Managing Business Relationships and Networks

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Managing Business Relationships and Networks

• Morten H. Abrahamsen, PhD
• Associate Professor at BI
• Associate Professor II at TØH

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Overview of Module

• Introduction to Industrial Marketing
• Brief historical and economical background
• Business Network and Business Relationships
• Some underlying theoretical assumptions
• Implications for strategy

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Traditional market view
Sellers
Buyers
- Transactions are important
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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

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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

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Typology of relationships
Transactions (market)
Repeated transactions
Long-term relationships
Partnering
Strat. Alliancer (joint ventures)
Network organisations
Vertical Integration (hierarchy)
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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

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Business Relationship

• Connects two organizations
• Economic dimension
• Technical dimension
• Social dimension
• Immaterial
• Interdependence!

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What is a Business Network?

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

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A Busines Network is not

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

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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?

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Business NetworksBasic 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

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A network perspective
Network Connected relationships
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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.

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Traditional value chain
Raw materials
Horizontal integration
Producer
Vertical integration
Wholesaler
Retailer
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The network on the contrary has no centre, no
beginning and no end..
No company is an island
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Industrial Network Approach
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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/

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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.

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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

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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

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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?

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3 Myths in Business

1. The Myth of Action
2. The Myth of Independence
3. The Myth of Completeness

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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

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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

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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.

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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 companys position is based on its total set
  of relationships
• A companys network position changes and
  develops through interaction with other companies

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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

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Traditional view on marketing strategy
Mission

• Corporate mission statement
• Vision

SWOT anaysis

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

Objectives

• Clear, consise, measurable, etc.

Strategy

• Segmentation, Targeting and Positioning
• 4 P s

Implemen- tation

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

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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

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The network on the contrary has no centre, no
beginning and no end..
No company is an island
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An empirical example from my research
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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

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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

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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

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Oppgave 1

• Diskuter de tre mytene om markedsføring. Hvor
  representative er disse for måten dere tenker på?
• Gi konkrete eksempler.

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Network Paradoxes(Håkansson Ford, 2000)

1. Opportunities - Limitations
2. Influencing - Being influenced
3. Controlling - Being out of control

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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

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The Second Network Paradox

• Influence or being influenced
• The chicken and egg dilemma
• A companys 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

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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

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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

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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

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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!

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• 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.

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• 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

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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

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End of the industry in the 1960s
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And then..