Managing Business Relationships and Networks

Morten H. Abrahamsen, PhDAssociate Professor at BI

Associate Professor II at TØH

Overview of Module• Introduction to Industrial Marketing• Brief historical and economical background• Business Network and Business

Relationships• Some underlying theoretical assumptions• Implications for strategy

Traditional market view

Sellers Buyers

- Transactions are important

However, what do we find?

• Limited amount of sellers and buyers• Market consentrations• Repeated transactions – relationships over time• Mutual adaptations• Both parties are active• Mutual interdependence• Cooperation and conflict

Relationship Marketing

• A few number of customers represents the majority of turnover (80 – 20)

• A whole range of contacts across the organisations involved

• Purchases are few but substantial• Handling of key relationships becomes main

factor for success

Typology of relationships

Transactions (market)

Repeatedtransactions

Long-termrelationships

PartneringStrat. Alliancer(joint ventures)

Networkorganisations

Vertical Integration(hierarchy)

Agenda I

• What is a business relationship?• What is a business network and what is it not?• Industrial Network Approach to industrial

marketing• Myths and paradoxes related to business

markets

Business Relationship

• Connects two organizations– Economic dimension– Technical dimension– Social dimension– Immaterial

– Interdependence!

What is a Business Network?

• Business network vs. Cluster• Business network vs. Market

A Busines Network is not:

• …a “cluster”.• ...a personal network.• ...mainly something that is based on• power/politics.• ...something ”secret”.

What is a ”cluster”?

• A group of companies...• In the same type of industry ?• ...develops/uses closely

related technology?• Located in the same region?• Visible from ”outside”?

Business Networks:Basic Assumptions

Perspective A• Designed• Formal• Within a business sector• Relationships as• ”chosen”• Center/”locomotive”• Common Goal

Perspective B• Emergent• Informal• Across business sectors• Relationships as• ”inevitable”• No center• No common goal

A network perspective

Network = Connected relationships

So, what is a Business Network?

• A business network consists of two ”building blocks”:– companies and business relationships.

• The companies and business relationships are interconnected, and together form a complex, web-like structure.

Traditional value chain

Producer

Wholesaler

Retailer

Raw materials

Verticalintegration

Horizontalintegration

The network on the contrary has no centre,no beginning and no end..

’No company is an island’

Industrial Network Approach

Industrial Network Approachand the IMP Group

• Ever-changing number of researchers in business markets, and is therefore a loosely defined group of researchers– (Ford, in Naude & Turnbull, 1998)

• IMP1 Research Project: Interaction Model– Håkansson (ed., 1982)

• IMP2 Research Project: Industrial Networks– http://www.impgroup.org/

Appliance of theIndustrial Network Approach

(Håkansson & Snehota, 2000)

• IMP = International/Industrial Marketing and Purchasing.– Industrial Marketing and Purchasing.– Internationalization (’The Uppsala

Internationalization Model, Johanson & Vahlne, 1977)

– Technical development.– Strategy development and organization.

The Norwegian story..• We identified an segment in Japan with strong potential• We started by making initial sales• We positioned our farmed salmon as suitable for sushi• We managed to convice the Japanese of our superiority• Gradually export volumes increased and we extended our

operations• Sales from Norway at first• Then we set up our own sales office in Tokyoand

subsequently our own import company• This strategy has made us the main supplier of fresh

salmon in Japan

The Japanese story..• Fresh salmon first introduced by

Japanese chefs working in French restaurants

• Kaiten belt made sushi affordable for a larger public

• Price of salmon fell due to increased production volumes

• Yen became stronger to the NOK• “It was not our aim, but it

happened”

Who is right?

• Is the success of salmon in Japan a consequence of the Norwegians being good sellers?

• Is the success of salmon in Japan a consequence of the Japanese being good buyers?

3 Myths in Business1. The Myth of Action2. The Myth of Independence3. The Myth of Completeness

1. The Myth of Action

• The supplier acts and the customer reacts

• The marketing actions of a supplier and the purchasing reactions of a customer can be analyzed separately from each other

Rather: Business Interaction

• Each business sale and purchase is not an isolated event, but part of a continuing relationship between a supplier and a customer

2. The Myth of Independence

• ”A company is able to act independently. It can carry out its own analysis of the environment in which it operates, develop and implement its own strategy based on its own resources, taking into account its own competences and shortcomings.”

Rather: Interdependence

• The management process in any company is interactive, evolutionary and responsive - management involves lots of reacting to the actions of others

• Strategising is not simply concerned with competition

• A company’s ”position” is based on its total set of relationships

• A company’s network position changes and develops through interaction with other companies

3. The Myth of Completeness

• Based on traditional ideas of strategy:• A belief that a company is a complete

organisation able to operate on the basis of its own abilities and resources

Traditional view on marketing strategy

Objectives

Strategy

Implemen-tation

SWOT anaysis

Mission

•Segmentation, Targeting and Positioning•4 P s

•Internal (Strengths and Weaknesses)•External (Opportunities and Threats)

•Corporate mission statement•Vision

•Excecution of market plan (who, what where, when and how)

•Clear, consise, measurable, etc.

Rather: Interconnectedness

• A large part of what a company sells is made up of what it buys

• Companies are becoming less complete• Core competencies are based in the network• Technologies are developed interactively

The network on the contrary has no centre,no beginning and no end..

’No company is an island’

An empirical example from my research

The Norwegian story..

• We identified an segment in Japan with strong potential• We started by making initial sales• We positioned our farmed salmon as suitable for sushi• We managed to convice the Japanese of our superiority• Gradually export volumes increased and we extended our

operations• Sales from Norway at first• Then we set up our own sales office in Tokyoand

subsequently our own import company• This strategy has made us the main supplier of fresh salmon

in Japan

The Japanese story..• Fresh salmon first introduced by Japanese chefs

working in French restaurants• Japanese chefs approached their existing suppliers of

seafood• Existing suppliers contacted their Norwegian suppliers• Norwegian exporters developed farming facilities• Kaiten belt made sushi affordable for a larger public• Price of salmon fell due to increased production

volumes• Yen became stronger to the NOK

• “It was not our aim, but it happened”

Implications for marketing strategy

• The key issue is to handle a complex set of relationships to your benefit

• Value creation through co-operation and competition with key partners (”co-opetition”)

• Segmentation in terms of partners or other actors• Targeting and positioning in terms of value co-creation and

mutual dependence

Oppgave 1:• Diskuter de tre ”mytene” om

markedsføring. Hvor representative er disse for måten dere tenker på?

• Gi konkrete eksempler.

Network Paradoxes(Håkansson & Ford, 2000)

1. Opportunities - Limitations2. Influencing - Being influenced3. Controlling - Being out of control

The First Network Paradox

• Both opportunities and constraints• The diversity of the network gives every decision-

maker myriad opportunities to act• Can not think of its own interests in isolation

– Many network designers, even though companies often see themselves as the ”sun in the universe”

– Change can only be achieved through the network– Any change in a network involves costs, both for those

involved in the change and perhaps for others elsewhere in the network

The Second Network Paradox

• Influence or being influenced• ’The chicken and egg dilemma’:

– A company’s relationships are the outcomes of its own decisions and actions

– A company is the outcome of those relationships and of what has happened in them

• Meaningless to determine what came first– Both situations exist simultaneously and both premises are

equally valid

The Second Network Paradox

• Strategy is inter-active. Not just a question of generating a plan internally, but to generate plans with others

• Both parties necessary for relationship development – least committed company restricts development– most committed company drives development

• Nodes and threads are interdependent

The Third Network Paradox

• Control and letting go of control• Companies try to manage their relationships and

control the network that surrounds them to achieve their own aims

• The more a company achieves this ambition of control, the less effective and innovative will the network be – and ultimately the less successful they will be

Implications for marketing strategy• The key issue is to handle a complex set of

relationships to your benefit• Value creation through co-operation and

competition with key partners (”co-opetition”)• Segmentation in terms of partners or other actors• Targeting and positioning in terms of value co-

creation and mutual dependence:

Industrial Marketing is not a new thing: The Stavanger Canning industry

• 14 canneries in Stavanger in 1900• 36 in 1915, equaling 350 million cans• 72 in 1922• Exports to almost every corner of the world. Labels were

found in French, German, Spanish, Finnish, Icelandic, Chinese, Thai, Arabic and Hebrew, besides English for the markets in the US, England, Australia, New Zealand and South Africa!

• The following quantities of items would be required for the production year 1915:– 4.000 -5.000 brisling (fish),– 350 million rubber rings,– 350 million lids and cans,– 350 million labels,– 3.500.000 wooden boxes and– 10 million liters of olive oil.

• Along the development of the canning production, Stavanger saw the growth of– a large printing industry (for can labels),– a rubber industry (for rubber sealing between can

and lid),– a packaging industry (for lids, cans and keys) ‘– a range of other industries such as machines, rods,

frames, threading tables, and advertising material

New innovations needed

• The rapid development of the industry was aided by a number of product innovations, most notably the Reinert and Opsal seeming machines

• Before the invention of these machines, lids had to be manually welded onto the cans

• A welded could manage between 600 and 700 lids per day. The new machine increased this number by a tenfold

• Price of cans was halved in 1912

End of the industry in the 1960s…

And then..