Executive summary and implications for managers and executives

Journal of Business & Industrial Marketing

ISSN: 0885-8624

Article publication date: 17 April 2007

230

Citation

(2007), "Executive summary and implications for managers and executives", Journal of Business & Industrial Marketing, Vol. 22 No. 3. https://doi.org/10.1108/jbim.2007.08022caf.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited


Executive summary and implications for managers and executives

This summary has been provided to allow managers and executives a rapid appreciation of the content of the issue. Those with a particular interest in the topic may then read the issue 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.

When British actor Stephen Fry took flight from a West End play and temporarily disappeared from public view, he blamed “stage fright” and said later: “I can only offer cowardice, embarrassment and distress as excuses for such absurd behavior. I’m a silly old fool and I don’t deserve this attention”.

On the contrary, he did deserve attention. Or rather his “nerves” (or whatever other, often inadequate, explanations are given for the inability to carry on) deserve scrutiny as well as empathy and sympathy – if only to help us understand this strange occupational hazard of creative people which manifests itself in “stage fright”, “writer’s block”, “freezing” and other such difficult-to-understand conditions.

Understanding them might also help other people in creative occupations. Not actors, writers, composers and painters, but businesses managers and executives who also have pressures to “perform” at a consistently high level and who can well understand the fear and consequences of failure. Even if it is merely their own perception of failure.

While writer’s block and other such manifestations of malfunction within the human brain might be investigated by examining a complex network of interlinked nerve cells, so the functioning of industrial markets might support comparisons when applied to failure.

Malcolm T. Cunningham believes analogies may be drawn between business and neurological networks. In his article “Writer’s block: failures of the neurological network and comparisons with business networks”, he says:

Competitive activity in industry and the constant search for new products, innovative solutions and growth of profits for a business, make demands upon business executives for regular improvements in performance. It is not unknown for the entrepreneur or innovator to lose the spark of originality and drive which formally had brought success to the business.

The human brain’s network is the nerve centre of thoughts, memory, reasoning, fears, ideas, motivations and sensory controls – linked to other networks governing the functions of organs, limbs, muscles and tissues. When there is a malfunction – and to use the “markets as networks” terminology – the person (or actor) is unable to gain access to and control their own resources and so no purposeful activity occurs.As in the neurological condition, a malfunctioning of the business version of “writer’s block” needs diagnosis and treatment. A prerequisite of a successful treatment can be the establishment of confidence and trust between the medical specialist and patient. In business, where there are also imperfections and failures, the build-up of trust and confidence between parties is an important factor in successful outcomes of relationships.

This leads to a greater flow of information within the interaction. Adaptations and behavioral changes also occur among actors. Power is still exercised to achieve results and rewards are administered for compliance. In business markets customers are often called upon to exercise trust, as instanced by the investment and risk-taking involved in selecting a new supplier. Important and confidential information may have to be disclosed and the new relationship is open to the abuse of privacy and power.

Dream analysis and hypnotherapy can sometimes help explain human behavior. In business networks firms develop their own “pictures”, perceptual maps, and often-distorted images of the competitive world in which they operate. Their behaviour is based on these images of their competitors and they are challenged to try to learn from their successes and failures in handling relationships. Managers often act out of fear of failure and from their imaginary perceptions of the possible rewards of success. Fantasies usually lead to unrealistic predictions of growth and profitability of the firm. Managers attempt to identify the opportunities and threats posed by other firms in the network. The resources and activities of these firms can be mapped out in order to establish how necessary resources can be accessed. Additionally, co-operative interactions can be planned and managed to the firm’s advantage.

Reconfiguring a network can be compared with “electro-convulsive therapy” – externally induced trauma and electric stimulus to certain parts of the brain’s neural network. By contrast, business networks cannot be externally manipulated nor reconfigured to suit the objectives of a single firm. Yet firms attempt to manage their own network positions and influence the structure of that network to their own advantage.

Sensitivity, compassion and empathy are attributes used by doctors to create a desired atmosphere of care and calm stability. In business relationships, bonds of trust, tolerance, problem-solving ability and confidence-building by good service are pursued by some firms within the network. Co-operation, adaptation to each party’s needs and expectations may be employed to create the right atmosphere surrounding the relationship.

While drugs therapy is used to manage aggressive or undesirable behaviour in human patients, in business networks it is not feasible to manipulate or externally control such behaviour by firms within the network. Harmonious, co-operative behaviour may be an ideal, but it is unrealistic and unattainable. Such an ideal is incompatible with the uneven distribution of power and resources between firms. The aggressive, disruptive behaviour of a firm has side-effects because of the repercussions in other parts of the network and the likely counter measures by competitors.

Stephen Fry, meanwhile, continues to entertain his multitude of fans – a “recovery” which supports Malcolm T. Cunningham’s view that what may feel like a personal catastrophe at the time is more usually a temporary blip in a lifetime’s career. The sufferer’s low self-esteem and sense of shame and isolation, he says, can be the launch pad for recovery and future achievements.

Such inner-conflict as a sign of future achievement has resonance in aspects of Paul H. Schurr’s consideration of critical interaction episodes within business relationships which fundamentally strengthen or fatally weaken relationship development – a study which also considers the importance of non-critical episodes.

Because there is no system for characterizing and grouping key episodes (i.e. how can we typify episodes?) our understanding of the effect episodes have on relationships is consequently incomplete.

For example, in his “Buyer-seller relationship development episodes: theories and methods”, Schurr asks whether conflict over obligations is a sign that a relationship is in trouble or a hopeful indicator that partners are working to adjust their relationship.

Attempting to discover how episodes in business relationships foster trust, create conflict or spark commitment, whether trust is necessary for co-operation and commitment, and how the level of communication can influence conflict, he identifies a significant gap in our understanding about the nature of critical interaction-episodes and the effects they have on buyer-seller relationships.

We need greater understanding of the human calculus associated with episodes. For example, do individuals keep mental accounts of positive and negative critical episodes, leading to cumulative effects? How do agents make attributions about critical episodes? And we also need to understand how less critical episodes, such as meetings for exchanging information on recent performance and new opportunities, influence relationships.

The importance of these questions has to do with understanding how the actions taken by purchasing agents and sales consultants in the context of a business relationship influence the outcomes of their collaboration. Interaction episodes are the engines of change, motors that engage the energy of a relationship. Suggesting that relationship theory is incomplete without a more complete understanding of interaction episode dynamics, Schurr says a better understanding of patterns of interactions and their consequences for relationship change may contribute to improved co-operation – or more effective disengagement.

While there is ample acceptance of the notion that interaction episodes generate different relationship states and cause change in those states, there is insufficient discussion, let alone agreement, about the nature of interaction episodes. Business marketers know that episodes of co-operation, agreement-making, and conflict resolution are important. However, they lack a paradigm and the corresponding terminology for even discussing episode characteristics and strategy.

Schurr suggests a possible episode classification scheme by first defining three categories of episodes by their effect on a relationship.

Generative episodes (for example, partners agree to share customer information with a view towards creating higher service levels) have a positive effect because the outcome of the interaction is increased capacity to co-operate, trust, understand, and jointly benefit. Degenerative episodes (for example, a buyer makes a long-term commitment to an alternative supplier) have a negative effect.

Neutral episodes (for example, a sales consultant makes a courtesy call on a customer to discuss progress on a customer’s project) overall sustain, but do not change, the capacity for interaction and mutual gain. Although neutral episodes may simply maintain the state of a relationship, as time lengthens between interactions (even neutral ones), relationship vitality will decline. Marriages can fail simply because neither party is paying attention to the relationship, and as relationship vitality wanes, an alternate suitor can step in.

Characteristic episodes within each category represent unique forms of relationship interactions. For example, episodes of promise and promise-fulfilment increase trust in a relationship. Characteristic episodes are recognizable types of interactions that produce predictable effects, such as increased mutual understanding, commitment of non-transferable assets for mutual gain, and perceptions of relationship continuity. No episode stands alone, so we must look for patterns, often comprising non-critical episodes, which increase the likelihood for a critical, relationship-state changing characteristic episode.

Schurr concludes that progress on investigation of interaction episodes in relationship development will require different thinking about appropriate research questions and more balanced thinking about the approaches to and the uses of research. He also maintains that critical incident technique (CIT) research in marketing is at present incompletely adapted to business marketing research.

Work is needed on adapting the technique to the more complex setting provided in many business marketing contexts and the presence of networks and critical as well as non-critical episodes. There is a special need to develop ways of eliciting responses about non-critical events that provide a foundation for successes and failures associated with critical episodes.Interaction and the resulting changes in relationships between and among members of a network is a theme continued by James L. Bowey and Geoff Easton. Members of networks who share, contribute to, and benefit from social capital are the focus of their piece “Net social capital processes. The case of a business constellation”.

Under particular scrutiny, as an example of the way that people and organizations within the network can co-operate – often quite informally but to great effect – is the Canadian Groupement Quebecoise (GQ), a voluntary association of elite business owners that provides a forum for discussion and action in a close-knit supportive context resembling an exclusive club.Its members are constantly available to help each other, often openly discussing critical problems. The group organizes social events that allow members to keep in touch and offer an opportunity for other social and business issues to be aired. Bowey and Easton explain:

GQ provides an example of an extreme and rather rare form of a tightly knit business grouping that we have called a business constellation. Extreme cases are useful because they allow us to see what we might miss in more usual situations, in this case typical B2B markets.

The key issue explored is the nature of social capital at different levels of aggregation, especially at the net level. GQ is extreme because the net social capital is high and its benefits are important to its members: not only those they receive from other members but also from the way they can leverage their membership to work for them outside the constellation. This is one reason why it continues to thrive.

At the dyadic level, for instance, GQ member Richard’s business relationship and friendship with network colleague Gilles resulted in an exchange of resources which varied from a straightforward exchange of goods and services, through information and advice to affective support. Interestingly, the overall group relationship is able to co-exist well with such strong one-to-one connections.

GQ membership provided him with additional credibility within the high-tech community of Quebec, as well as with various government agencies. He also had relationships with a number of external corporate actors – particularly a university which, like any large organization, has its own stock of social and economic capital.

Richard’s GQ membership led to several close business and social relationships, especially with Gilles, even though their products began to overlap. Whereas competition would normally preclude a close relationship, both men were content to co-operate under the GQ umbrella, which they felt would protect either of them from any opportunism on the part of the other. In fact the relationship resulted in several important collaborative projects without any formal contract.

This extraordinary amount of social capital between two companies even led to one agreeing to sell a production system to a client only if the other agreed. Not only was agreement forthcoming, but the well-respected and trusted business friend also provided free-of-charge expertise to facilitate the move.

As collaboration, communication and support such as this continue to build up a social infrastructure, those party to it can increase their own social capital by, for instance, being helpful to and open to others. They can also draw on the group’s social capital by, for instance, regularly seeking advice from peers about problems.

Also serving to maintain and increase social capital among members, GQ organizes net-based luncheons and dinner meetings where members can reinforce their identification within the group – occasions where many dyadic interactions occur simultaneously.

A second type of resource is accessed at the group level, largely in face-to-face meetings. Here the group members obtain knowledge, advice, wisdom and affective support by listening and contributing, often vicariously through listening to the problems of others and discovering how they were solved.

Trust is very strong within the group. It is clear that there are high rewards to be had from staying in the group and therefore sanctions are strong. In particular, the face-to-face meetings mean there will be no hiding place for individuals who transgress and break trust.

Bowey and Easton concede that the GQ case is extreme because the net social capital is high. Members not only benefit from others within the group but can leverage their membership to work for them outside the constellation. The fact that the constituent companies are small, with individual owners rather than managers, also helps it thrive.

Extrapolating the analysis to more typical B2B nets, a key point is to look at the way that social capital at different levels interacts. Social capital in any B2B relationship will be affected by the social capital patterns that surround it. The social capital of a group or net is not simply the aggregation of the social capital of the dyads it comprises. Equally the net social capital cannot be reduced to the dyadic social capital. The two entities exist at different levels of analysis and the relationships between these levels will be quite complex.

Similarly complex is the matter of analyzing changing relationships between a core company and its supply base, not least in the management of those supplier firms, the creation among them of a supply network, and how to manage that network.

As purchasing becomes increasingly important (figures of 60 to 80 per cent are not uncommon) to companies that have decided to concentrate on their core competencies, and to outsource other skills and services, having control over this situation can be vital. Controlling it as it now exists is one requirement; another is having the means to manage it as it changes, and this involves identifying the effects of that change and knowing how to react in a positive way – or if to react at all.

It is inevitable that a supply base will change or evolve. It may be that the buyer decides to reduce it by concentrating on a smaller number of suppliers, or that the suppliers change. Some may no longer have the capacity to supply, others may change their specialization, others may no longer be trusted to deliver, while others may go out of business or merge.

In their “Supply network initiatives – a means to reorganize the supply base?”, Elsebeth Holmen, Ann-Charlott Pederson and Nikolai Jansen look at how a firm’s supply base may change over time as a result of an initiative to create a supply network among part of the firm’s supply base.

The firm under scrutiny is in the construction business – an industry that has been frequently criticised for a lack of long-term supplier relationship and sourcing strategies.

First, the construction firm set up a project group aimed at designing a supply network, within the firm’s building division, of electrical, ventilation and plumbing services. Once suppliers had been chosen and gone through a selection process, their details were included in a comprehensive catalogue that classified what materials they produced and/or the service they delivered. The selection process criteria included financial viability, good past experiences with the firm, and a willingness to co-operate on several organizational levels.

A number of construction projects were identified and sub-contractors divided into different constellations that were to work together as “sub-networks” with electricians, plumbers, and ventilation installers. In each pilot project there was a “kick-off” meeting to set aims and expectations, and both mid-term and final evaluations to discuss positive and negative experiences.

Before this inclusive supply network initiative was put into place, the buyer-seller relationships had been characterized by short-term, arm’s-length transactions. Furthermore, those transactional relationships changed from one construction project to the next depending on which sub-contractor offered the lowest price. Suppliers were primarily classified according to the service – for example, plumbing – they delivered.

As the new supply network initiative was being put into practice, the main contractor demonstrated a major shift in its approach to suppliers, who were invited to take part in the initiative and subsequently to become part of the resulting supply network. Those selected were invited to “relationship building seminars”, learning how to work in sub-networks with other sub-contractors (one from each of the different trades). All these efforts were part of the explicit supply network initiative to build trust and commitment firstly between the buyer and the different suppliers and, secondly, among the different suppliers.

Three years later that explicit supply network initiative was discontinued, but some of its routines had by then become standard procedure – such as the “kick-off” meetings, early sub-contractor involvement, and the relational orientation towards the suppliers. The initiative began to dismantle as some initially selected suppliers were not used, or used less, in new construction projects while “new” sub-contractors were brought in for large projects. But the selection procedure for those new suppliers continued to follow a network logic. And, although the structure of the supply base changed quite dramatically, it retained the structure of a network with connections between some of the contractors.

The question is: are a supply network initiative, and supply network design, ends in themselves or are they more usefully regarded as a means to restructure the supply base?

Elsebeth Holmen et al. comment:

Our case shows that it may even be that explicit network initiatives are discontinued when it is assumed that the new network-like base structure, which has arisen in part due to the supply network initiative, contains elements (“motors” or “drivers”) that enable maintenance and development of a sufficient number of connections among the involved sub-contractors even without costly “network support” systems.

Explicit supply network initiatives are always costly, for example the parts of the initiatives which aim at bringing together all suppliers within a supply network. Therefore, it may be that the extent and frequency of the explicit network initiative sub-initiatives can be reduced over time, possibly only to be resumed again at later points in time, in some form or another.

Implicit in the findings of Holmen et al. is the increasing significance to companies of the purchasing role. The function has evolved into supply management: an important strategic consideration affecting the whole organization from top management down.

In fact, purchasing – say Per V. Freytag and Ole S. Mikkelsen in their “Sourcing from outside – six managerial challenges” – has at last become strategic in its perspective and purchasers are proactive in a global arena.

What is bought has a large impact on most firms’ bottom lines. Also, suppliers represent different possibilities for co-operation and value-generation. Depending on the purpose, the supplier represents, for example, access to know-how that may be important for innovation, cost reductions or creation of higher flexibility. Sourcing has changed to the extent that it has become strategically important to companies’ general survival and development.

Sourcing strategy should, therefore, be integrated into the organization’s whole way of thinking.

The fact that sourcing is now a general management task rather than just the responsibility of the buying function becomes evident through challenges attached to companies’ sourcing.

Aiming to highlight how sourcing tasks challenge management and employees, and how the tasks are related to the company strategy, Freytag and Mikkelsen pose six managerial challenges that clearly cannot be addressed from the perspective of just one function in the company. Those challenges are:

Defining the company’s competencies within the company and in the links between the company, its role in the network and its desired, future strategic development, and then to link all this to the process of value creation in an appropriate way.

Both within the company and among companies it is of vital importance to identify the competencies and how activities may be connected in a manner that will make it difficult to move or imitate the activities among entities. Management must try to clarify how the process of value creation takes place on three different levels:

  1. 1.

    supplier relations;

  2. 2.

    in-company relations; and

  3. 3.

    customer relations.

The ability to maintain and develop these relations determines the company’s competitiveness.

Making clear what should be achieved by outsourcing as well as communicating with the employees and involving them in the process.

Employees can play an important part in contributing information about connections between tasks, suggestions on how to improve products/services, weaknesses of products/services, relevant benchmarks of products/services, demands from transporters, customers etc. regarding the handling of the goods, appropriate ways of interaction with possible suppliers.

The company generally addresses how different types of suppliers should be selected, and that the company makes sure that employees understand and respect the intentions behind the interaction strategy with different suppliers.

Selecting suppliers is closely connected to the main questions of how the company contributes to the value creation process, and how the company can contribute most effectively to this process together with customers and suppliers. The demands on the supplier usually comprise financial stability, management style, attitude to quality, and experience with delivery of the product/service or similar products/services.

To ensure that both legal and commercial aspects in connection with company sourcing are coordinated and that they are consistent.

Legal advisors sometimes have too little knowledge about commercial issues connected to a particular term in an agreement. Buyers and sellers sometimes pay too little attention to legal aspects of an agreement. In the end this may result in a poorer contractual basis than would otherwise be possible.

To avoid a change in or the termination of a customer-supplier relationship leading to unnecessary disputes that may complicate co-operation with the current supplier or other suppliers.

Most framework agreements contain a time limit. Sometimes the parties have opposite interests. The supplier may want to continue the co-operation whereas the customer may not. A way of minimizing the risk of disputes is that the parties become aware of this risk and inform each other about their interests and objectives. It would also be wise to make it clear that the basis of decisions is constantly changing, therefore changed decisions do not necessarily have anything to do with the supplier’s performance.

To identify relevant benchmarks and to consider to what extent the development and the selection of benchmarks should be carried out in co-operation with the supplier.

One approach is a set of activities which can be developed and examined as a matrix. Product, process and operation system related issues on one side; on the other side capability-related issues such as level of technicality, quality, cost, and delivery.

Freytag and Mikkelsen say:

Benchmarking is also very much about communicating. In many situations this will provide a good platform for eventually terminating relationships. The single actor within the network is very dependent on his relationships and the ability to establish, stabilize, develop and terminate relationships. But relationships must often be seen in relation to each other and addressing what to do with a particular relationship must be seen in a holistic view.

If, as Freytag and Mikkelsen state, managing relations is one of the key areas in business management, having an appropriate means of properly analyzing interaction between firms is an obvious necessity.

They conclude that, due to the dynamics of the surroundings of the individual company, it is becoming more important that management continuously monitor the changes that occur and act in an appropriate manner to give as much value to the network as possible.

To achieve this, however, it is essential that firms understand their current position and how it fits the purpose of the relationship.

In “A framework for analyzing relationship governance”, Thomas Ritter addresses that issue while offering a set of definitions aimed at overcoming problems with current uses of terms, concepts and constructs. While some have claimed relationships are hybrids between markets and hierarchies, others identify relationships as a third, separate interaction mode. Ritter argues that the three governance modes can be used as reference points for analyzing relationship governance.

He also claims that relationship governance analysis should be done both from a dynamic and a dyadic perspective. By definition, business relationships are influenced by at least two actors so an understanding of the relationship will not be achieved if only one actor’s opinion is sought. Comparing judgments offers an insight into the stability of a relationship and the kind of behavior that might be expected from a given actor. It also offers an insight into the communication between the actors where little difference in the positions identifies good, open communication and large differences indicate problems.

As relationships are under permanent development and change, it is important to evaluate them along their development. It is also helpful to think of the position the relationship should have in terms of its value-creation potential. With this in mind, Thomas Ritter’s model can be used in a dynamic manner, plotting the development of the relationship over time and also helping to understand potential relationship development paths.

Although a relationship might start without much mutual commitment and limited power bases on either side, it can move through stages until it develops into a partnership. Depending on the type of investments made by either side, partnership status might not be achieved because dependency has developed. The development of the relationship depends on the dynamics around it. For example “market dynamics” (entry and exit of other actors, change in technological leadership) and “technological dynamics” (rate and degree of innovation.)

Ritter concludes:

In general terms, market-relating is the process of building bridges between a firm and the actors in the firm’s environment (e.g. customers, suppliers, research institutions, governmental organizations). These (potentially many) bridges might well be strong, deep relationships but they can also be distant, transactional connections or hierarchy-like exchanges where one partner is dependent on the other. As such, terms like “exchange”, “interaction” and “relationship” are not bound to exchanges on equal terms between the actors but are applicable to the whole variety.

The importance of relationships and their investment character demand proper analysis of the interaction between firms. Using the suggested model for relationship governance analysis should prevent firms being surprised by their business partners’ behaviour, for example when a supplier changes customer in favour of a more profitable alternative even though the customer thought the relationship to be collaborative and long-term oriented. Or alternatively, when customers push for price reductions against the supplier’s will despite the supplier’s “feeling” of an open, mutually supportive relationship.

Potentially, the model of relationship governance can help to identify misfits in perceptions. A dangerous situation arises when a smooth process does not create value for the firm because that smooth process hinders critical debate. The problem is that expenses for maintaining the relationship are lost. In these cases, there is a need for analyzing the relationship’s value proposition. For example, which value could potentially be produced and how could it be implemented?

Relationships with a negative process and limited outcomes should either be discontinued or significantly developed so that they offer value and improve in process.

(A précis of the special issue “Challenging business relationships”. Supplied by Marketing Consultants for Emerald.)

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