Executive summary of Value appropriation in business exchange – literature review and future research opportunities

Citation

(2014), "Executive summary of Value appropriation in business exchange – literature review and future research opportunities", Journal of Business & Industrial Marketing, Vol. 29 No. 3. https://doi.org/10.1108/JBIM-01-2014-0018

Value appropriation in business exchange – literature review and future research opportunities

Article Type: Executive summary and implications for managers and executives From: Journal of Business & Industrial Marketing, Volume 29, Issue 3

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

Like value creation, value appropriation lies at the core of a firm’s success because successful value appropriation secures the profits which allow companies to invest in new technologies, resources, business relationships etc., improving their competitive advantage.

Companies create value in relationships with customers and suppliers and in order to compete they must actively appropriate some of this value for themselves. Sounds like simplicity itself, but achieving the required balance between the two is difficult. Prioritizing value creation at the expense of value appropriation (VA) may eventually hinder a company’s realization of profits from created value. There is increasing evidence of companies applying, on the one hand, excessively exploitative VA methods, thereby harming business relationships and future value creation opportunities. On the other hand, evidence also points to firms failing to secure their own VA relative to dominant exchange partners, suggesting that managers have an inadequate understanding of VA mechanisms and lack an overview of the many VA options available.

The concepts of value creation and appropriation are tightly connected. Value creation has been defined as "the process whereby the capabilities of partners in a supply chain are combined such that the competitive advantage of the supply chain relationship (or one or more of the partners) is improved". One or more? That bit of the definition should sound a warning for managers – the created value may not be symmetrically distributed between the parties. A one-sided focus on value creation or appropriation does not guarantee successful business exchange, so it is essential for business exchange managers to master both value creation and appropriation processes and activities.

In an attempt to help managers to do this, in "Value appropriation in business exchange – literature review and future research opportunities", Dr Chris Ellegaard et al. look at a company and its suppliers and customers in the industrial market and, in an effort to generate an overview of research on active VA in business exchange, ask:

1. Which management literature streams have investigated VA in the business exchange context?

2. What are the main characteristics of the approaches to VA as described in each stream?

Which research areas hold potential for future research on VA in business exchange?

One of their suggestions for encouraging managers to think about and discuss appropriation and creation is the application to their deliberations of the methods proposed in 2010 by Dr Debbie Harrison et al. in their research into how companies strategize deliberately in networks using strategic initiatives. Their five methods deal with conceptualizing and making sense of different ways of interacting with other firms. Customers and suppliers may be, to varying extents, included in the exercises in order to increase the joint learning about appropriation/creation. Each way of interacting has implications for how other firms are involved in taking deliberate action. This approach addresses the issue of a network paradox: firms act independently, yet the possible outcomes of action are dependent upon the actions of other firms. Applying these five methods of thinking about VA versus creation would see managers:

1. considering and discussing VA versus creation relative to customers/suppliers to anticipate different outcomes and reactions, but without involving the suppliers and customers;

2. involving some suppliers and/or customers as an audience in developing mechanisms so that they are aware of and gain from the process without being actively involved;

3. considering VA and creation in situations where the parties are "deliberate equals", in which case the firm can interactively develop and adapt creation and appropriation with the other party;

4. considering VA and creation between "imaginative equals", where neither party has a pre-vision of appropriation and creation scenarios and new opportunities can be visualized together; and

5. considering VA and creation from the perspective of an "absorptive bystander", whose appropriation and creation options are determined by other firms and their strategies.

The authors identify the most important literature streams focusing on VA in business exchange as: industrial marketing, justice, negotiation, resource based view (RBV), and strategic alliances and suggest that key account managers should not merely resort to the mechanisms laid out in the industrial marketing stream, or the negotiation stream, which are typically well-known. They must also know how to extract knowledge from customer exchanges (strategic alliances stream), how to set up and/or draw on isolating mechanisms (RBV stream), and govern exchanges according to sharing principles (justice stream), among others.

Knowing and mastering a broader set of VA mechanisms will enable boundary spanners to better recognize opportunities and gain benefits from supplier and customer exchanges. For example, a company may accept the appropriation of little profit from the contract negotiations with a customer, but learn much from joint product development, thereby realizing an overall surplus on the appropriation account relative to this specific customer. Knowledge of the broad range of mechanisms should also enable managers to recognize wrongful appropriation acts by exchange partners and devise countermeasures to protect company profit.

To read the full article enter 10.1108/JBIM-03-2012-0039 into your search engine.

(A précis of the article "Value appropriation in business exchange – literature review and future research opportunities". Supplied by Marketing Consultants for Emerald.)