g., education, risk-taking propensity, ethical standards, religious and political orthodoxies) shaping the firm’s purposes, decision making, and conduct; and to provide what society as a whole expects from it, beyond the pursuit of merely economic targets (e.g., profit maximization within the law). Corporate strategy thus results from matching what the firm might do with what the firm can do, while being influenced or constrained, to varying extents, by both what the firm wants to do and what the firm should do. In short, opportunities and threats, strengths and weaknesses, managerial values and ideals, and ethical or moral standards and social obligations all impose, to varying extents, restrictions upon the strategy to develop and adopt by the firm. After strategy formulation, implementation follows suit. The general manager is to make sure that that implementation is successfully carried out, a task which is affected by the following: first, the kind and extent of leadership effected (and thus the capacity to elicit individual and group cooperation and commitment to proposed targets within ethical customs and other limits imposed to discretion, in spite of diverse interests and expectations); second, the firm’s organizational structure (materialized in the formal authority lines, communication channels, hierarchical levels, and degree of empowerment, as well as the informal workings, arrangements, and relationships prevailing); third, the information and performance

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evaluation and reward systems (ensuring that information is readily available as input to a sound decision making and that both fair and logical compensation or punishment ensue in accord with demonstrated efforts and results and that monetary and immaterial incentives for future performance are also provided); and fourth, the allocation of existing and future resources (i.e., how, by whom, for how long, and why are resources to be employed within the firm in the pursuit of declared targets). This stance of strategy (as a tool at the firm’s disposal that enables it to adapt to a faceless, fully competitive, and uncontrollable environment) configures the so-called ‘‘strategy as fit’’ view, that is to say, that strategy allows the continuous match of the firm to the set of changing environmental forces that affect it largely and over which it has no control or influence (e.g., political, economic, social, and technological ones). The firm searches a never-ending alignment between environmental opportunities and threats and corporate strengths and weaknesses (Andrews, 1971). Thus there exists an environment-led fit and the firm only displays reactivity (if not mere passivity), reacting to (or standing still when in face of ) external changes. In a nutshell, strategy is a means to an end, intentionally devised via formal planning systems (often at the responsibility of the top management team) and implemented at will by the firm, through the deployment of internally developed and/or acquired resources (Ackoff, 1970). Reigning orthodoxy among strategy scholars and researchers portrays the firm – the main unit of analysis in strategic management’s research – as a self-sufficient entity obsessed with the obtainment and renewal of sustained competitive advantages, that is, some sort of lasting advantages over direct rivals (Christensen, 2001; Porter, 1987). The firm is an ‘‘autarchy’’ solely focused on outmaneuvering fierce competitors (e.g., via cost leadership or differentiation) in an industry characterized by intensive rivalry, wherein even suppliers and customers are threatening forces that need to be cope with (Porter, 1979). In order to survive and grow in such cut-throat competition, the firm has to strive for a fit with its surrounding, composed of a large number of (macro) environmental forces (e.g., political, legal, economic, social, demographical, and technological ones). As Axelsson (1992a) claims, the ‘‘dominant’’ perspective depicts the firm as atomistic, struggling for survival in a hostile environment. Axelsson (1992a) identifies two other perspectives on the strategic management field: the ‘‘emerging’’ and the ‘‘missing’’ perspectives that acknowledge, respectively, the existence of pockets of interfirm cooperation (e.g., dyads, triads, and nets) (Astley, 1984; Astley & Fombrun, 1985) and the ubiquity of vertical cooperative

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relationships between firms in the business world (Axelsson & Easton, 1992; Hakansson & Snehota, 1995). Bearing in mind the prevalence of interfirm cooperation in the business world (Blois, 1972; Richardson, 1972) and, therefore, the notorious embeddedness of the firm (Ben-Porath, 1980; Granovetter, 1985), some scholars and researchers begin to challenge the above-mentioned dominant (yet unrealistic) perspective on strategy by making contributions on a ‘‘relational’’ view of corporate strategy – a view that is in line with the works of Hakansson and Snehota (2006, 1989), Normann and Ramirez (1993), Wilkinson and Young (1994), Juttner and Schlange (1996), Ford et al. (1998), Tikkanen and Halinen (2003), Ford and Mouzas (2007), and Baraldi, Brennan, Harrison, Tunisini, and Zolkiewski (2007), and that consubstantiates the missing perspective that Axelsson (1992a) alludes to. Contrary to presumptions of the strategy field doctrine, the relational view of strategy admits that the firm’s conduct (and hence corporate strategy) is neither determined by the environment nor completely autonomous. The networked firm enjoys a considerable discretion, something in between total ‘‘strategic choice’’ (Child, 1972) and ‘‘environmental determinism’’ (Aldrich, 1979). Corporate strategy results not only from the incremental and coherent decisions and actions taken by the firm over time (Mintzberg, 1987; Mintzberg & Waters, 1985; Quinn, 1980) but also from counterparts’ decisions and actions. Strategy in the coopetitive business world is much less competitive in focus, shifting from pursuing victory over counterparts to somehow making it together with those entities. ‘‘Strategy in business markets is not just about the company acting against others, but also often acting with, or through them’’ (Ford et al., 1998, p. 274, emphasis in original). The key message of the relational view of strategy is quite straightforward: the firm is likely to survive or grow – with corporate survival and growth as being ultimate purposes to which aspires – only by the continuous alignment with its environment and especially by shaping its context (together with counterparts and in part to own advantage). Most importantly, the performance of the firm is affected by (and affects) the conduct and performance of counterparts with which is directly as well as indirectly connected via cooperative relationships (Araujo, Dubois, & Gadde, 2003).

5. CONCLUDING REMARKS Adam Smith, Allyn Young, and George Richardson are precursors of network thinking on B2B markets, being among the first scholars who

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contend the need for – and the large benefits resulting from – both specialization and integration (in the form of cooperation). MAN theory arose formally in the mid-1970s as a European full-fledged reaction to the prevailing American view of industrial marketing and purchasing activities, and its dissemination proceeds mostly through books but also via journal papers. Largely descriptive, MAN theory posits the focal firm as an interdependent entity with blurred and changeable vertical boundaries, heavily embedded in intricate networks of connected business relationships. These vertical cooperative relationships exhibit in general a set of distinctive features (e.g., informality, continuity, symmetry, complexity, adaptations, coopetition, social interaction, and routinization). Owing to this elaborate substance, business relationships are capable to perform a diversity of functions (e.g., access, control, efficiency, innovation, stability, and networking), thus allowing the firm to obtain benefits in excess of sacrifices (i.e., relationship value). Business networks are self-organizing and evolving aggregates of (diversely connected) business relationships and firms, and are unbounded, centerless, and somewhat opaque. The firm is inserted in a full-faced, rapidly changing context that includes all the entities with which develops and sustains some kind of corporate linkage (i.e., suppliers, customers, suppliers’ suppliers, customers’ customers, and even competitors). Accordingly, corporate strategy is a pattern of converging decisions and actions of the firm with a twofold purpose: first, the (mostly passive or reactive) fit to a slowly changing, and largely faceless and intractable environment; and the (primarily proactive) interrelation with and shaping of context. To the best of the author’s knowledge, no extensive review of MAN theory is yet provided in the literature on business networks – despite the relevance of some works addressing the theory’s points of departure, analytical and empirical pathways, and upcoming research avenues (e.g., Easton, 1992; Easton & Araujo, 1989; Mattsson, 2004; McLoughlin & Horan, 2000a). Although this paper arguably provides the major review of MAN theory published so far, the author pleads for the update, revision, and even extension of the integrative and synthesizing work tentatively done here.

ACKNOWLEDGMENTS The author thanks Luis M. de Castro for helping to make penetrating inroads into the nonmonolithic and tangled MAN theory, tentatively

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reviewed here. Needless to say, all errors and omissions remain solely with the author. The author acknowledges the financial support of Centro de Cieˆncia e Tecnologia da Madeira (CITMA), through the European Union’s Social European Fund (SFE).

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CHAPTER 9 METATHEORIES IN RESEARCH: POSITIVISM, POSTMODERNISM, AND CRITICAL REALISM Filipe J. Sousa ABSTRACT No scholar or researcher is able to provide robust evidence that counters the scant reflection on metatheory – mostly ontology and epistemology – underlying management studies in general, and industrial marketing and purchasing research in particular. This paper is a contribution to the indispensable discussion of metatheoretical alternatives in research, and most importantly, the strengths and shortcomings thereof, and respective implications on research questions, objectives, and findings.

1. INTRODUCTION ‘‘Metatheory’’ is ‘‘what lies beyond or outside any substantive theory, empirical research, or human practice’’ (Fleetwood & Ackroyd, 2004a). Metatheory thus paves the way for the substantive theory that one is likely to create or endorse, the empirical research that one is likely to undertake (by drawing somewhat on a theory, framework, model, or hypothesis), or the practice that one is likely to effect. Despite the (latent) primacy of Organizational Culture, Business-to-Business Relationships, and Interfirm Networks Advances in Business Marketing and Purchasing, Volume 16, 455–503 Copyright r 2010 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2010)0000016012

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metatheory in analytical and empirical research, metatheoretical discussions are seldom found in papers or books – the notable exception being those in the philosophy field of study. This state of affairs is of concern to scholars and researchers for often leads to incoherent ontological and epistemological assumptions, and most importantly, to unintelligibility of both one’s arguments and others’ criticisms. Any research inevitably builds on a particular ontology (i.e., how the world is), epistemology (i.e., how the world can be known), methodology (i.e., what methods to use in the world’s inquiry), and etiology (i.e., what are the world’s underlying causes). Every scholar and researcher hold to diverse extents those assumptions, thus embracing a distinct metatheory or ‘‘philosophy of science.’’ Scholars and researchers should make metatheoretical commitments unambiguous, if not explicit. Questions set forth and objectives aimed for in research and foremost findings (both theoretical contributions and managerial implications) pointed out by scholars and researchers are all likely to differ according to metatheoretical points of departure. Likewise, any comments on or scrutiny of works need to be made by taking the respective metatheory of scholars and researchers into consideration. Social scholars and researchers adopt often implicitly one of three (mutually exclusive) metatheories (Fleetwood, 2005): ‘‘positivism,’’ ‘‘postmodernism,’’ or ‘‘critical realism.’’ Whereas positivists see the social world as a closed system wherein cause–effect relations can be readily observed or experienced, postmodernists’ diametrical viewpoint is that the social world is fully socially constructed by humankind. For critical realists, the social world is an open system whose existence is largely independent of any knowledge one may have or develop and social science should be critical concerning the social world that aims to tentatively describe and explain. The structure of the paper’s remainder is the following. The next section provides a brief vista on history of science. The third section addresses in detail ontological, epistemological, methodological, and etiological postulates of metatheories that scholars and researchers deploy (for the most part, unknowingly) in social research, namely positivism, postmodernism, and critical realism. Finally, concluding remarks ensue.

2. A VISTA ON HISTORY OF SCIENCE ‘‘Science’’ derives from the Latin word ‘‘scientia,’’ broadly meaning ‘‘knowledge.’’ Science is the rigorous and time-consuming activity through

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which the world is systematically inquired, described, and explained – though one is likely to take science as including all the outcomes produced by that activity. Science pertains to the production and use of theoretical and empirical knowledge by scientists (i.e., scholars and researchers) and to that scientific knowledge per se. Origins of science can be traced back to the 6th century BC when preSocratic philosophers in ‘‘Antiquity’’ (later followed by prominent others such as Socrates, Plato, and Aristotle in 5th and 4th centuries BC) first attempt to discover the world’s governing principles – so-called ‘‘metaphysics.’’ Pre-Socratic Greek philosophers, among which one can find Thales, Anaximander, Pythagoras, Anaximenes, Heraclitus, and Parmenides, are largely responsible for the transition in western thought from the ‘‘myth’’ to the ‘‘logos’’ (the Greek term for ‘‘reason’’) – a radical shift that implied abandoning hitherto common theological or supernatural explanations of the world and searching for and proposing rational, logic explanations instead. From that time onward, the world’s study through logical reasoning or ‘‘philosophy’’ (or in Greek, ‘‘the love of wisdom’’) is underway and kindred ‘‘logocentrism’’ (i.e., the belief that pursuit of ‘‘pure reason’’ leads to the discovery of the world’s underlying substance) predominates. ‘‘The Middle Ages,’’ that is, the western history period between ancient (both Greek and Roman) times and modern era, are heavily marked by a movement known as ‘‘scholasticism.’’ Between the 11th and 14th centuries, scholastics attempt to combine theology and philosophy – the most widely known of combinations being the 13th century synthesis of Christian faith and Aristotelian metaphysics performed by Saint Thomas Aquinas. Medieval inquiry of the world is first conducted at large within monasteries, and later on expanded to other, more proper locations: the first universities created in the late 11th and 12th centuries in Italy, England, and France. Medieval universities founded throughout Europe by then amount to more than 60. The first university ever founded, however, dates back to the 5th century when a learning center of philosophy, astronomy, and other subjects is created in Constantinople (currently Istanbul in Turkey) – formally founded in the 9th century, Constantinople’s university lasts until the 14th century. The postmedieval period, spanning from the 16th century to present times, is ‘‘Modernity.’’ Since the ‘‘scientific method’’ is first proposed in this period, earlier inquiries of the world are considered as ‘‘prescientific.’’ The scientific method is composed of the necessary principles for the performance of (scientific) investigations, namely observation or experimentation of phenomena; formulation of hypotheses concerning the

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phenomena, via ‘‘induction’’ (i.e., ‘‘the move from the particular to the general’’); tests to demonstrate truth or falsity of proposed hypotheses, through ‘‘deduction’’ (i.e., ‘‘the move from the general to the particular’’); and finally, the verification of or the need to modify hypotheses. Usually rooted in the ‘‘empiricist’’ tradition, hence privileging the use of quantitative research methods and techniques (see Section 3.1), the scientific method is first employed in natural science and then ‘‘appropriated’’ massively by social scientists. Modernity includes at least two distinct epochs: the ‘‘Age of reason’’ and ‘‘Age of enlightenment’’ in the 17th and 18th centuries, respectively – some historians nevertheless take the former Age to be a part of the latter. The Age of Reason signals the end of the Middle Ages during which faith commands reason and imposes a scholastic stamp on the world’s knowledge. ‘‘Rationalism’’ (i.e., the belief, that reason rather than experience is the primary source of knowledge) expounded by prominent philosophers such as Rene´ Descartes, Baruch Spinoza, and Gottfried Leibniz, prevails. Rationalist positions are later challenged by ‘‘empiricism,’’ the distinguishing feature of the Age of Enlightenment. Leading empiricists (namely, John Locke, George Berkeley, and David Hume) claim that all that can be known results only from human sensory experience. Empiricist philosophy’s basis, however, is found earlier (in the beginning of the 17th century) when Francis Bacon first proposes the ‘‘inductive method’’ through which one can arrive at universal claims about the world by drawing on multiple observations and experiments and thus discovering ‘‘event regularities’’ or ‘‘constant conjunctions of events.’’ Despite rationalism being in principle opposed to empiricism, one needs to acknowledge that empiricist philosophers are not totally against the use of reason nor do fail to deploy reason (where necessary) in the world’s inquiries. Nineteenth century witnesses the development of ‘‘idealism’’ and ‘‘positivism.’’ These two philosophies seem to be elaborations of rationalist and empiricist standpoints, respectively. While idealism posited by Georg Hegel and others contends that the world is merely composed of ideas (i.e., the world exists primarily as human consciousness or spirit), the positivism of Auguste Comte and John Stuart Mill emphasizes sense perceptions as unique sources of knowledge. One is prone to say that idealism is a reaction to the materialist position that advocates that the world is matter, essentially physical. Materialism is formulated as early as the 4th century BC (when the Greek natural philosopher Democritus first proposed ‘‘atomism,’’ a theory arguing

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for the world as merely including atoms and empty space) and renewed in the 17th century, for instance, by the English philosopher Thomas Hobbes. Early in the 20th century, positivism underwent a period of systematic reflection driven primarily by the ‘‘Vienna circle’’ and the ‘‘Berlin circle,’’ two groups of philosophers and scientists (e.g., Rudolf Carnap and Carl Gustav Hempel, respectively) formed in the 1920s that met regularly to investigate philosophy of science. Karl Popper later on criticizes and extends the positivism advocated by the Vienna circle. Scientific progress during Modernity in both natural and social science (especially in 19th and 20th centuries), at large shaped by the empiricist/ positivist stance, is overwhelming. Major advancements in physics (e.g., Isaac Newton’s ‘‘Law of Gravitation’’), chemistry (e.g., determination of oxygen’s role in combustion and respiration or advancement of the first period table of chemical elements by Antoine Lavoisier), or biology (e.g., theory of evolution by natural selection put forward by Charles Darwin) are all fine examples of steady progress in knowledge of the world. That scientific prolificacy seduces many social scientists into the belief that positivism can do for social science what has done for natural science. Over time, positivism gradually disseminates into almost all fields of social science, including management research. Since the mid-20th century, however, positivism is under challenge. For the most part, philosophers of science are increasingly calling into question the soundness of postmodernism in social science. Responses to positivism, often as a whole referred to as ‘‘postpositivism,’’ can be divided in two: ‘‘postmodernism’’ – also entitled ‘‘poststructuralism,’’ ‘‘(strong) social constructionism’’ or ‘‘(strong) social constructivism’’ – featured, for instance, by Alexandre Koyre´, Thomas Kuhn, or Paul Feyerabend; and ‘‘realism’’ of Roy Bhaskar and Rom Harre´ among others. While sharing an animosity to positivism, postmodernists and realists differ fundamentally on ontology: either the social, mostly discursive construction of the world (postmodernism) or the world’s mind-independence (realism). Realist foundations are laid down by the ‘‘transcendental idealism’’ of the 18th century German philosopher Immanuel Kant (1781 [1999]). For Kant, human experience of the world is about how the world appears to human beings, not about how the world is in and of itself – thus distinguishing between ‘‘things-in-themselves’’ (i.e., ‘‘noumena’’) and human perceptions and conceptions of those things (i.e., ‘‘phenomena’’). Kant takes the world to have a (more or less apprehensible) structure beyond and independent of human knowledge.

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3. ALTERNATIVE METATHEORIES IN (SOCIAL) RESEARCH The world divides into ‘‘natural’’ and ‘‘social,’’ that is, ‘‘nature’’ and ‘‘society,’’ respectively – the former is inquired by natural science and the latter is the object of study in social science. Science (both natural and social) aims to develop and improve human understanding of the world, thus reducing ignorance and liberating humankind from the restricting influence of dogmas and falsehoods on human behavior (Sayer, 2000). Social science in particular enables and encourages societal emancipation by fostering the development of knowledge (Collier, 1998). Emancipation, that is, ‘‘(y) the process through which individuals and groups become freed from repressive social and ideological conditions, in particular those that place socially unnecessary restrictions on the development and articulation of human consciousness’’ (Alvesson & Willmott, 1992, p. 432), requires, however, more than (new) knowledge: changes in the world’s practice, often motivated by that knowledge, are necessary (Sayer, 2000). Scholars and researchers necessarily rely on some assumptions whenever undertaking research. Those assumptions, which every ‘‘good’’ scholar and researcher should be aware of (and if necessary make explicit), concern the following: first, the way the world is thought to be (ontology); second, how the world can be known (epistemology); third, which research methods and techniques to employ in the world’s study (methodology); and finally, what causes make and change the world (etiology). Ontology relates to the nature or substance of the world, that is, the (kind of) ‘‘things’’ that exist in the world. Epistemology, on the other hand, is focused on how human beings can acquire or develop knowledge of the world. Ontology and epistemology are clearly distinguished: the ‘‘nature of being’’ and the ‘‘knowledge of being,’’ respectively (see, e.g., Ackroyd & Fleetwood, 2000a). Methodology is focused on the methods and techniques to deploy in the world’s inquiry, mostly in scientific research. Finally, etiology concerns the causes underlying the world. Ontology is the overriding metatheoretical dimension that strongly influences epistemology, methodology, and etiology. Ontological, epistemological, methodological, and etiological assumptions constitute the ‘‘metatheories’’ or ‘‘philosophies of science’’ of scholars and researchers, namely positivism, postmodernism, and (critical) realism. Although positivists take the world as mind-independent, thus objectively ‘‘given’’ (by observation and experimentation), postmodernists argue that the world is socially (and discursively) constructed by humans; for (critical) realists, the world is complexly brought about by interlocking causes and

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one needs to be critical of the object of study in social research – plain realism is applied only in natural science. Metatheories should not be confused with the substantive theories that one usually employs or devises in research – though any metatheory influences to some extent the substantive theory adopted or created by scholars and researchers. The relation between metatheory and theory is loose rather than tight (Sayer, 2004): having the ‘‘right’’ metatheory does not necessarily leads one to develop a ‘‘right’’ or unchallengeable theory; yet, one is very unlikely to arrive at a ‘‘right’’ theory by drawing on a ‘‘wrong’’ metatheory (though this can happen by pure chance). Both metatheories and theories change – the latter changing more often and sometimes radically. Metatheory and theory are issues infrequently discussed by management scholars and researchers (Tsoukas, 1994). Although metatheory is almost altogether neglected (Fleetwood, 2007b), theory is rarely an object of analysis within management subfields of study. To the best of the author’s knowledge, worthy exceptions on metatheoretical reflections include the following: Tsoukas’ (1989) and Easton’s (2000) arguments in favor of the epistemological suitability of case research; discussions promoted by Lawson (1997) and Fleetwood (1999a) on the adequate metatheoretical basis for economics; Easton’s (2002) apologia for a critical realist standpoint in the industrial marketing and purchasing field of study; discussions on ontological and epistemological issues in management studies primarily from either a postmodernist or realist perspective (e.g., Jones & Bos, 2007; Westwood & Clegg, 2003). Abstract reflections on theory include, for instance, the Academy of Management Review’s 1989 and 1999 fora on ‘‘theory building and improving’’ and ‘‘theory testing’’ (Langley, 1999; Poole & Van de Ven, 1989; Tsang & Kwan, 1999; Van de Ven, 1989; Weick, 1989; e.g., Weick, 1999; Whetten, 1989) and a forum on ‘‘what theory is not’’ (DiMaggio, 1995; Sutton & Staw, 1995; Weick, 1995) and Astley’s (1985) paper in the Administrative Science Quarterly. Where metatheoretical commitments are unclear or remain unexamined (or worse, are ‘‘buried’’ within developed or espoused theories), one is likely to find scholars and researchers at cross-purposes, talking past one another instead of engaging in constructive and intelligible debates. This is the case with some of ‘‘postmodernism versus realism’’ dissensions: see, for instance, a heated skirmish taking place in the strategic management field over appropriate metatheoretical presumptions between Kwan and Tsang (2001) and Mir and Watson (2001, 2000). In the ‘‘battle’’ of theoretical or empirical disagreements, social scholars and researchers often reject the descent to the

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metatheoretical level – on occasion by claiming (in case of metatheoretical flaws clearly identified in one’s work) to be just reproducing ontological inconsistencies of objects of study, for instance, lay persons. Social scholars and researchers know, however, that such reproduction is unacceptable and should instead critically report ‘‘ontological oscillations,’’ that is, identify inconsistencies and comment on possible causes and consequences (Fleetwood, 2005). All scholars and researchers benefit from being explicit about and mindful of own ontology – though there is the remote possibility that a scholar or researcher straddles intendedly two different ontologies (Fleetwood, 2007a). See, for instance, Sousa and Castro (this volume) on a discussion of the causes of relationship significance, by explicitly drawing on a critical realist metatheory. Social science in general and management research in particular, since inception in the first decades of the 20th century, are dominated by positivism. Fleetwood (2007a) advances two motives accounting for the positivist orthodoxy: most of the research methods courses attended by postgraduates in universities draw (at least implicitly) on positivism, focusing exclusively on quantitative methods and techniques; and as the courses on philosophy of science are extremely rare to find in universities, thus leaving absent the valuable discussion on the adequacy and shortcomings of each of the available metatheories. Unsurprisingly, many social scholars and researchers are unaware of the deficiencies of positivism and that metatheoretical alternatives do exist. Some social scholars and researchers, however, start to challenge the dominant metatheory, especially from the 1980s onward. Postmodernism arose as a fierce and shocking reaction to the positivist orthodoxy that claims the world to be objectively available and capable of being easily known by the systematic application of empirical research techniques. The development of postmodernism is often denoted as the ‘‘turn to discourse’’ or the ‘‘linguistic turn’’ in science. The distinguishing feature of a postmodernist view is the belief that the world is not known objectively at all and what is known is merely the sole creation of humankind, that is, the outcome of variegated aims, actions, and interactions, and conventions of humans. Some of those who call into question the suitability of (prevailing) positivism encounter or stumble on what they take to be the only alternative, namely postmodernism – as if only two competing metatheories are available to inform and guide research. The common line of reasoning is that the world is either objective or merely the product of human discourse. It is very common to find postmodernists wrongly treating (critical) realism

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as synonymous with or a disguise of positivism, as if the empirical or naive realism of positivists and the critical (or qualified version of ) realism are the same thing (e.g., Mir & Watson, 2000, pp. 944–945). This explains why many postmodernists think that the only alternative to the spurious ‘‘scientificity’’ of positivism (and useless quest for ‘‘absolute truths’’) is ‘‘relativism’’ or ‘‘conventionalism,’’ that is to say, that truth is relative to proponents or collectively agreed upon, respectively. What is striking is that postmodernists posit an impoverished realism when assume the existence of discursive or ideal entities only (Fleetwood, 2005) – see more on postmodernist ontology (Section 3.2). Rejection of positivism does not mandate an allegiance to postmodernism, for there is (critical) realism. Positivists and realists, despite sharing in part the assumption of a mind-independent world, differ strongly with respect to the existence of observables and unobservables in the world. Positivists take observation and experimentation procedures as primordial ways to attest ontological claims, thus privileging the observable over the unobservable – the ‘‘empiricist prejudice’’ (Fleetwood, 2002a). Positivists thus fail to take the existence of unobservables into account – or at the least neglect unobservables. Realists, however, consider both the observables and unobservables of the world as objects of potential inquiry. The work of some reputed social scholars and researchers is rooted neither in positivist nor in postmodernist metatheories. For instance, widely known economists such as John Commons, Friedrich Hayek, Nicholas Kaldor, John Keynes, Carl Menger, George Shackle, Adam Smith, Joseph Schumpeter, and Thorstein Veblen, and reputed sociologists as Karl Marx and Max Weber, all draw on various forms of realism – despite for the most part not using the term ‘‘realism’’ (Fleetwood, 1999b). Realism is not a recent metatheoretical reaction against postmodernism. No late ‘‘realist turn’’ occurred in science (cf. Contu & Willmott, 2005; Reed, 2005). Yet, realism only gains prominence since the mid-1970s, after the sophisticated variant known as critical realism is carefully articulated and refined by Bhaskar (1975) and others (e.g., Harre´ & Madden, 1975; Sayer, 1984). Collier (1994) addresses the pivotal influence of Bhaskar on the development of critical realism. For incisive introductions to critical realism, see, for instance, Archer, Bhaskar, Collier, Lawson, and Norrie (1998) and Danermark, Ekstrom, Jakobsen, and Karlsson (1997). Popularity of postmodernism notwithstanding, many scholars and researchers are now increasingly prone to endorse critical realism. Indeed, one can find multiple examples of scholars and researchers who adopt (mostly in an implicit way) a realist perspective in social research.

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By acknowledging that the world includes phenomena that exist independently of any knowledge, a large number of scholars and researchers may be called ‘‘minimal realists’’ (Sayer, 2004). Ackroyd and Fleetwood’s (2000b) and Fleetwood and Ackroyd’s (2004a) edited volumes are instances of the growing number of realist-inspired works across various subfields of management, from human resource management through operations management to industrial marketing and purchasing and others. Realism even seems to be the orthodoxy among management practitioners, as Fleetwood and Ackroyd (2004b) and Hesketh and Fleetwood (2006) observe. This paper addresses seriatim the three metatheories that scholars and researchers employ (explicitly or implicitly) in social research. Positivism and postmodernism are both presented at large uncritically, along with (unsound) respective views of ontology, epistemology, methodology, and etiology. Criticisms to positivist and postmodernist standpoints are suspended until critical realism is detailed.

3.1. Positivism Positivism, also often referred to (in various versions) as empiricism, ‘‘foundationalism,’’ ‘‘instrumentalism,’’ ‘‘logicism,’’ ‘‘modernism,’’ ‘‘objectivism,’’ or ‘‘scientism,’’ is the orthodox metatheory deployed in natural and social science. Although one can encounter many versions of positivism, this paper addresses the variant in which positivism is conventionally depicted, or as Easton (2000, p. 212) perceptively says, its ‘‘lowest common denominator version.’’ In general, positivists do not engage in (allegedly useless and sterile) metatheoretical discussions. Positivists just ‘‘get on with research,’’ taking for granted the metatheory available (positivism) and ignoring metatheoretical alternatives (postmodernism and critical realism). Positivism builds on several assumptions: an empirical realist ontology, equivalence of explanation and prediction, large-scale deployment of induction and deduction, and universality of closed systems and the conception of causality as cause–effect relations (resulting from presumed ontology and epistemology). Hempel and Oppenheim’s (1948) analysis of the essential characteristics of scientific explanations is a fine example of the positivist standpoint in science – one encounters passim therein both explicit and implicit references to positivist postulates (see, e.g., p. 142 on latent assumptions of ubiquity of closed systems and constant conjunctions of events).

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3.1.1. Ontology Positivists advocate an empirical realist ontology: there is a world ‘‘out there’’ composed of observable, perceptible, measurable, and quantifiable phenomena, all waiting to be discovered, sensed, and explained by humans. Phenomena, however, exist regardless of human knowledge whatsoever. That is, the world predates human beings though, ontologically speaking, all that exists can be known by humankind (via observations or experiments). In other words, what cannot be observed or experienced is unlikely to exist – at the very least, is ruled out of scientific research. Positivists do not deny a priori the existence of phenomena that cannot be known (i.e., observed or experienced), but are prone to exclude that phenomena from inquiries (Fleetwood, 2001). Some philosophers of science (e.g., Muller & van Fraassen, 2008; van Fraassen, 2004a, 2004b, 2004c) try to extend the scope of empiricism to include phenomena that, despite inaccessible to the naked eye, can nevertheless be observed through the use of various instruments, for instance, microscopes or telescopes. Yet this sophisticated ‘‘empirical stance’’ is not usually taken up by positivists in social research who still privilege that, which can be observed, experimented, and as a result somehow measured. 3.1.2. Epistemology Positivists endorse Locke’s (1690 [1998]) belief that the human mind is born blank – a ‘‘tabula rasa’’ or a ‘‘blank slate’’ – on which the world ‘‘writes’’ through experience of five human senses (namely, sight, hearing, touch, taste, and smell). Positivism presumes a clear-cut distinction between ‘‘subject’’ and ‘‘object’’ – a distinction which Sayer (1984) argues to be strongly rooted in a set of parallel dualisms (e.g., ‘‘reason–emotion,’’ ‘‘mind–body,’’ ‘‘fact–opinion,’’ and ‘‘thought–action’’) in which left-hand terms are unequivocally superior to right-hand ones. Positivism assumes the existence of a direct and largely theory-neutral access to the world, through observation or experimentation. One is likely to find empirical research on which the world’s phenomena are recorded, measured, and quantified, even without the guidance of any substantial theoretical basis (Fleetwood, 2007a). All knowledge of the world results from the observation or experimentation of multiple instances of phenomena, namely ‘‘event regularities.’’ From the application of scientific procedures follows inductive generalization (from the ‘‘sample’’ to the ‘‘population’’ under study) and thus postulation of universal laws governing the world. Positivism features a nomothetical or instrumentalist (i.e., ‘‘law-seeking’’) approach reigns.

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Quest for Truth in Positivist Science. Positivists pursue fiercely the truth of (scientific) knowledge, hence attempting to make that knowledge a perfect mirror or accurate representation of the world. Truth of knowledge claims is assessed through empirical tests of hypotheses (postulated via induction). Truth is established whenever verification is empirically achieved or instead, as Popper (1963, 1959) contends, whenever falsification cannot be attained. Truth is, therefore, obtainable (without major problems) by following the rules of ‘‘good’’ scientific practice. Positivists can thus be accused of foundationalism, for all scientific knowledge produced is given a character of absolute truth (or complete objectivity or validity) in the sense that that knowledge is totally independent of subjectively held beliefs of producers (i.e., scholars and researchers). At the same time, positivists hold in notorious disregard other kinds of human knowledge (especially lay knowledge) – this ‘‘intellectualist prejudice’’ is probably an unintended consequence of the ‘‘enlightenment project’’ wherein positivism first emerges, a project that despite presupposing that scientific knowledge must contribute decisively to ‘‘enlighten’’ society as a whole, benefits mostly the academic e´lite and deepens the intellectual-lay societal division of labor (Sayer, 1984). Positivists take a rather static view on scientific knowledge, seeing that knowledge as a product that once developed by science can be easily stored, accessed, and widely disseminated. The development process of scientific knowledge is characterized by cumulative accretion and is usually not subject to analysis or discussion. Positivists neglect or consider irrelevant the sociology of science, that is to say, the conspicuous (yet not determinant) influence of social conditions of and interrelations among scholars and researchers in the creation, extension, and assessment of scientific knowledge. Prediction and Explanation. The main objective of positivist science is prediction. The unequivocal criterion to evaluate the maturity of a science is the predictive power of that science regarding the object of study. Prediction (as objective) helps to reveal a striking feature of positivist science, namely that positivists, when believe that they are capable of offering more or less ‘‘precise’’ predictions on a phenomenon, also feel capable of ‘‘explaining’’ that phenomenon – and whenever endowed with a ‘‘sound’’ explanation, positivists can also ‘‘predict’’ future occurrences of the phenomenon. The conflation of prediction with explanation, often referred to as the ‘‘symmetry thesis,’’ is recurrently found in positivist science – the primary difference between the prediction and explanation being that the former is

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directed toward future occurrences of the phenomenon, whereas the latter is only concerned with past occurrences. This conflation is discussed at length in the critical realist epistemology (see Section 3.3.2). 3.1.3. Methodology Positivists often employ (sometimes even without acknowledgment) a version of the ‘‘deductive-nomological’’ (D-N) or ‘‘covering law’’ model by which a phenomenon is explained or predicted through logically deducing or inducing the phenomenon (i.e., ‘‘explanandum’’) from both a set of antecedent conditions and the general laws governing such phenomenon (i.e., ‘‘explanans’’; Hempel & Oppenheim, 1948, p. 138). Positivists make an extensive use of induction and deduction in the development of scientific explanations and predictions (D’Andrade, 1986), in general by resorting to quantitative research techniques (e.g., variance and regression analyses, structural equation modeling). That nomothetic research, also labeled as ‘‘extensive’’ (Sayer, 1984, 2000), is tested mostly via replication studies. 3.1.4. Etiology Whenever searching for the cause of an event (i.e., whatever ‘‘produces’’ that event), positivists presume that cause to be another event, typically a preceding one. Events are all that positivists have in the ontological locker: ‘‘[i]f one event is observed or hypothesized, one can seek only its cause in terms of another observed or hypothesized event’’ (Fleetwood, 2001, pp. 206–207). Although events are a priori atomistic, one is likely to find (via observation or experimentation) certain events that are related by successive occurrence over time. Inasmuch as events are constantly conjoined, events’ temporal succession is equated with causality. Cause–effect relations are likely to be readily identified by positivists: that, for instance, the event Y is ‘‘caused by’’ the event X, also possibly styled as ‘‘Y ¼ f(X).’’ An event (measured or approximated in a ‘‘dependent variable’’) is a ‘‘function of’’ the preceding event (measured or approximated in an ‘‘independent variable’’) for changes in the magnitude of the latter account for (i.e., ‘‘explain’’) changes in the magnitude of the former. The obsession with measurement and quantification (in attempt to facilitate statistical manipulation of variables and perform tests of hypotheses) leads positivists to inadequate conceptualizations at least of social phenomena, for the mostly qualitative and multidimensional nature of the social world is overlooked (Hesketh & Fleetwood, 2006).

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Causality is couched in terms of ‘‘functional’’ relations, thus boiling down to constant conjunctions of events, that is to say, (‘‘lawful’’ or ‘‘law-like’’) event regularities (Fleetwood, 2001). These (deterministic or stochastic) laws governing the world are, respectively, styled by positivists as, for instance, ‘‘whenever event X, event Y follows’’ or ‘‘whenever events X, Y, and Z, event W (on average or with K probability) follows.’’ That conception of causality – often denoted as ‘‘Humean causality,’’ after Hume (1739 [1985]) – is valid only in a world wherein closed systems prevail. Humean causality, therefore, implies that the world as a whole is a closed system, which neither contemplates endogenous change nor is subject to varying exogenous influences. According to Bhaskar (1975), a closed system necessarily complies with two closure conditions: absence of internal change within the system of interest (internal closure condition); and constancy of external influences over that system, that is to say, ‘‘other things being equal’’ (external closure condition). An open system fails to meet one or both of closure conditions. The realist view of open and closed systems differs from that of ‘‘systems theory’’ – a transdisciplinary theory founded in the 1950s by the Austrian-born biologist Ludwig von Bertalanffy (1850) who studies the structure and properties of systems. Advocates of systems theory take each phenomenon as a structure, that is, an ensemble composed of several interacting and interdependent parts that give rise to emergent properties (not found in constituents alone) – in contrast to classical ‘‘reductionist’’ approaches focused on a single element of phenomena. Systems theory classifies systems as open or closed depending on the presence or absence, respectively, of the system’s interaction with surrounding environment, whereas critical realists add the requirement of lack of internal change for a system to be closed. Systems theory seemingly takes for granted the inevitability of any system’s internal change.

3.2. Postmodernism Postmodernism arises in the early 1970s as a fierce and shocking reaction to the positivist orthodoxy ruling in the social science: for instance, ‘‘theoryneutral observation’’ postulated by positivism is promptly rejected by postmodernists that endorse instead ‘‘observation-neutral theory’’ (Sayer, 2000). Postmodernism is also frequently called (and incorrectly equated with) ‘‘conventionalism,’’ ‘‘idealism,’’ ‘‘interpretivism,’’ ‘‘relativism,’’ ‘‘(strong) social constructionism’’ or ‘‘(strong) social constructivism,’’ or ‘‘subjectivism.’’ The development of postmodernism is often denoted as the

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‘‘turn to discourse’’ or the ‘‘linguistic turn’’ in science – the notions of ‘‘discourse,’’ ‘‘language,’’ and ‘‘rhetoric’’ (and sometimes even ‘‘thought’’ and ‘‘knowledge’’) are used interchangeably by postmodernists as referring to instruments by which one constructs the world. Although not avoiding reflections on metatheoretical issues (particularly in harsh criticisms of positivism), postmodernists usually overlook critical realism (see, e.g., Frankel, 1986; Heller, 2001; Westwood & Clegg, 2003) and normally conflate philosophy of science with sociology of science – as if social relations within and among scientific communities determine per se the ontological, epistemological, methodological, and etiological assumptions of scholars and researchers. 3.2.1. Ontology Postmodernism’s ontology is difficult to ascertain because postmodernists are in general ambiguous when make claims on the world’s constituents. Although almost all postmodernists admit the centrality of discourse in the discursive construction of the world, some postmodernists make the strong claim that the world is entirely socially constructed by the human mind – or, in other words, the world ‘‘lies in the eyes of the beholder’’ (Berger & Luckman, 1966). A few postmodernists, however, are unwilling to make such a strong claim and adopt – what Fleetwood (2005) calls – a ‘‘weak social constructivist’’ or ‘‘weak social constructionist’’ position postulating that only a part (but not all) of the world is socially constructed and admitting the existence of extra-discursive phenomena. This ‘‘weak’’ version of social constructivism is acceptable to critical realists. One faces a concept- or theory-determined world, a world that does not predate humans and may even not exist or stop existing if one somehow (e.g., discursively) chooses so. The world is a ‘‘figment of human imagination’’: ‘‘wishful thinking’’ prevails (i.e., the world is everyone’s wishes for it) and multiple ‘‘realities’’ are thus likely to exist – as many as available thoughts. 3.2.2. Epistemology Conventionalism and Relativism. For postmodernists, multiple (scientific and lay) knowledge claims can be arrived at via human ingenuity and creativity (Kuhn, 1970) – and, in a truly ‘‘pomo’’ way, ‘‘anything goes’’ (Feyerabend, 1975). The epistemic status of those knowledge claims is determined through human convention, being intersubjectively agreed upon. Postmodernism contends that the absolute truth (strenuously aimed to by positivists) is both meaningless and unachievable. On the contrary,

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the truth of a knowledge claim is ‘‘relative’’ to the extent that boils down to a mere convention: truth is a matter of agreement, negotiation, and collective consensus, therefore never being absolute. Inasmuch as the truth of every knowledge claim (or theory) is always relative to respective proponents or adherents, skepticism is likely to reign. This relativist stance can be expressed in the following way: ‘‘As an X-ist, I believe only in Z and W.’’ Any theory is thus observation-neutral, not being susceptible to corroboration or refutation by the use of empirical data (Sayer, 2000). In addition to this (kind of) relativism – that no knowledge claim can be shown to be better than any other (so-called ‘‘judgmental relativism’’) – one can find ‘‘epistemic relativism,’’ that is, the world can only be known in terms of human discourse.

Science and its Development Process. Postmodernists overemphasize the discontinuities in the development process of science, depicting that process as marked by lengthy periods of stability on occasion interrupted by turbulent ‘‘scientific revolutions’’ or ‘‘paradigm shifts.’’ Kuhn (1970) argues that science is essentially about ‘‘puzzle-solving’’ (i.e., finding solutions to the ‘‘small’’ problems left unsolved by guiding analytical ‘‘paradigms’’). Several of those problems, however, resist solution, in spite of multiple attempts over time to do so with the use of the ruling paradigm: a trial-and-error period is then sure to follow, often culminating with the replacement of the existing paradigm by a new paradigm that is capable of solving the triggering ‘‘anomaly’’ – in Kuhn’s terminology. Whenever embracing such a Kuhnian perspective, postmodernists see scientific knowledge as divided into monolithic blocks, in general mutually ‘‘incommensurable’’ (i.e., unintelligible) and thereby rule out any possibility of theoretical cross-fertilization or of settling potential intertheory disputes. The primary goal of postmodernist science is to uncover the political agendas (and the ‘‘hidden power’’) driving the social construction of the world – see, for instance, Michel Foucault’s (1980) work on the close relation between knowledge and power. Explanations offered by postmodernists concern both whoever produces the world-shaping discourses and why those performative discourses are collectively accepted. Predictions are simply not part of postmodernist science’s agenda. Contra the nomothetical perspective of positivism, postmodernists adopt an ‘‘idiographic’’ approach concerned with the ‘‘particular’’ (and its detailed explanation), disdaining the discovery of allegedly general laws.

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3.2.3. Methodology Postmodernists prefer to employ qualitative methods and techniques in research (e.g., discourse analysis), probably an instinctive reaction to the obsessive preference of positivists for quantitative research. Many postmodernists go further, tacitly accepting Feyerabend’s (1975) ‘‘methodological anarchism’’ that strongly objects to any single (often empiricist) research method as the only pathway to truth of knowledge. Feyerabend argues in favor of the ‘‘methodological pluralism’’ in science, claiming that prescriptive methodological guidelines limit severely the activities of scholars and researchers, and as a consequence, restrict scientific progress. 3.2.4. Etiology Discourse is the fundamental cause governing the world – though one is unlikely to find explicit references to etiology in postmodernists’ knowledge claims and even be perplexed to see that postmodernists, if inquired about etiological assumptions, are likely to suggest that etiology is simply a social construct, hence denying – in antirealist fashion – causality as an objective feature of the world.

3.3. Critical Realism Critical realism is developed by Bhaskar (1975) and others (e.g., Harre´ & Madden, 1975) by building on Kant’s (1781 [1999]) transcendental reasoning. In addition to the endorsed realist viewpoint, critical realism argues for social science that is critical of the (social) world aimed to tentatively describe and explain. Social scholars and researchers are urged to be critical in accounts or claims (i.e., theories, conceptual frameworks, models, or concepts) of objects of study, contributing to and reinforcing the potential emancipatory role of social science. A critical social science features not only research on ‘‘what is’’ but also criticisms on ‘‘what is’’ and developments of ‘‘what might be’’ (Sayer, 2000). Social science must be both positive and normative, therefore describing, explaining, and judging what is the case as well as issuing prescriptions about what should be the case (Sayer, 2004). This normative orientation is accounted for the world being different from what one would like the world to be; otherwise, prescriptions would be dispensable. Critical realism is generally seen as an ‘‘underlaborer’’ and occasional ‘‘midwife’’ for a variety of substantive work in social science (Sayer, 1984).

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Critical realists are prone to reflect deliberately and extensively on metatheory, offering several counterarguments to both positivist and postmodernist worldviews. 3.3.1. Ontology Critical realist ontology postulates the existence of a by and large mindindependent world (Bhaskar, 1975). That is to say, almost all the world’s ‘‘entities’’ and ‘‘events’’ (as well as the ‘‘relations’’ within and among entities and events) exist independently of one’s identification (or knowledge). To think otherwise is to presume that the world is but a reflection of human knowledge – and this is an unfortunate ‘‘intellectualist’’ position. Fleetwood (2005, pp. 198–199) prefers the term ‘‘identification’’ to ‘‘knowledge’’ – of the world as a whole or of its basic constituents – because the former includes the latter (either in tacit or explicit form, i.e., ‘‘know-how’’ or ‘‘know-that,’’ respectively) as well as other human cognitive activities (e.g., observation, experimentation, and even conception and interpretation). Rejection of the Empirical Realist Stance. Diverse entities and events, both of which need not be observable, coexist in the world. In direct opposition to the empirical realism of positivists (advocating that what one can observe is all that exists), neither entities nor events of the world feature necessarily materiality or are confined to the realm of observable. For critical realists, ‘‘observability’’ (or its closest ally, ‘‘experimentability’’) is not the definitive criterion that allows one to make ontological claims. As Fleetwood (2005, p. 199, emphasis in original) says, ‘‘God may or may not be real, but the idea of God is as real as mount Everest (y).’’ Positivists conflate ontology with epistemology and thus can be accused of committing the ‘‘epistemic fallacy’’ (Bhaskar, 1975), reducing the world to what is (or can be) known via human senses. Although the world is composed of entities, events, and relations, one is likely to take entities as the primordial components of the world: relations are established, developed, sustained, and terminated by entities only; and events are ‘‘produced’’ by entities, that is, events are brought about whenever entities’ powers are exercised, under the restriction of several contingencies (i.e., the presence or absence of other entities or the exercise or dormancy of entities’ powers) – see section ‘‘Tendencies’’: The ‘‘Transfactuality’’ of Powers. The World’s Entities. Mind-independent existence applies to all kinds of entities of the world: ‘‘material,’’ ‘‘ideal,’’ ‘‘social,’’ or ‘‘artifactual’’ ones

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(Fleetwood, 2004). As illustrative examples: mountains and rocks, and computers and tables (i.e., material and artifactual entities, respectively) exist regardless of any knowledge one may develop or have of those entities; accounts, symbols, and beliefs (i.e., ideal entities) endure independently of respective proponents’ or adherents’ arguments as well as criticisms of contenders; the United Nations, and the markets and networks in which firms operate (i.e., social entities) exist regardless of respective creators and the scholars and researchers aiming to build knowledge about the latter. Fleetwood (2004) refers to material, ideal, social, and artifactual entities of the world as the four ‘‘modes of reality.’’ Material entities are not devised by humankind (and would continue to exist even in case of human beings’ extinction); on the other hand, ideal, social, and artifactual entities are dependent for existence on the activities of human. Yet, as Fleetwood (2004) argues, only some human beings (namely scholars, researchers, and lay people) and some human activities (in particular those related to identification can be dispensed with) are involved – some but not all of the time – in the reproduction and transformation of ideal, social, and artifactual entities. Fleetwood (2005) makes five remarks on the world’s entities: first, entities are likely to change over time; second, each entity needs not be of a unique kind (e.g., despite usually seen as an ideal entity, a theory can also be considered a social entity since is largely shaped by long-lasting interpersonal relations that scholars and researchers establish, develop, and sustain among themselves); third, social entities, like ideal ones, are in essence immaterial; fourth, some postmodernists (particularly those adopting a strong social constructivist ontology) commit the mistake of merging material, artifactual, and social entities into ideal ones, that is to say, nondiscursive entities into discursive ones – as if extradiscursive phenomena are but an epiphenomena of discourse; finally, critical realists recognize that nondiscursive entities may have a discursive counterpart, that is to say, all material, artifactual, and social entities can be a subject of discourse whereby related ideal entities are created (e.g., a stone and the theory of that stone’s origin and structure). One can discover that the referent of an ideal entity is itself another ideal entity (e.g., a detailed explanation on the evolution of a particular theory; Fleetwood, 2005). Entities’ Relations: ‘‘Necessity’’ versus ‘‘Contingency’’. Critical realists assume the existence of two kinds of relations within and between the world’s entities: ‘‘necessary’’ and ‘‘contingent’’ relations, that is to say, ‘‘necessity’’ and ‘‘contingency.’’ Necessary relations stand for what

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inevitably ‘‘must go together,’’ while contingent relations represent what ‘‘can go together’’ but does not have to. The distinction between necessity and contingency is summed up as ‘‘what must be the case’’ and ‘‘what can be the case,’’ respectively (Sayer, 1984). One should stress that the term ‘‘contingent’’ holds here a different meaning from that usually assumed (which is ‘‘to be dependent on’’), namely ‘‘neither necessary nor impossible’’ or in other words, ‘‘potential’’ (Sayer, 1984, 2000). Although relations between entities are noteworthy, relations within entities can also be identified (i.e., relations between entities’ structural features). All entities of the world are by and large contingently related, though some necessary relations among entities can also be found. The openness of the world (see section Openness of the (Social) World) makes the existence of necessary relations between events very unlikely. Events can only be contingently related, for no constant conjunction of events (or cause–effect relations) can be found in the world. Necessity divides in two (Harre´ & Madden, 1998; Sayer, 1984): ‘‘natural’’ (or ‘‘material’’) and ‘‘logical’’ (or ‘‘conceptual’’). Whereas natural necessity pertains to relations among the world’s material constituents, logical necessity concerns relations among concepts or terms (e.g., as in ‘‘husband– wife’’). Natural necessities often bring about conceptual necessities, that is to say, the former are represented by scholars and researchers via scientific discourse. A relation is necessary (e.g., between the entities ‘‘husband’’ and ‘‘wife’’) in the sense that what each of those entities is depends on its standing in that relation, that is to say, each entity cannot exist without the other (and ultimately without the relation itself ) – the existence of a husband necessarily presupposes a wife’s existence, the change of husband is tied to a wife’s change, and vice versa. On the contrary, when the relation between two entities is contingent, then either of connected entities can exist without the other (and without the relation): as an illustrative example, a ‘‘man’’ can exist without a ‘‘woman’’ (and a man can change without being implicated by, or implicating a woman’s change) as well as the other way around. Necessary relations are not necessarily more important than contingent ones (Sayer, 2000). Both necessary and contingent relations can be equally important for connected entities. For instance, the contingent relation of entity X with entity Y may be as important as (or even more important than) X’s necessary relation with entity Z. The world displays four notorious relations (Sayer, 1984), some of which are addressed in sections below: necessary relations between the elements composing each entity’s structure; necessary relations between the structure and powers of each and every entity; contingent relations between an

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entity’s powers and the effects resulting from the exercise of powers; and contingent relations between an entity’s powers and surrounding contexts. Another relation can be pointed out, in line with Fleetwood (2001): necessary relations between the powers and ‘‘tendencies’’ of an entity – tendencies being the effects that powers usually bring about. See more on tendencies (or the ‘‘transfactuality’’ of powers) in section ‘‘Tendencies’’: The ‘‘Transfactuality’’ of powers. One should bear in mind Sayer’s (1984) notes on change within and symmetry of relations: first, although change can happen within contingent relations (e.g., contingently related entities can ‘‘causally’’ affect each other in terms of respective powers), mutual change prevails only in necessary relations (e.g., an entity’s powers change when the structure of that entity is somehow modified); and second, necessary relations can be asymmetric to the extent that one entity cannot exist without the other (and without that relation) but not the other way around. Although one is able to find both necessity and contingency in the world – some entities are necessarily related while others are only contingently so – positivists take necessity to be absolutely absent from the world (Sayer, 1984, 2000). Positivists support both ‘‘ontological atomism’’ (i.e., ubiquity of discreteness in the world) and the kindred ‘‘universal contingency’’ (i.e., all relations within and among the world’s constituents are contingent). Structure and Powers of Entities. Each entity of the world has a peculiar nature, exhibiting a set of structural properties that are in general interlinked (Fleetwood, 2004). Although all entities are composed of structures (which themselves can be microentities), some of those entities are inserted into other, larger structures (i.e., meso- and macroentities; Sayer, 2000). Consider the following example: firms (as entities) have heterogeneous structures and by connecting with other structures (e.g., suppliers and customers), it is likely that interfirm relationships, nets, and networks (that can be depicted as micro-, meso-, and macrostructures) are brought about. Each and every entity has an intrinsic nature that makes each entity the kind of ‘‘thing’’ that it is and not anything else. By virtue of that nature, each entity is endowed with a set of ‘‘causal powers and liabilities,’’ hence being both capable of doing some things and incapable of doing others (Harre´ & Madden, 1975) – for critical realists, ‘‘causal’’ is tantamount to ‘‘bring about change’’ (Sayer, 2004). For instance, human beings have the powers to reason, talk, and invent (owing to human physiological and social features), and firms have the power to generate goods or services (because of

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heterogeneous resource and competence endowments). Entities’ powers and liabilities can also be denoted as ‘‘dispositions,’’ ‘‘potentialities,’’ or ‘‘capacities,’’ and ‘‘susceptibilities,’’ respectively (Fleetwood, 2001). In line with Sayer (1984), an entity’s liabilities entail the absence of some of the expected or desired powers. For ease of exposition, ‘‘causal powers and liabilities’’ are simply referred to as ‘‘powers’’ henceforth. By placing emphasis on the nature or structure of the world’s entities, critical realism is often charged with the label of ‘‘essentialism.’’ That is, critical realism is presumably focused on the discovery of a fundamental (often singular and fixed) essence of entities through a theory-neutral observation and inductive reasoning. Critical realism, however, should not be confused with essentialism: essentialism aims to identify both ‘‘generative’’ and ‘‘distinguishing’’ properties of entities (i.e., properties that determine what an entity can and cannot do and properties that permit that entity to be clearly distinguished from other entities, respectively); critical realism aims only at the identification of generative properties while acknowledging the possibility of structural changes over time (Sayer, 2000). Critical realism distinguishes between ‘‘essential’’ (or necessary) and ‘‘incidental’’ (or contingent) properties of entities (Sayer, 2000).

Emergence, Diversity, and Potential Exercise of Powers. Entities have usually ‘‘emergent’’ powers. Powers of an entity emerge mostly from the powers of individual structural constituents but also from powers of the relations that that entity develops and maintains with other entities – this is tantamount to say that powers are irreducible to any of (i.e., are more than the sum of) these two referred powers. For critical realists, not only entities have a structure, and as a consequence, powers. Some of (necessary or contingent) relations that entities establish, nurture, and sustain among themselves possess a particular nature, hence being endowed with powers (Sayer, 1984, pp. 104–105). Some scholars and researchers working under the sociologist ‘‘agency-structure’’ framework (Giddens, 1876; Parsons, 1937) claim that relational structures are endowed with powers (e.g., see Elder-Vass, 2006; Fleetwood, 2007a). For those scholars and researchers, ‘‘social structures’’ – such as those of ‘‘families,’’ ‘‘communities,’’ or ‘‘cultural groupings’’ – preexist (extant) ‘‘agents,’’ whereas agents draw on, reproduce, and transform social structures over time: social structures are conditions for, and continuous outcomes of, human agency. In brief, the entities’ relations can be causal. Powers of any relation derive at large from powers of connected entities,

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primarily powers of the two parties directly connected via the relation but also of others indirectly connected to them. Not all entities of a given kind – naturally endowed with a similar nature, that is, sharing a certain set of generative properties – have necessarily the same powers. Similarity at one lower level stratum of the world (e.g., chemical or biological) need not imply similarity at another higher level stratum (e.g., social): for instance, two individuals having the ‘‘same’’ physiological characteristics, some of which may even be unobservable or difficult to determine unambiguously (e.g., equal weight, height, and muscular and cerebral masses), may exhibit radically different cognitive and social abilities. The world’s stratification is addressed in section World’s Stratification: The ‘‘Real,’’ ‘‘Actual,’’ and ‘‘Empirical’’ Domains. An entity’s powers are not necessarily activated or exercised. For powers exist irrespective of ensuing effects (i.e., the result of powers’ exercise). In other words, any power does not depend for its existence on the effects that is capable of generating, that is, the events that power can bring about (Fleetwood, 2001). The tautology that an entity does something because it has the intrinsic power to do so is thus avoided. Yet, though some powers remain intact when unexercised, others are likely to deteriorate if are not put to work, for instance, human powers to ride a bicycle or to speak a foreign language, respectively (Sayer, 1984). Contingencies Affecting the Exercise of Powers. Powers of an entity can remain dormant to the extent that activation depends partly on – and ensuing effects depend heavily on – surrounding, enabling, or constraining conditions (e.g., spatial and temporal conditions, or presence or absence of other entities and even the exercise or inactivation of powers of those entities over time). Surrounding conditions impact primarily on the potential exercise of powers (and as a consequence, ensuing effects) but can also affect the nature of entities, for instance, somewhat contributing to structural change. Sayer (2000) refers to these conditions, both diverse and changeable, as ‘‘contingencies’’ or ‘‘contexts.’’ ‘‘Tendencies’’: The ‘‘Transfactuality’’ of Powers. Owing to the existence of contingencies (e.g., geohistorical ones), entities’ powers act ‘‘transfactually’’ inasmuch as the exercise of powers does not necessarily bring about events expected to ensue (Ackroyd & Fleetwood, 2000a). When a certain power is exercised, normal outcomes may be impeded to be brought about by certain contingencies, namely the exercise of counteracting powers (e.g., an aircraft with the ‘‘power’’ to fly can fail to do so in the presence of severe

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atmospherical conditions). On the contrary, a power acts ‘‘factually’’ when effects are not deflected or countervailed by (the effects brought about by) other powers, for instance, when surrounding contingencies are somehow fixed (Fleetwood, 2001) – such constancy is impossible to ensure in an open world such as the social word, see section Openness of the (Social) World. Effects resulting from the exercise of a power cannot be known a priori; nevertheless, scholars and researchers are usually able to identify that power’s tendency, that is, which effects that power ‘‘tends to’’ bring about (Sayer, 1984). Consider, as an example, power P1 tends to E1 and E2 events. That P1 has a tendency to bring about such events, however, is not tantamount to say that E1 and E2 will inevitably result. A power ‘‘(y) does not always bring about certain effects, but it always tends to. Hence, it acts transfactually’’ (Fleetwood, 2001, p. 212, emphasis in original). In case of hypothetical fixedness of particular contingencies (particularly those that are often conducive to the occurrence of E1 and E2), the power P1 would not tend to but would surely bring those events about. One would be nonsensical if makes the claim that a power tends to a particular event ‘‘only if ’’ certain contextual conditions are met. This realist conception of ‘‘tendency’’ is different from that of positivists for the latter employ ‘‘tendency’’ to connote the statistical character of certain (law-like) event regularities styled, for example, as ‘‘whenever event X, event Y tends to follow.’’ Powers, when and if de facto exercised (under whichever conditions), bring about certain events. Resulting events, however, are not always the ones expected to ensue from powers’ activation (e.g., owing to counteracting powers prevailing). For instance, power P1, under condition C1 (i.e., event E2 owing to activation of power P2), generally brings about event E1; however, under conditions C2 and C3 (i.e., events E3 and E4 generated by P3 and P4 powers, and absence of E2, respectively), that same power P1 generates event E5. Causal Mechanisms and Configurations in the (Nondeterministic) World. The world’s events are codetermined, resulting from the convergence of countless and interconnected powers possessed and exercised by a myriad of entities, under a variety of mutable contingencies. Events and entities of the world are brought about because of several webs of interlocking ‘‘causal mechanisms’’ and ‘‘causal configurations’’ at work simultaneously. Sayer (1984) defines a causal mechanism as ‘‘the given way of acting of a power.’’ A causal mechanism exists whenever a few entities (and internal structures and powers) are interrelated and are as a whole

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responsible for bringing about certain events, under particular contingencies; when those entities are vast in number (and the connection of structures and powers is far more complex), events are brought about by a ‘‘causal configuration.’’ Causal mechanism is an ensemble of powerful structures (i.e., entities). If causal mechanisms are themselves complexly interrelated, a causal configuration is thus operating (see, e.g., Fleetwood, 2007a; Hesketh & Fleetwood, 2007). The distinction between causal mechanisms and causal configurations is in essence one of number and complexity (of causal structures and powers involved) – and the latter encompasses the former, for a causal mechanism is merely a sub-, sub-sub or sub-sub-sub-causal configuration. For instance, one can look at the marketing department of a small firm (including a handful of highly competent individuals) as a causal mechanism capable of ‘‘generating’’ lasting business relationships with both suppliers and customers; however, a large multinational firm (endowed with an enormous amount of valuable resources and competences worldwide) is a causal configuration given that it is able to produce a high volume of throughput (of goods or services for customers) and profits (for corporate owners or shareholders). Not only can one discover interdependences between causal mechanisms and configurations (e.g., strong or weak, strengthening or restricting), but one can also point out a hierarchy of causal mechanisms and configurations in the codetermination of the world (Fleetwood, 2007a; Sayer, 1984). Causal mechanisms and configurations should not be connoted with any kind of determinism – as, for instance, positivists frequently do when deploy the term ‘‘mechanism.’’ In sum, the world is governed by (or, more properly, is the outcome of ) a diversity of cotendencies and countertendencies (brought about by multiple coexisting causal mechanisms and configurations), reinforcing or counteracting one another concurrently. See more on etiological assumptions of critical realists, in section Scientific Research, Mostly of a Qualitative Character. Openness of the (Social) World. Since causal mechanisms and configurations may remain inactive and the effects of powers’ exercise are affected – reinforced or counteracted – by effects brought about by the exercise of other mechanisms and configurations (i.e., events’ occurrence is mediated by the influence of diverse contingencies), ‘‘what happens’’ does not exhaust ‘‘what could have happened’’ (Sayer, 1984). For Bhaskar (1986, p. 209), ‘‘[t]he world is not just the totality of what is actually the case, but includes what might or could be (y) as well.’’ Or, in other words, ‘‘[t]he actual is only a part of the real world, which also consists of non-actualised

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possibilities and unexercised powers of the already existing structures and mechanisms that are transfactually efficacious (y)’’ (Patomaki, 2006, p. 9). The world is not predetermined, that is, the world is not a closed system. Contrary to the determinism implied in general laws postulated by positivists (a consequence of cause–effect relations and constant conjunctions of events allegedly identified), the world is an open system (that includes many open subsystems). In such open systems (and depending on prevailing conditions), the same causal mechanism and configuration may produce different effects (under diverse contingencies); different mechanisms and configurations may generate the same effect; and event regularities, if exist at all, are at the very best transitory or spatially restricted. Not only is the social world an open system, the natural world is also likewise, yet not completely (Sayer, 1984). Whereas no closed systems are found in the social world, very few can be discovered in the natural world (and even those systems are often not susceptible to human manipulation or control). Some ‘‘quasi-closed’’ systems – where one or several causal mechanisms and configurations are dominant, prevailing over others – can however be found in natural and social worlds. For instance, the relative constancy of throughput of a firm’s production process over time (attained via a set of intendedly created routines and conventions) can lead one to consider that firm as a quasi-closed system. It is possible to artificially design closed systems in some experiments of natural science (e.g., in physics or chemistry). The openness of the world is corroborated by the world’s failure to meet the two conditions that would ‘‘close the system’’: first, entities and structures and powers making up the world (or the intricate causal mechanisms and configurations governing it) are prone to change gradually or radically (e.g., human abilities to write, speak, learn, and invent change via instruction and socialization with others); and second, contingencies (affecting both the exercise of causal mechanisms and configurations and resulting effects) also change over time – this ‘‘external’’ change pertains to the modification of structures and powers of certain entities for these constitute themselves contingencies faced by other entities. Sayer (2000, p. 95) points out four barriers to determinism in the world: ‘‘Firstly, whether causal powers (y) exist depends on the contingent presence of certain structures or objects [i.e., entities]. Secondly, whether these powers are ever exercised is contingent, not predetermined. Thirdly, if and when they are ever exercised, their consequences will depend on mediation – or neutralisation – by other contingently related phenomena. A fourth possibility is that natural and social causal powers themselves

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(and not merely whether and in what circumstances they are exercised) can be changed.’’ Despite the overwhelming evidence suggesting the openness of the world, positivists commit – often for the sake of ‘‘methodological convenience’’ – the mistake of treating the world ‘‘as if ’’ is (or could be) closed. And to close the system of interest, positivists necessarily make unrealistic assumptions (e.g., the ‘‘ceteris paribus’’ or ‘‘homo economicus’’ in economics). Critical realists even argue that (known) ‘‘falsehoods’’ or ‘‘fictions’’ are piled up by positivists allowing the latter to artificially engender the closure of the system of interest and evade the possibility of theory’s falsification (Fleetwood, 2002b). The artificial closure of systems entails performing ‘‘fictionalization,’’ not an abstraction as positivists claim. Abstracting is not equal to fictionalizing and the former by no means entails the latter (as seen in Section 3.3.3). ‘‘Ideal’’ or ‘‘fictional’’ systems designed by positivists do not approximate ‘‘real,’’ open ones. And the knowledge arrived at in such contrived closed systems cannot be transposed as valid into open systems (Fleetwood, 2001). Doing that transposition implies committing the ‘‘ignoratio elenchi’’ fallacy because a point would be grossly neglected, namely the nonubiquity of constant conjunctions of events in (and the openness of ) the world. World’s Stratification: The ‘‘Real,’’ ‘‘Actual,’’ and ‘‘Empirical’’ Domains. Bhaskar (1975) notes that the world is stratified, as three different domains or strata can be identified: the real (or the ‘‘deep,’’ as many critical realists refer to it), the actual, and the empirical. Although the world’s entities – and the causal mechanisms and configurations that entities as a whole constitute – reside at the domain of the real (possibly being unreachable to human senses), the exercise of powers and the ensuing effects (i.e., events) can be observed or experienced only at the empirical stratum, thus being at the range of senses. These three ontological domains are contingently related to the extent that the moves from the real to the actual and from the actual to the empirical (e.g., the exercise and manifestation of a causal mechanism, respectively) are possible but not mandatory (Ackroyd & Fleetwood, 2000a). All the observations and experiences made by scholars and researchers or by lay people (at the domain of the empirical) necessarily presuppose the exercise (at the domain of the actual) of powers or causal mechanisms and configurations (residing at the domain of the real), under particular contingencies (again at the domains of the actual and empirical). So, one can understand now why the operation of a causal mechanism may

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be difficult or even impossible to identify empirically (and its effects difficult or impossible to observe or experience), when other (often countervailing) mechanisms are at work and the effects of the latter impede, override, or conceal the effects of the former (e.g., one attempts to open a door that is locked by key). The likes of Sayer (1984, fn. 42, p. 280) notwithstanding, the author does not subscribe to Bhaskar’s (1975) view that causal mechanisms and configurations need to be either unobservable or less observable than the effects that are capable of producing (i.e., resulting events). In short, a stratified, relational, and transformational ontology is presumed by critical realism (Fleetwood, 2001). Diverse and interrelated entities and heterogeneous events can be found (at different strata) within a layered, open, and evolving world. By contrast, empirical realist ontology of positivists conflates the domain of the real with that of the empirical, hence assuming that all that exists is inevitably at the range of human senses. As a result, positivists fail to see the distinction between a causal mechanism, its exercise, and the outcomes there. Positivism features a ‘‘flat’’ or ‘‘depthless’’ ontology (Ackroyd & Fleetwood, 2000a; Fleetwood, 2001). 3.3.2. Epistemology ‘‘Concept-Dependence,’’ but not ‘‘Concept-Determination,’’ of the World. The world is what it is independently of one’s identification (of it). The relation between objects and subjects (i.e., the world’s constituents and scholars and researchers and even lay people, respectively) is contingent for objects exist regardless of any inquiry made on the former by subjects. Contingency notwithstanding, the world is ‘‘concept-dependent’’ for one can know it at length via available (both scientific and lay) discourses. One’s access to the world, however, is partial and mediated. ‘‘[W]e cannot gain access to the world independently of the concepts we use’’ (Fleetwood & Ackroyd, 2004b, p. 3). One cannot step outside discourse to understand the world – such an Archimedean point is inaccessible. The largely nonmaterial (i.e., social) world in particular is for the most part ‘‘concept-dependent.’’ Social entities and events are intrinsically ‘‘meaningful,’’ that is to say, what social entities and events depend strongly on what they mean to humans (Sayer, 1984). As a consequence, meaning is constitutive of the social world. Meaning is created within a language, through the ‘‘play of difference’’ or ‘‘sense-relations’’ among concepts – for instance, two terms being synonymous, antonymous, or heteronymous (Saussure, 1916 [1977]). The entities and events of the natural world, however, are intrinsically ‘‘meaningless’’ since what those entities and events are does not depend on what their meaning is. One is bound to have a single

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and a double ‘‘hermeneutic’’ in natural and social sciences, respectively (Sayer, 1984): in natural science, one sees the construction and sharing of meaning only taking place within scientific communities (e.g., concerning natural entities and events studied); on the contrary, in social science, meaning is developed by and shared within communities of scholars and researchers and also within own objects of study (e.g., inquired social entities themselves). That the world can be known (i.e., described and explained) at large through the use of human discourse – hence that there is no such thing as an ‘‘unmediated’’ or ‘‘neutral’’ access to the world – does not make the world a mere product of discourse. Although the world is largely conceptdependent, it is not completely ‘‘concept-determined.’’ Descriptive and Performative Roles of Knowledge. The world is more than discourse, contra claims of most postmodernists. Even socially produced entities (e.g., concepts, models, or theories) have a remarkable independence from what scholars, researchers, or lay people think of, or say about those entities. ‘‘To acknowledge that most social phenomena are conceptdependent is not to imply, in idealist fashion, that they are dependent on concepts alone, for it takes more than thinking to produce social institutions and practices’’ (Sayer, 2004, p. 19, fn. 9). All postmodernists who endorse a strong variant of social constructionism argue that discourse is all that exists (and as a consequence, that discourse ought to be self-referential). For strong social constructionists, the world as a whole is collapsed into discourse. By assuming the widespread existence of ‘‘wishful thinking’’ (both individual and collective), postmodernism equates ‘‘construal’’ of the world with the world’s ‘‘construction’’ (Sayer, 1984). Although construals may inform constructions (and constructions in turn may be construed differently over time), it is not the case that entities (as diverse as rocks, mountains, water, or social institutions) emerge or change simply because one chooses to discursively create or recreate those entities. For postmodernists, the ‘‘descriptive’’ (or ‘‘denotative’’) function of knowledge is neglected almost in the same proportion that knowledge’s ‘‘performative’’ (or ‘‘constructive’’) role is overemphasized. Since (real) referents are collapsed into respective (ideal) terms or concepts, the epistemic fallacy is again committed (Bhaskar, 1975). Strangely, both positivists and postmodernists commit the fallacy of conflating the world with human knowledge of it – the only difference being somewhat in the way that conflation is effected (Sayer, 2000). Positivists take the world as synonymous with what one is able to know

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about (i.e., empirically observe or experiment), whereas for postmodernists the world is whatever one socially or discursively constructs. Although mind-independent existence applies to both natural and social worlds, the latter is (as critical realists recognize) in part socially constructed. Human agency is to some extent a requirement for the social world’s existence; yet this does not mean that the social world is merely the outcome of discursive human activities (Ackroyd & Fleetwood, 2000a). The world does not change simply because human discourse or knowledge of the world is somehow altered (e.g., racial discrimination is not eradicated when society changes discourse in favor of multiculturalism). Critical realists take this into account and are thus ready to accept a ‘‘weak’’ version of social constructionism. Social World’s (Partial and Mediate) Discursive Construction. At a given point in time, the social world is what it is independently of humans’ conception, knowledge, or discourse. Social phenomena, though partly dependent on agents who create, reproduce, and transform them, generally exist regardless of all scholars and researchers interested in their study (Ackroyd & Fleetwood, 2000a). The social world is only in part a deliberate construction of humankind, being usually not in accord with what human constructors would want the world to be in the first place (Sayer, 2004). Social phenomena, once constructed, gain an increasing independence from original founders, the agents responsible for phenomena’s reproduction over time, and scholars and researchers who possibly inquiry phenomena. ‘‘The social phenomena that confront us today are mostly the product of [discursive and practical] activities carried out before any current observations we make, and while it is occasionally possible for researchers to influence [in the long term] what they study, the latter phenomena are mostly others’ constructions, and not necessarily intended ones at that’’ (Sayer, 2004, p. 7, emphasis added). The influence of human knowledge on the world is both potential and mediate, for that influence can never be effected and frequently occurs in the long term – something surprisingly overlooked by postmodernists. Only some knowledge claims prove influential enough to change de facto the world and even when that is the case, it is mostly past rather than contemporary knowledge that constructs the world. Knowledge is neither powerless nor all-powerful: knowledge is potentially causal, that is, capable to change the world. Contra postmodernists’ idealism, knowledge alone does not modify completely the world (e.g., whenever knowledge is developed or revised, a ‘‘new’’ world is not created or reshaped ipso facto).

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Critical realists recognize the performative role of knowledge, though noting that performativity depends on how knowledge is related to the (extradiscursive) world, that is, the knowledge’s degree of ‘‘practical adequacy’’ (Sayer, 2004). Practice is to a large degree the link between knowledge and the world, as seen below. Existence of both intra- and extradiscursive realms within the world is acknowledged by critical realism, in opposition to postmodernist and positivist standpoints that just take for granted the nonemptiness of the former and the latter realms, respectively (Sayer, 2000). ‘‘Theory-Laden’’ Observation. In spite of the world’s mind-independence (absolute in the natural world, relative in the social world), the human mind is not ‘‘world-independent.’’ When one looks at or perceives the world, some sort of preunderstanding is always present (e.g., a frame of reference, conceptual framework, theory, or mere belief), though it is not often reflected on or even noticed. As Kant (1781 [1999]) reasons, ‘‘perception without conception is blind,’’ whereas ‘‘conception without perception is empty.’’ Human senses are inevitably ‘‘conceptually tainted.’’ Critical realists assume that human observation is theory-laden or ‘‘conceptually mediated,’’ instead of the theory-neutral observation postulated by positivism. Knowledge, Practice, and the World. One understands the world (and develops knowledge of it) by observing, experimenting, and most importantly, practically intervening on the world. In addition to knowledge resulting from the world’s observation and experimentation (epistemological means privileged by positivists), a great part of knowledge is obtained through both practical intervention in the world and human interaction and communication (Sayer, 1984). The relation between knowledge and the world is not one of ‘‘correspondence’’ or ‘‘mirroring’’ involving the pursuit of (unsound) absolute truth. This relation is not merely contemplative or passive but rather interactive and characterized by (a degree of) practical adequacy. For knowledge, instead of aiming to be in positivist fashion a mirror of the world (i.e., ‘‘absolutely true at all times’’ or ‘‘true with a capital T’’), needs to be to some extent ‘‘practically adequate.’’ Knowledge, besides describing and explaining (hence enabling reference to) and constructing in part the world, informs and guides practice within the world. So, referential, performative, and practical functions of knowledge all need to be affirmed. Knowledge and practice are ‘‘reciprocally confirming’’ as each both

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legitimates and is legitimated by the other (Sayer, 1984). Given reciprocal confirmation, changes in knowledge and practice usually go hand in hand. Inadmissible Judgmental Relativism. Despite accepting postmodernism’s epistemic relativism, critical realism rejects judgmental relativism: though the world is largely known via discourse (i.e., necessarily under some description or from a particular perspective), humans can still assess which accounts (in general only a few) are more practically adequate than others. For there is always to some extent feedback from the world owing to human practical interventions within it (Sayer, 2004). The ‘‘relativity’’ of truth upheld by postmodernists impedes (or at the least implies the suspension of ) the assessment and comparison of practical adequacy of diverse knowledge claims and thus evades the possibility of claims’ falsification. The idea that ‘‘anything goes’’ seems unsound for judging the practical adequacy of knowledge. This is in agreement with that humans do inevitably all the time in everyday life, to avoid undesired practical consequences, for instance, when looking for cars before crossing a road (Sayer, 1984). The common posture of postmodernists is to accept all knowledge as equally valid; yet some postmodernists take the alternative route that is to doubt all knowledge. This latter choice is mindless as well because, as Sayer (2004) notes, to be skeptical about a knowledge claim implies accepting the truth or validity of other claims used as grounds for that skepticism – that is, one cannot call into question everything. Critical realists take as a fallacy the postmodernist idea that unless one has ‘‘true’’ knowledge, one is only left with total absence of knowledge, or in other words, complete ignorance. The critical realist argument is that humans find themselves most of the time somewhere between these two poles. Multiplicity and (Uneven) Fallibility of Knowledge. Theoretical pluralism is acknowledged and fostered by critical realists. Human beings develop multiple and unevenly practically adequate (and often contradictory) accounts of a ‘‘single’’ world, with all of those accounts remaining open to challenge. There is no indisputable knowledge, scientific or lay – though these two kinds of knowledge naturally differ (Fleetwood, 2005). All knowledge is fallible, but not equally so: treating all knowledge as equally fallible would be a mistake as dangerous as that of treating all knowledge as equally true. Critical realism is at odds with any kind of ‘‘foundationalism’’ or ‘‘taken-for-grantedness.’’ ‘‘It is the [common] experience of the fallibility of our knowledge, of mistaking things and being taken by surprise (y),’’ as

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Sayer (2004, p. 6) says, that lends weight to realist conviction. Ontological realism and ‘‘epistemological fallibilism’’ are two sides of the same coin. The ‘‘relative’’ fallibility of knowledge is unrecognized by positivists that privilege scientific knowledge to the disfavor of lay knowledge. And postmodernists implicitly take all knowledge as unerring (because of knowledge’s performativity). Postmodernists try to distance themselves from positivists by endorsing relativist and in many cases, strong social constructionist viewpoints. But strikingly, postmodernists are prone to be as foundationalists as the ones they argue against. First, if discourse exhausts completely the world (i.e., wishful thinking prevails), then human knowledge ought to be infallible. For it is contradictory to accept the fallibility of knowledge while simultaneously acknowledging that knowledge is capable of constructing the world as a whole. Second, relativism allegedly promotes ‘‘open-mindedness,’’ eschewing any form of absolutism. By taking all accounts as relative (i.e., equally ‘‘true’’), postmodernists have an excellent excuse to avoid any criticisms whatsoever (e.g., of an empirical character). That escape from counterarguments possibly contributes to the perpetuation of the status quo. In sum, a different kind of foundationalism is to be found within postmodernism. The Objectives of Science. Critical realist science aims to understand or make sense of (i.e., describe and explain) the many-sided world one inhabits. The difficulties of making science stem not only from the multidimensionality and mind-independent existence of the world, but also from the world’s nonperennial nature (i.e., its never-ending, usually gradual yet at times drastic change). Bhaskar (1998, 1975) notes the presence of transitive and intransitive dimensions in science. This means that science comprises (‘‘ontic’’) objects of study and (‘‘epistemic’’) resources that scholars and researchers employ to inquire those objects (e.g., theories, research techniques, and so on) – while the latter are likely to change continuously (sometimes even radically), the former endure (regardless of latter’s influence) though are not immutable. Scholars and researchers (and lay people) face stable but not static referents (i.e., the world) and develop references to (namely description and explanation of ) referents, partly via stable but not static terms, models, and theories. World’s Descriptions, Explanations, and (Tendential) Predictions. Science strives to discover the nature of world (i.e., entities’ powers, liabilities, and tendencies) and thus to increase human ability to explain the occurrence of

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events (Secord, 1986). Scholars and researchers aim to develop robust yet tentative theories (i.e., descriptive and explanatory ‘‘causal accounts’’) of extant causal powers, mechanisms, and configurations at work that are potentially responsible for bringing about inquired events (Fleetwood, 2007a). Critical realist scholars and researchers attempt to develop a ‘‘bird’seye view’’ on the phenomenon of interest, instead of the ‘‘god’s-eye view’’ pursued by positivists (Sayer, 2000). Critical realist research switches from the domains of the ‘‘empirical’’ and ‘‘actual’’ to the domain of the ‘‘real,’’ that is, from observed and experienced events to the entities and powers (or causal mechanisms and configurations) ultimately responsible for the former’s occurrence (Ackroyd & Fleetwood, 2000a). As Lawson (2001) reasons, critical realism stresses the need to ‘‘go back to reality.’’ Whenever holding sound knowledge on the world’s causal mechanisms and configurations and on prevailing contingent conditions, scholars and researchers are often capable of assessing the ‘‘causal efficacy’’ of co- and countertendencies at work, hence possibly providing ‘‘highly qualified’’ predictions about the likelihood of the occurrence of certain events. So-called ‘‘tendential predictions’’ about the future, though not totally accurate, are certainly not of a spurious quality (Fleetwood, 2007a). The outcome of the conflux of several co- and countertendencies prevailing is impossible to predict outrightly: ‘‘[T]he future (y) is real but not yet determined and therefore consists of a multiplicity of different possibilities (y)’’ (Patomaki, 2006, p. 29). Which of converging or opposing tendencies are more forceful and likely to prevail is a matter to be assessed empirically by scholars and researchers (Fleetwood, 2004). Against allegations of positivists (e.g., Hempel & Oppenheim, 1948), the maturity of any science is unrelated to its predictive power – for the openness of the world makes highly improbable the existence of such absolute power. Descriptive and explanatory powers of science (that can always be improved or extended) are much more adequate as epistemic criteria for evaluating scientific knowledge. Positivists are only capable of offering predictions of a spurious precision and ‘‘emaciated explanations’’ at the most (Hesketh & Fleetwood, 2006, 2007). The phenomenon to be explained (explanandum) is logically deduced from both a universal regularity (commonly expressed in a law) and a set of initial conditions (explanans) – review the ‘‘logicism’’ of the deductivenomological model used by positivists in Section 3.1.3. No explanation of what produces the phenomenon of interest is, however, given. Positivists confuse prediction with explanation (so-called ‘‘symmetry thesis’’), the only difference between these two being in the occurrence of the phenomenon to

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be explained or predicted: explain the phenomenon after its occurrence (what may also be called ‘‘postdiction,’’ i.e., to ‘‘predict’’ the past) or predict the forthcoming occurrence of the phenomenon, respectively (Fleetwood, 2002b). A prediction, even if accurate, does not constitute per se an explanation. Positivists offer for the most part ‘‘nonexplanatory’’ predictions and on occasion a few ‘‘nonpredictive’’ explanations. Given the openness of the world (and the transfactuality of entities’ powers), events cannot be accurately predicted although underlying causes (i.e., causal mechanisms and configurations) can often be uncovered by scholars and researchers. Explanation supplants (tendential) prediction as the ultimate purpose of critical realist science (Fleetwood, 2001) – though the former serve as source for the latter. Practically Adequate, Incomplete, and Revisable Scientific Knowledge. Science aims to develop an increasingly practically adequate knowledge of the world. Since scientific knowledge varies in epistemic status (being more or less practically adequate) and is necessarily incomplete and revisable, a great part of scholars’ and researchers’ time is devoted to assess and improve the degree of practical adequacy of that knowledge. This difficult but not all-or-nothing task of scholars and researchers adds up to ‘‘epistemic gain’’ (Sayer, 2004, 1984). Incompleteness of knowledge claims is primarily justified by the world’s many-sidedness and continuous change, though also derives in part from the lack of knowledge on possible contingencies and the way these contingencies impact on effects resulting from the exercise of powers (even when there is knowledge about entities and causal powers, mechanisms, and configurations at work). Incompleteness can always be found in scientific work on account of ‘‘abstractions’’ that scholars and researchers make in research (i.e., ‘‘something’’ is consciously left out of descriptions and explanations) or deliberate and partial trimming of knowledge (for preexisting stock of knowledge possessed by other scholars and researchers renders unnecessary the completeness of arguments). Context-Dependence of Scientific Knowledge and the Need for Reflexivity. Science is in part as a social, by and large male-dominated activity (Sayer, 2000). Scientific knowledge is to some extent socially constructed, being affected by social relations that scholars and researchers establish, develop, and maintain among themselves. Scientific knowledge emerges, thrives, and endures on the basis of negotiated consensus between theory developers and users, within respective scientific communities – sociology of science thus

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deserves acknowledgement. Of course, this is not to imply – as postmodernists claim – that scholars’ and researchers’ interrelations are the unique (or primary) determinants in the development and evaluation of scientific knowledge, for intellectual scrutiny features eminently in that process. All human knowledge (not only scientific) is partly a social construction. Knowledge is always ‘‘situated,’’ bearing the marks of its social origins and molded by the social background of knowledge’s proponents, adherents, and even fiercest contenders (e.g., gender, race, personality, or personal values). One cannot assume the ‘‘context-independence’’ of knowledge (Sayer, 2000). Moreover, the form of produced knowledge also impacts on content. For critical realists, the deployment of metaphors and analogies in scientific knowledge is unobjectionable, as admissible as that of logic and even quantitative techniques. For example, in the industrial marketing and purchasing field of study, Easton and Araujo (1993) and Alajoutsijarvi, Eriksson, and Tikkanen (2001) both address the widespread use of metaphors in so-called markets-as-networks theory. Easton and Araujo (1997) go even further by suggesting that literary criticism bears resemblances with criticisms made by management scholars and researchers on own (and others’) conceptual and empirical works – an argument that is not senseless if one reflects on the habit of referring to a particular body of theory as ‘‘literature’’ (Massey, 1996). Positivists, on the contrary, discard all kinds of nonlogical or nonmathematical reasoning in science. The ‘‘context-dependent’’ character of knowledge makes ‘‘reflexivity’’ advisable, particularly with respect to scientific knowledge (Bourdieu, 2004). Reflexivity denotes all efforts to critically expose the social context in which knowledge is created, developed, and assessed. This is not to say that either ad hominem or ad feminam arguments (opposing the male or female making the knowledge claim, not the claim in and of itself) are admissible. To admit (enabling or constraining) social influences on any kind of knowledge is not an invitation to grant ‘‘epistemic authority’’ to the claims of an individual or group (whether dominant or oppressed). ‘‘Situatedness’’ and (Tentative) Objectivity of Scientific Knowledge. That scientific knowledge is situated needs not threaten its objectivity, imply the absence of knowledge’s practical adequacy or signal a relativist position. Science is never ‘‘value-free’’; yet ‘‘value-ladenness’’ does not forego the possibility of aiming at objectivity in research and the scientific knowledge developed. Sayer (1984) exposes three meanings for the notions of ‘‘objectivity’’ and ‘‘subjectivity’’: ‘‘value-neutrality’’ or value-ladenness of

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knowledge, presence or absence of truth in knowledge, and that knowledge pertains to the nature of objects or to what subjects think of those objects. Scientific knowledge is both objective and subjective (in the third abovementioned sense) for it is developed by subjects (scholars and researchers) about objects of study (the world). Although scientific knowledge is (like any other knowledge) ‘‘value-laden,’’ it is not necessarily ‘‘untrue’’ or subjective. Overly subjectivist conception of values is a prominent presumption of positivism. It is not the case that one has either some ‘‘pure,’’ value-free, objective science or instead the complete absence of science, that is, ‘‘purely subjective’’ opinion, fiction, or fantasy. That knowledge claims are ‘‘epistemically relative’’ (i.e., partly shaped by social and cultural backgrounds) does not mean one has to accept judgmental relativism and thus assume that it is impossible to differentiate between ‘‘better’’ and ‘‘worse’’ (or more and less practically adequate) knowledge claims. For instance, one might know ‘‘something’’ about the significance of business relationships for the firm (see Sousa & Castro, this volume), without knowing that with absolute certainty and even without being able to explain every causal power, mechanism, or configuration possibly bringing that significance about. In this case, if one takes the decision to abandon what one does know about relationship significance on (pomo) grounds that one knows nothing at all, one would be abdicating own (mandatory) intellectual responsibility. ‘‘Abstract’’ and ‘‘Concrete’’ Levels in Research. Critical realist research is undertaken at ‘‘abstract’’ level (of tentatively identified entities’ structures, powers, and tendencies, or causal mechanisms and configurations at work) or at ‘‘concrete’’ level (of prevailing contingencies and observed or experienced events) or at both levels (Sayer, 1984). At abstract (or ‘‘conceptual’’) level, structures of entities as well as entities’ powers and tendencies or causal mechanisms and configurations that entities as a whole constitute, are all conceptually postulated. Conceptualizations may be arrived at or only tested after being heuristically posited, and corroborated or altered via research undertaken at concrete (or ‘‘empirical’’) level. Empirical research, while not absolutely necessary for identifying structures and powers of entities or causal mechanisms and configurations at work, is helpful in clarification of effects resulting from the exercise of those causal phenomena (given the presence of diverse contingent conditions). Critical realists substitute practical adequacy for truth as the key criterion for evaluation of scientific knowledge resulting from both abstract and concrete research.

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Assessment, Extension, and Improvement of Scientific Knowledge. Contra allegations of many antirealists (not only positivists), critical realist knowledge developed is not tautological. Critical realists, in face of certain causal mechanisms and configurations at work (and possibly observed or experienced in concrete research), cannot justify the nonoccurrence of expected events (i.e., empirical ‘‘manifestation’’ of postulated dominating tendencies) with the argument that ‘‘some countervailing causal phenomena must be prevailing.’’ To discover which of tendencies prevail (and which do not) at a certain contextual setting and point in time is an empirical (yet not necessarily easy) matter. Falsification of knowledge claims is not avoided by the appeal to countertendencies or counteracting causal powers, mechanisms, and configurations. If expected events are not brought about, scholars and researchers are impelled to develop knowledge on countervailing structures, powers, and tendencies, and most importantly, why these latter override the allegedly prevailing former tendencies (i.e., to say, the relative contribution of all postulated causal powers, mechanisms, and configurations to the generation of observed or experienced events). Empirical evaluation is insufficient to verify or falsify once and for all scientific knowledge. All empirical research needs to be both ‘‘theoretically informed’’ and ‘‘theoretically informative’’ (Sayer, 2000). Critical realists thus endorse a spiral-like approach to theory and evidence in research: evidence accumulated by scholars and researchers is likely to react back on (initial) theory, possibly causing theoretical (re)evaluation and as a result the change, extension, or even rejection of that theory. For instance, after postulating the existence of a causal mechanism, scholars and researchers are urged to determine (empirically) if that mechanism acts the way it is supposed to act and does bring about the event that is to be explained. Cross-Fertilizing Scientific Knowledge. Critical realists do not see scientific knowledge as composed of discrete analytical blocks. Any theory is difficult to delimit since it is not clear where to draw theory’s temporal and spatial boundaries of applicability (Dubin, 1969). In antirelativist fashion, theories are ‘‘internally differentiated’’ but overlapping. One recognizes the heterogeneity of theories and argues: first, that theoretical cross-fertilization is not only possible but desirable also – for alternative theories are not in general mutually exclusive, emphasizing different and one-sided aspects of the world, and therefore, likely to overall enhance description and explanation of underlying causal powers, mechanisms, and configurations at work; and second, that almost endless intertheory disputes easily found throughout

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science may be solved by drawing on theories’ ‘‘areas of agreement.’’ Both the existence of (strong and weak) connections among theories and the possibility of establishing and developing new intertheory linkages deserve acknowledgment. The development process of scientific knowledge is neither wholly continuous nor totally discontinuous, against respective claims of positivists and postmodernists. The standpoints of scholars and researchers as well as espoused theories are not necessarily absolutely antagonistic or ‘‘incommensurable.’’ ‘‘Incommensurability’’ of rival theories alleged by Kuhn (1970) or by his followers is an overstatement: ‘‘[W]here theories are in contradiction, that implies they have something in common over which they can contradict one another’’ (Sayer, 2004, p. 8). Synthesis, that is, the common outcome of cross-fertilization, is feasible. Eclectic understanding that is likely to result from synthesis, instead of (needed but insufficient) specialist understanding, needs further promotion in research (Fleetwood & Ackroyd, 2004b). Critical realism dispenses with ‘‘disciplinary parochialism’’ and its close relative ‘‘disciplinary imperialism’’ (Sayer, 2000). Some influential scientific knowledge produced is in essence inter-disciplinary (e.g., evolutionary views of the business world). 3.3.3. Methodology Critical realism advocates that the object of study of any science should dictate the research method to employ – while acknowledging that the primary aims pursued by all scholars and researchers are the (tentative) description and explanation of the world’s phenomena (Sayer, 1984). Need for both Structural and Etiological Analyses. To attain science’s primary aims, scholars and researchers need to undertake structural and etiological analyses of the world (Sayer, 1984). As a result of these analyses, structures, powers, and tendencies of the world’s entities and prevailing contingencies can be described; and the ensuing events can be explained by appeal to causal powers, mechanisms, and configurations at work, respectively. Both structural and etiological analyses are typically qualitative and involve a process of abstraction that can be on occasion supplemented by the use of quantitative techniques (e.g., ‘‘variance analysis’’ largely favored by positivists). The deployment of any quantitative apparatus generally implies subscribing to assumptions (even if transitory or spatially partial) of closed systems and Humean causality. It is thus very difficult to reconcile qualitative and quantitative research methods on the same research.

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Abstracting from (Features of) the World. Critical realists take abstraction (i.e., isolation in thought of a one-sided feature of a particular, multidimensional phenomenon) as the primary tool at the disposal of scholars and researchers. To focus on a particular feature of the phenomenon of interest (i.e., to abstract from all other, deemed irrelevant, features that together constitute that phenomenon) is a proper way to inquire the complex and many-sided entities and events of the world. Abstraction should not be confused with ‘‘reductionism’’ (i.e., to explain a many-sided phenomenon by ‘‘reducing’’ it to but one of multiple constituents). Treating the world’s phenomena as ‘‘unidimensional’’ – a regular mistake committed by positivists – is not tantamount to abstract (Sayer, 1984). Nor should abstraction be confused with fictionalization (as in, e.g., neoclassical economics). Abstractions, namely analytical decompositions or ‘‘deconstructions’’ of the world, must be made very carefully (e.g., to avoid ‘‘dividing’’ what is indivisible or creating fictions). Recurrent abstraction from time is counterproductive for it implies the neglect of change (e.g., taking place within structures, causal powers, mechanisms, and configurations, or contingencies; Sayer, 2000). Understanding the world, via systematic recourse to abstraction, proceeds as follows: by starting from the multidimensional world (and abstracting from all but one of its features), one is likely to grasp the unidimensional; then by effecting all the necessary abstractions to fully deconstruct the world’s multidimensionality; and, later on by combining or synthesizing the knowledge accruing from each of the world’s one-sidedness abstractions, to (tentatively) understand the many-sidedness of the world. Simply put, world - abstractions and abstractions - world. Even when all three steps are taken, one cannot be certain that scholars and researchers are able to develop a thorough understanding of the world (in part owing to its continuous and unpredictable change). ‘‘Retroducing’’ and ‘‘Retrodicting’’. In addition to abstraction, scholars and researchers are advised to employ in research both ‘‘retroduction’’ and ‘‘retrodiction’’ processes, whereby: causal powers, mechanisms, and configurations (capable of producing inquired events) are postulated; and previous knowledge of other causal powers, mechanisms, and configurations (e.g., knowledge produced at more or less ‘‘distant’’ fields of study) is brought to bear on the object of study, respectively (Lawson, 1997; Sayer, 1984). Retroduction (or ‘‘abduction’’) is a mode of inference that, starting from a phenomenon of interest, enables the postulation of a structure, power, or tendency (or a causal mechanism or configuration) that may

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account for the occurrence of that phenomenon. One can take advantage of Lawson’s (1997, p. 24) insightful description of retroduction: ‘‘If deduction is illustrated by the move from the general claim that ‘all ravens are black’ to the particular inference that the next one seen will be black, and induction by the move from the particular observation of numerous black ravens to the general claim that ‘all ravens are black’, retroductive or abductive reasoning is indicated by a move from the observation of numerous black ravens to a theory of a mechanism intrinsic (y) to ravens which disposes them to be black.’’ Retroduction thus displaces induction and deduction as preferred mode of inference. The use of induction and deduction, as heavily espoused by positivists, is insufficient for the development of robust scientific knowledge. Science is in essence a creative, both individual and collective endeavor that makes extensive use of abstraction, retroduction, and retrodiction. Scholars and researchers develop knowledge of the world by: abstracting from (i.e., omitting) relatively unimportant aspects of objects of study; retroducing to (i.e., postulating the existence of ) certain causal powers, mechanisms, or configurations that can be responsible for bringing about the events to explain; and retrodicting to some established theories and models (in own fields of study or elsewhere) pertaining to other structures, powers, and tendencies at work. Scientific Research, Mostly of a Qualitative Character. Critical realist research is ‘‘intensive’’ or idiographic (Sayer, 1984). The preferential test for research is ‘‘triangulation,’’ that is, the simultaneous use of diverse techniques (e.g., direct observation, interviews, documentary analysis, and action research). The knowledge developed in intensive research can be ‘‘generalizable’’ (e.g., to other phenomena taking place at a different space and time) – against the view of positivists that presume generalization to be property of extensive or nomothetical research. Critical realists do not make an apology for the sole use of qualitative research. Mostly qualitative (but also on occasion quantitative) research techniques are employed by scholars and researchers in accord with the specificity of objects of study. Yet, critical realists explicitly reject the widespread (positivist) argument that only quantitative-based science is capable to supply robust descriptions, explanations, and predictions of the world. Mathematics or ‘‘mathematical formalism’’ is the dominant (nonstructural and nonetiological) language in positivist science, being in and of itself unable to provide any knowledge on (structures and causes of) the world (Sayer, 1984). The identification of a mathematical association

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(e.g., a positive correlation between two events) needs not imply any causality – or alternatively, the absence of that association needs not entail the absence of causality (Fleetwood, 2001). Although being totally ‘‘blind’’ to causality, mathematics has some possible applications in research – for instance, whenever scholars and researchers want or need to represent quantitative effects ensuing from the exercise of an entity’s powers. Yet causality is an ‘‘extra-mathematical’’ content, imputed to positivist mathematical models or frameworks. In line with Fleetwood (2001), one argues that positivists often smuggle causality into mathematics. Qualitative research is to be effected when one’s aim is the (tentative) disclosure of the world’s causality. Critical realists are aware of the perils of (trying to) quantify inherently qualitative, multidimensional, and (in part subjectively understood) evolving phenomena. 3.3.4. Etiology Causality as Powers. Causality pertains to the production of change. ‘‘[A] cause is whatever produces change (y)’’ (Sayer, 2004, p. 17). Critical realists substitute the conception of ‘‘causality as powers’’ for ‘‘causality as event regularities or cause-effect relations’’ (Fleetwood, 2001). Against the positivist view, to explain a phenomenon is not to search for other (temporally preceding) phenomena but to unearth the former’s underlying structure, powers, and tendencies. Positivism is usually entangled in so-called ‘‘associational thinking’’ for assumes that what can go together must go together, thus mistaking contingency for necessity (Sayer, 2000). By subscribing to spurious cause–effect relations (hence confusing temporal contiguity with causality), positivists either commit the ‘‘fallacy of affirming the consequent’’ (given the antecedent’s occurrence) or enter into a ‘‘naive falsification’’ (i.e., assume that the consequence’s nonoccurrence implies the falsification of postulated cause–effect relation). Critical realists are unable to grasp how the inductive inference – that succeeding events are connected via causality – can be soundly justified. As Sayer (1984) asks, how can a positivist vindicate the assertion that the (preceding) event X is the cause of (following) Y? Or, in other words, how can a positivist justify that the future will resemble exactly the past? This so-called ‘‘problem of induction’’ is first put forward by Hume. All causes can be au fond discovered in the nature (i.e., structural properties) of the world’s entities and need not be observable or physical (Secord, 1986). Critical realists often cite, as an illustrative example, the claim that human reasons can be causes of (observed) events (Sayer, 1984). Reasons can drive human behavior but not in a straightforward manner: as

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one knows, the same reason is able to generate different events while a same effect may be brought about by a diversity of reasons (Sayer, 2004). For positivists, however, neither human reasons nor discourse can be causal. Positivists can be accused of being ‘‘naturalists’’ and ‘‘materialists’’ whenever argue, respectively, that the social world resembles the natural world and thus the former can be inquired and understood in the same manner as the latter (i.e., exclusively via application of quantitative research techniques and inductive and deductive modes of inference); and the world as a whole is physical and observable. In a rather extreme reaction to this positivist stance, postmodernists embark on a crude idealism and take discourse as the unique and fundamental cause of the world, neglecting altogether the existence of extradiscursive and nonmaterial causes. In sum, critical realism recognizes that causes can be unobservable and immaterial (hence resistant to observation, experimentation, measurement, or quantification) and that an extramaterial, discursive part of the world exists (thus being only in part naturalist and materialist). The World Is Multiply Caused. ‘‘[N]othing happens without a cause. (y) [W]e continue to regard unanswered causal questions as just that – not as proven cases of indeterminacy [as if ‘God plays dice’]’’ (Collier, 1994, p. 127). The world is an open system, being codetermined by multiple and interacting causes (review Section 3.3.1 on ontology). Several and interrelated structures, powers, and tendencies somehow (causally) govern the world, irrespective of prevailing contingencies and (possibly unforeseen) events brought about (Fleetwood, 2001). Causality is therefore complex, that is to say, multicausality prevails in the world. Multiplex causality is difficult to unequivocally identify by scholars and researchers (let alone lay people) on account of three main reasons (Fleetwood, 2007a): several causal powers, mechanisms, and configurations can be at work simultaneously (and, as one acknowledges, diverse powers may bring about the same effects); some causal priority (or hierarchy) is likely to exist in the world for not all causes are equally relevant in the world’s codetermination; and the world is in part subject to the exercise of human agency (though this agency is not entirely capricious and is liable to change). Identification of the world’s causality may be further complicated by the fact that some underlying causes may lie outside of scholars’ and researchers’ primary field of study or specialization (Fleetwood, 2007a). Critical realism dispenses with determinism and randomness advocated by positivists and postmodernists, respectively. Determinism is dismissed owing to the openness of the world and the existence of contingency and

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change in it – one can often find path-dependence in the world’s change, that is, from the ‘‘past’’ and ‘‘other places’’ to the ‘‘now’’ and ‘‘here’’ (Sayer, 2000). Randomness, namely that ‘‘anything can happen anywhere,’’ is not a feature of the world. Whatever happens need not be what could have happened and is explained by existing entities and structures, powers, and tendencies (or causal mechanisms and configurations at work) and prevailing contingencies of the world.

4. CONCLUDING REMARKS This paper draws heavily on the works of Sayer (1984, 2000) and Fleetwood (2001, 2004, 2005) and illuminating views of these two critical realists on metatheory in general and on critical realism in particular. Metatheoretical taxonomies devised by Ackroyd (2004, pp. 150–151) and Fleetwood (2007a, p. 3) also provide invaluable help in identifying the distinguishing assumptions of each metatheory discussed here. Scholars and researchers build often implicitly on one of the three metatheories, that is to say, a distinctive set of assumptions concerning ontology, epistemology, methodology, and etiology: either take the world as a closed system wherein cause–effect relations can be observed or experienced (i.e., positivism); or instead consider the world to be socially constructed by human beings via discourse or interaction and convention (i.e., postmodernism); or acknowledge the largely mind-independence of the world, a world composed of multiple (complexly structured and powerful) entities and (structureless and powerless) events (i.e., critical realism). Ontological, epistemological, methodological, and etiological assumptions of the above-mentioned metatheories are addressed exhaustively elsewhere (Bhaskar, 1998; D’Andrade, 1986; Fleetwood, 2001; Lawson, 2001; Sayer, 2000; Secord, 1986) and summarized in Table 1. Each and every scholars and researchers should be made aware of and reflect on the appropriateness of own metatheoretical commitments, primarily by bearing in mind the object of study. For these (usually takenfor-granted) commitments have a huge impact on the research process and outcomes (e.g., theories or frameworks developed or empirical data collected). Consideration of underlying metatheories is likely to reduce greatly the possibility of being at cross-purposes (e.g., when criticizing an opposite theory or challenging contradictory data). Understanding of why substantive theories are adopted, refined, extended, or instead opposed to by scholars and researchers, is thus easier to attain. By bearing in mind the

Largely mind-independent Multiple, fallible, in part Use of qualitative world; observables and socially constructed research methods unobservables; entities (with knowledge (via intervention (triangulation); structures and emergent and in the world); emphasis on abstraction, potential powers and description and explanation; retroduction, and liabilities) and events; tendential predictions retrodiction necessity and contingency (relations); world’s strata (real, actual, and empirical)

Critical realism

Use of qualitative research methods

World is built via discourse World only known via or social interaction and discourse; no knowledge convention; multiple realities better than any other (relativism)

Postmodernism

Methodology

Knowledge development by Use of quantitative observation or research methods; experimentation of the deduction and world; postulation of laws induction (via generalization); emphasis on prediction and objectivity

Epistemology

Mind-independent world; observables; regularities (constant conjunctions of events)

Ontology

Multiply caused world, brought about by exercise of interlocking powers, mechanisms, and configurations, under mutable contingencies; tendencies and countertendencies at work; open systems

Human mind as (arbitrary) cause of world

Cause–effect relations (deterministic or stochastic); closed systems

Etiology

Basic Assumptions of Positivism, Postmodernism, and Critical Realism.

Positivism

Metatheory

Table 1.

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points of departure in research, one is able to avoid inadvertent slides into ontological or epistemological incoherence (either over time or in a single piece of analytical work). Finally, this paper has the merit of presenting in detail to a large audience (namely scholars and researchers of the industrial marketing and purchasing field of study, largely unaccustomed to explicit metatheoretical discussions) alternatives to the mainstream (positivist) conception of social science: postmodernism and especially critical realism.

ACKNOWLEDGMENTS The author appreciates greatly the extensive comments of Luis M. de Castro and Steve Fleetwood to an early draft of this paper. Usual disclaimers apply. The author acknowledges the financial support of Centro de Cieˆncia e Tecnologia da Madeira (CITMA), through the European Union’s Social European Fund (SFE).

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