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Adaptive Behavior in Buyer–Supplier Relationships
Adaptive Behavior in Buyer–Supplier Relationships Ross Brennan Peter W. Turnbull It is a feature of business-to-business markets that individual buyer–supplier relationships can assume great importance for both the buying and the selling organization. In such relationships both firms, to a greater or lesser extent, make specific adaptations. Such adaptive behavior may be designed to meet some specific need of the partner, or to nurture and develop the relationship itself. The article, which is based on case studies collected at both ends of 13 buyer–supplier relationships, examines motivations and decision-making processes underlying adaptive behavior in buyer–supplier relationships. As an increasing number of firms espouse an explicit “partnering” approach to buying and selling in business markets, the question is addressed of the extent to which the explicit strategy of the firm (relationship marketing or partnership sourcing) is likely to be reflected in concrete adaptive behavior. © 1999 Elsevier Science Inc. All rights reserved. Address correspondence to Ross Brennan, Middlesex University Business School, The Burroughs, Hendon NW4 4BT, London, United Kingdom. E-mail: [email protected]
Industrial Marketing Management 28, 481–495 (1999) © 1999 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010
INTRODUCTION There is growing recognition that successful businessto-business marketing, in an era of globalization, outsourcing, right sizing, and intensifying competitive pressure, involves the positive management of individual buyer–supplier relationships. Sheth and Sharma [1, 2] have reviewed the evolution of our understanding of organizational buying behavior over three decades, and concluded that as a result of the environmental and competitive pressures which buying firms face, it is to be expected that there will be a continuing trend in procurement practices from transactional approaches toward relationship approaches. Lewin and Johnston [3] reinforced Sheth’s argument, and emphasized that such trends in organizational buying behavior have serious consequences for the conduct of business-to-business marketing. It is at the individual level that interactions between buyers and suppliers take place, and it is at this level that the well-being of buyer–supplier relationships
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is affected. However, those individuals responsible for developing and managing buyer–supplier relationships need to work within a strategic framework, so that the “right” relationships are developed in the “right” ways. Developing buyer–supplier relationships in the right ways requires an understanding of the adaptations which two firms engaged in a long-term relationship implement for each other. The purposes of this article are to report the results of a study of adaptive behavior in the telecommunications and automotive industries, to draw conclusions about the forces which drive adaptive behavior in buyer–supplier relationships, and to reflect on the meaning of these findings for managers responsible for business relationship management. Prior studies have confirmed that specific adaptations by both buying and selling firms in the context of a single business relationship are not unusual. Hakansson [4] reported examples of adaptations, and concluded that they could be classified as adaptations of the product specification, product design, manufacturing processes, planning, delivery procedures, stockholding, administrative procedures or financial procedures. Hallen, Johanson, and SeyedMohamed [5, 6] found that adaptations were associated with the power balance in the relationship, and with the level of commitment and trust between the partners. They suggested that there might be a systematic relationship between the extent of adaptive behavior within a relationship and the development stage of the relationship. Han, Wilson, and Dant [7] emphasized that close buyer–supplier relationships can have a downside, because the specific investments which the parties make in adaptations for each other reduce their freedom of choice in developing alternative relationships. Adaptive behavior for a single partner often creates sunk costs within the relationship, and the opportunity cost of adapting for one partner may be foregoing another good partnering opportunity. Adaptations, and the adaptive behavior which brings them about, are, therefore, conceptually similar to the idea of transaction-specific investments [8, 9]. However, the concept of inter-firm, buyer–seller adaptations is rather broader than that of transaction-specific investments, and more
ROSS BRENNAN is Principal Lecturer in Marketing at Middlesex University Business School. PETER W. TURNBULL is Professor of Marketing at Birmingham Business School.
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compatible with what Möller and Wilson [10] have described as the interaction and network perspective on business marketing, since the unit of analysis is the dyadic relationship rather than the transaction. Adaptive behavior in buyer–supplier relationships can be usefully, and simply, conceptualized in terms of the motivation causing one or other party to adapt, the process by which the adaptation is brought about, and the outcomes of the behavioral process [11]. In this article the outcomes of adaptive behavior and the processes of adaptation are addressed only briefly. On the basis of case study data, confirmatory evidence is described supporting earlier arguments that the concepts of power and social exchange in relationships are important drivers of adaptive behavior. It is argued that, although important, these factors are not exhaustive, and that the strategic marketing (purchasing) orientation of the partners to a relationship is also relevant. A question of considerable interest to marketing practitioners emerges from this discussion, namely, to what extent is the rhetoric of partnership sourcing (and relationship marketing) reflected in the reality of genuine adaptive behavior for relationship partners?
METHODOLOGY Case Study Design Wilson [12] has urged researchers investigating buyer– supplier relationships in business-to-business markets to adopt methods which involve data collection at both ends of the dyad. She argued that the collection of richer data, incorporating the perspectives of respondents from both ends of the dyad, would compensate for the necessarily smaller sample sizes involved. That is the approach which has been adopted here. The results are based on the analysis of only 13 case studies of buyer–supplier relationships, but each of those case studies involved at least two in-depth interviews with managers directly involved in the management of the business relationship, one each from the buying and the selling organization. The case study approach adopted employed what Yin [13] has described as a multiple case, embedded design. Case studies were developed in the automotive and telecommunications sectors.1 In each sector the process of case study development began with an investigation of 1 Company pseudonyms are used throughout to preserve respondent confidentiality. A summary of the case study companies and relationships is provided in Appendix 1.
Adaptive behavior creates sunk costs. the purchasing and supplier management strategies of three major purchasing organizations. Contacts within the purchasing organizations were asked to suggest two supply companies which could be used for the development of dyadic case studies. Respondents in the purchasing and the selling organizations were interviewed regarding the nature of the relationship. In both the purchasing and selling organizations respondents were identified who had direct involvement in the management of the focal relationship. Semi-structured interviews were used as the primary method of data collection, with a topic guide indicating the following broad areas to be investigated: • background information on the respondent and the company • the marketing (purchasing) strategy of the company • trends in the business environment and market • identification of key actors within the broader industry network • history of the focal relationship • adaptations within the focal relationship. In all, 36 qualitative interviews were conducted with a total of 37 managers, representing 15 companies. The fieldwork was conducted in the United Kingdom, with firms headquartered in Europe and North America. A total of
13 buyer–supplier relationships were investigated, between six purchasing organizations and nine supply companies (see Table 1 (see Appendix 1)). Interview length varied from 1 hour to 4 hours, with a mean length of 2 hours. In addition to the face-to-face interviews, a variety of methods (fax, mail, phone, e-mail) were used to clarify or expand upon the data gathered. A number of characteristics of the fieldwork are noteworthy: • while it was anticipated that interviews would be on a one-to-one basis, a number of respondents chose to invite an interested colleague to the meeting, someone whom they believed could provide complementary information • a number of respondents were interviewed more than once • in the telecommunications sector, where the industrial concentration of the supply industry is high, a number of “purchasing” respondents selected the same supplier. This last point had not been anticipated in the original research design, but proved fortuitous as it enabled direct comparisons to be made of the interactions between a single supply company and two or three purchasing organizations. This echoes Yin’s [13] comparison of the case study method with the experimental method. In the origi-
TABLE 1 Summary Data on the Case Studies
Code T1 T2 T3 T4 T5 T6 A1 A2 A3 A4 A5 A6 A7
Customer/Supplier
Custr Adaptation
Custr Orientation
Supplier Adaptations
Supplier Orientation
Age (yrs)
UKTelco/ABC UKTelco/Softco Intelco/ABC Intelco/Canatel Newco/ABC Newco/Canatel USAuto/Intl Exhausts USAuto/UK Metal Detroit Inc/Intl Exhausts Detroit Inc/Nippon Components Detroit Inc/Deutsch Components UKAuto/UK Exhausts UKAuto/US Components
3 3 2 2 1 5 1 1 2 3 2 2 2
(P) (P) (P) (P) P P T T (P) (P) (P) P P
3 3 2 3 1 5 3 5 5 3 2 4 2
T (P) T P T P P (P) P P T P P
30 10 30 10 3 3 19 43 19 2 30 20 2
Power Balance Customer Symmetrical Symmetrical Symmetrical Supplier Supplier Customer Customer Customer Customer Symmetrical Customer Symmetrical
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An enormous variety of adaptive behavior. nal research design it was intended to hold the “purchaser” variable constant, and to alter the “supplier” variable. Fortuitously, the case studies created instances where the “supplier” variable was held constant while the “purchaser” variable was altered. This made it possible to explore the impact of one supplier’s marketing strategy in the context of two or more customer relationships. As a means of validating the information gathered, notes of each qualitative interview were sent to the respondent for comment shortly after the meeting. A number of respondents provided feedback on the interview notes, usually where a point of fact regarding the industry or the relationship needed to be clarified. Subsequently, respondents were sent a report summarizing the results from the complete series of interviews, and again invited to comment. At this stage, presumably because it was by now some time since the interviews had been conducted, the number of responses received was low. This kind of process, sending interview notes and findings to respondents, is advocated by Miles and Huberman [14] as one method of validating qualitative research data. In this study, some useful responses were received, and the process of engaging respondents in a dialogue improved the researcher/respondent relationship, facilitating subsequent access.
adaptation tends to be more visible than partner adaptation. Undoubtedly, there is a tendency to classify what the other party does as “no more than should be expected” (not an adaptation), and what one’s own company does as “over and above normal expectations” (an adaptation). 2. More particularly, where a large customer interacts with a small supplier, the customer tends to underestimate the effort required within the supplier organization to respond to routine requests. For example, the large car OEMs expect their suppliers to adopt the current fashion in quality standards (e.g., ISO9000, QS9000 and customer-specific systems), and appear not to realize the administrative burden which this places on a small firm. The scale of an adaptation is normally judged against the resources available to your own organization. 3. The interpretation placed on a specific adaptation by the supplier and the customer can be different. For example, an adaptation perceived by Intelco respondents as a “breakthrough” in developing their relationship with ABC (where ABC were persuaded to release proprietary source code) was regarded by ABC respondents as a crude exploitation of power by Intelco, if anything damaging rather than strengthening the relationship.
Measurement and Analysis
It follows that all the other aspects of measurement of adaptation are colored by the perspective of the respondent. A relationship in which the customer (let us say, an automobile OEM) believes that the supplier has adapted infrequently, and on only a small scale, could be the same one in which the supplier (say, a small-scale automotive component manufacturer) believes that he has adapted often, and has devoted substantial resources to specific investment for the customer. Therefore, straightforward measurement techniques based on the reporting of the frequency and magnitude of adaptations by a respondent from one or other party to a relationship are fundamentally flawed. To reinforce Wilson’s [12] argument concerning the desirability of dyadic methods, the measurement of adaptation frequency and magnitude must be based, at least, on reports from respondents in both organizations.
For purposes of research convenience it is easier to concentrate on the perceptions of one party to the relationship concerning inter-firm adaptations (single-end research). Where the research objectives clearly pertain to single-end perceptions of adaptation behavior, this approach is valid. However, where the research objectives are to establish the “truth” of inter-firm adaptation behavior, this approach can only be valid if the perceptions of the parties do not differ substantially. One of the findings from this study is that differences of perception regarding adaptive behavior do exist between buying and selling organizations. To summarize: 1. In general, respondents tended to emphasize adaptations made by their organization, and place less emphasis on adaptations made by the counterpart. Self484
Absence of trust will discourage important adaptive behavior. The preliminary analysis of the data was conducted using the qualitative data analysis software QSR NUD.IST (version 3 for Windows). The use of specialist software for the analysis of qualitative data has been discussed by Weitzman and Miles [15]. Such software only facilitates the traditional qualitative analytical processes of developing an appropriate coding structure and applying the codes to the data, it cannot do the analysis. Once the data had been coded, the procedures recommended by Miles and Huberman ([14, ], pp. 197–200) for the development of qualitative scatterplot displays were followed. The basis for the scatterplots is presented in Appendix 2, where the definitions of the variables constructed from the case study data are also provided. Clearly this kind of display is not intended to serve the same purpose as a scatterplot derived from a representative, large-scale sample, employing quantitative analytical procedures. In an intrinsically quantitative study the data points in a scatterplot are largely decontextualised (although, even here, the analyst is likely to return to the original data to try to explain outliers). In an intrinsically qualitative study, such as this, the purpose of the analysis is to identify patterns in the data, which can then be further explored by returning to the original, rich case descriptions—the displays cannot be interpreted on their own, but only in the context of the case analyses. Therefore, throughout the following sections of this article, in which the results are discussed, there is a constant interplay between the convenient, but highly simplified scatterplot displays, and the original qualitative data. Figures 3, 5, 7, and 8 present scatterplots of the association between supplier adaptations and relationship age, power balance, customer and supplier managerial orientation. Figures 4, 6, 9, and 10 present the same analyses for customer adaptations. PROCESSES OF DECISION MAKING IN BUYER–SELLER ADAPTATIONS In this section the findings from the study concerning managerial decision-making processes involved in adap-
tive behavior are discussed. The field research revealed an enormous variety of adaptive behavior, ranging from minor adaptations involving some additional inter-organizational contact and exchange of non-confidential information, to major adaptations such as investment in large-scale customer-specific manufacturing equipment. Not surprisingly, there was an equally wide range of decision-making processes. In some cases adaptations took place without any conscious decision having been taken, while in other cases adaptations occurred only after extensive and formal data gathering, analysis, and decisionmaking processes. In the former case, adaptation is an unplanned process that “just happens,” and there is no explicit evaluation of the net gain from adaptation either propter hoc or post hoc. In the latter case, adaptation is an extensively planned process, based explicitly on the formal evaluation of net gain, with post hoc evaluation of whether the anticipated return has been achieved. Given this diversity in the decision-making process, an attempt is made here to categorize the different decision processes, and to identify the circumstances under which different decision-making processes are applicable. The theoretical framework suggested by Brennan and Turnbull [16] is used to structure the analysis. In Figure 1 adaptive behavior in buyer–supplier relationships is evaluated using the dimensions scale and formality. Relatively minor adaptations which are also planned are designated “tactical adaptations,” because they can be thought of as political bargaining chips within the relationship. Major, planned adaptations, such as investment in large-scale manufacturing plant for a single customer, are designated “strategic adaptations,” and involve formalized decision-making processes such as discounted cash-flow analysis. Minor, unplanned adaptations are regarded as a kind of organizational socialization process, by which two organizations learn how best to do business with each other. However, the accumulation of relatively small-scale adaptations over time can cause one firm to become substantially adapted to meet the needs of another, by a process rather like Mintz485
FIGURE 1.
Adaptation process: Scale and formality.
berg’s [17] idea that strategy can emerge as a pattern in a stream of decisions. Another way of thinking about this is that one or both firms in a buyer–supplier relationship can evolve in such a way that, over time, they become highly adapted for that single relationship. In this way, without any explicit decision being taken, extensive relationship-specific adaptation can take place. The involvement and influence of different managerial levels and departments in the adaptation process is asso-
ciated with the nature of the adaptation and of the decision-making process. This association is illustrated in Table 2. Broadly, where planned adaptation decisions are involved the decision-making level, and the number of departments involved in the decision-making process vary with the magnitude of the prospective adaptation. Where the adaptations are unplanned, it is not possible to specify either a decision-making level or the range of departments involved in the process.
TABLE 2 Decision-Making in Adaptation Processes
EXPLAINING ADAPTIVE BEHAVIOR
Tactical adaptations: Political process Decision-making level: Typically at senior level of functional management (e.g. Purchasing Director to sign-off amended terms of contract) or at Board level Departments involved: Limited number of departments, nature of which depends upon the area in which the decision lies (e.g. purchasing and legal affairs where terms of contract are involved) Ad hoc adaptations: Socialization process Decision-making level: Various, but generally at operating manager level in a large company. Decisions may be made at a senior level within a small company (within which (a) there are fewer decision-making levels and (b) a given adaptation is comparatively more important than in a large company). Departments involved: Normally only the department actually implementing the adaptation. Strategic adaptations: Formal decision-making or investment process Decision-making level: Top management Departments involved: Wide range of departments for purposes of data gathering and analysis incl. marketing/purchasing, engineering, quality, production/operations, finance, legal affairs Tacit adaptations: Emergent decision or evolutionary process Decision-making level: Undefined, since such decisions are ‘emergent’ rather than planned. Departments involved: Also undefined. Multiple departments will have been involved in the decisions which have created a situation of ‘tacit adaptation’.
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Trust and Commitment It is to be expected that the levels of trust and commitment will affect adaptive behavior, and that adaptations, in turn, will “feed back” into increased trust and commitment. A number of specific examples from the case studies illustrate this process: • Newco/Canatel: in a very short time, the parties to the relationship have succeeded in bringing about a relationship atmosphere which is so close and trusting that some of Canatel’s competitors have withdrawn from bidding for Newco contracts—adaptations on both sides have been extensive, bringing about a rapid growth of trust. • Detroit Inc./International Exhausts: International Exhausts’ investment in specific manufacturing capacity for Detroit Inc. was a demonstration of both trust and commitment within the relationship, and the atmosphere of the Detroit Inc./International Exhausts relationship is characterized by notably higher levels of
Little association between adaptations and relationship age. cooperation and trust than the comparable International Exhausts/USAuto relationship.
The evidence from the case studies, therefore, supports the following assertions:
Equally, it is to be expected that the absence of trust in a relationship will discourage important adaptive behavior. For example:
1. That a relationship characterized by high levels of trust and low antagonism is associated with high levels of adaptation. 2. That high levels of adaptation feed back into the relationship, increasing levels of trust and cooperation. 3. That a relationship characterized by low levels of trust and high antagonism, is associated with the withholding of potential adaptations.
• USAuto/UK Metal: UK Metal reported that they withhold important cost information from USAuto because they are convinced that it would be used against them (i.e., that USAuto would use their considerable power advantage to appropriate any efficiency gains achieved by UK Metal, in this case an atmosphere of mistrust prevents adaptations from taking place which could be of mutual benefit). • UKTelco/ABC: despite partnering overtures from senior management levels within UKTelco, operational managers within ABC have grown used to being treated harshly by this powerful customer in negotiations, and this inhibits adaptation; again, a low-trust/ high-antagonism atmosphere prevents potentially beneficial adaptations from taking place. • Intelco/Canatel: there is a similar pattern in this relationship, with the difference that power is more symmetrical, but again the problem was observed that entrenched mistrust and antagonism at operational levels was inhibiting a planned partnering initiative from bringing about beneficial adaptations. This relationship can be fruitfully compared with the Newco/Canatel relationship (the supplier is a constant, the purchasing organization is different), where substantial mutual adaptation was observed, alongside the rapid development of trust. In the Newco/Canatel relationship there was no entrenched mistrust to oppose the partnership development process, since Newco is a relatively young company, formed only a few years ago to exploit the deregulation of the British telecommunications market. It seems to follow, therefore, that absent adaptations can be regarded as the opportunity cost of a low trust, antagonistic relationship.
Given these assertions, reciprocal adaptation would be expected from the parties to high-trust/high-commitment relationships, and an association would be expected between levels of supplier and customer adaptation. Figure 2 provides limited evidence in support of this idea. There is a broadly positive association between supplier and customer adaptations. However, there is a discrepancy between the telecommunications case studies (prefix T) and the automotive case studies (prefix A). An explanation may lie in the generally asymmetrical balance of power in automotive industry relationships. The role of power in adaptive behavior is discussed below.
Adaptations and Relationship Age Ford [18] has suggested a link between adaptive behavior and relationship life-cycle stage, and Hallen et al. [5] proposed a systematic relationship between adaptations and the stage of relationship development. However, Figures 3 and 4 suggest that there is little association between adaptations and relationship age. There was some evidence from the automotive sector that OEMs expect certain adaptations (such as JIT delivery and implementation of recognized quality systems) as a matter of course from their new suppliers, implying a clustering of adaptations in the early years of the relationship. On the other hand, in the case of the longest-lived relationships in the telecommunications sector (UKTelco/ABC, In487
FIGURE 2.
Supplier and customer adaptations.
telco/ABC), it was the relative scarcity of adaptations which was a cause for surprise. In such cases, where two firms have done business together for so long, then it is possible that most of the necessary inter-firm adaptations have already been implemented, so that little recent activity is reported. This is akin to Ford’s idea that adaptations would become less noticeable during the long-term phase of the relationship life-cycle [18]. There is little evidence of any regular pattern in the timing of adaptations within buyer–seller relationships. In some cases there may be an early cluster of adaptations, primarily of the socialization type, in order to facil-
FIGURE 3.
488
itate business between the two firms. In other cases there are long periods of relative inactivity, followed by bursts of new adaptation (for example, UKTelco/Softco [T2]). Major investment-type adaptations have been observed both at an early stage of the relationship (Newco/Canatel [T6]) and in a well-established, mature relationship (Detroit Inc/International Exhausts [A3]). Naturally, adaptations which fall into the “tacit” or “emergent” category, and which follow from a long sequence of decisions which eventually bind a company very tightly to a partner, will only be seen in mature relationships (e.g., USAuto/UK Metal [A2]).
Supplier adaptations and relationship age.
FIGURE 4.
Customer adaptations and relationship age.
Adaptations and Relationship Power Balance Hallen et al. [5] found that adaptations in buyer–supplier relationships were associated with relative power. Figure 5 indicates the existence of an association between supplier adaptations and the relationship power balance, while Figure 6 indicates little association between customer adaptations and power balance. The association between supplier adaptations and the relationship power balance is expected, based on the resource-dependence theory of Pfeffer and Salancik [19]. The presumed causal mechanism linking adaptations to power is based upon the high degree of dependence of
FIGURE 5.
the supplier on the customer, and therefore the ability of the customer organization either through the coercive or the implicit exploitation of this power balance to enforce adaptations. Underlying this process is the knowledge that “you need us more than we need you,” and the threat (usually implicit, sometimes explicit) that “if you don’t do what we want, then we will take our business elsewhere.” Such a causal mechanism is highly plausible in the USAuto/UK Metal case (A2), but less plausible in the Detroit Inc/International Exhausts case (A3). In the former case, managers at UK Metal are very conscious of the company’s dependence on USAuto, and clearly feel co-
Supplier adaptations and power balance.
489
FIGURE 6.
Customer adaptations and power balance.
erced into substantial organizational adaptations. Where UK Metal resisted this coercion (and refused a specific adaptation for a USAuto division), they are convinced that this caused a loss of goodwill and of subsequent business. However, in the latter case the impression of the relationship is different. The Detroit Inc./International Exhausts case is characterized by apparently high levels of trust, and there is no evidence that International Exhausts was coerced into the major adaptations which it has undertaken for Detroit Inc. The managerial orientations of the two parties were at least as important as the relationship power balance in bringing about supplier adaptations. International Exhausts were determined to foster long-term relationships with key customers, while Detroit Inc. is in the process of developing a supplier partnering strategy. There is little evidence in Figure 6 of an association between customer adaptations and the relationship power balance. However, important instances of customer adaptation were identified during the field research which did seem to be associated with power. For example, Detroit Inc. has adapted their standard terms of contract for Deutsch Components—this is not a major adaptation in resource terms, but is significant from the Detroit Inc. perspective. In another case (from the pilot study), a Detroit Inc. manager described how Detroit Inc. had tamely acceded to an 8% price increase from an American supplier, when price reductions were being demanded from other suppliers. In both of these cases, the explanation from Detroit Inc. is that the supplier is acknowledged to have a world-wide technological lead in an important 490
product area, so that Detroit Inc.’s buying power is effectively canceled out. It may be that the contradiction between such examples and the absence of any association in Figure 8 may simply be attributed to the limitations of the data. The study was designed to understand adaptation behavior in context, and therefore uses comparatively few, in-depth case studies, which were selected non-randomly. The outlier relationships in Figures 5 and 6 revolve around the telecommunications organization Newco. In the Newco/Canatel relationship (T6), there has been substantial supplier adaptation, despite a power balance clearly favoring the supplier. In the Newco/ABC relationship (T5), there has been negligible customer adaptation, again despite a power balance which favors the supplier. These examples demonstrate that power alone is insufficient as an explanation of adaptation behavior. Another striking example is that between the USAuto/International Exhausts relationship (A1) and the Detroit Inc./International Exhausts relationship (A3). Despite a similar power balance in each case, International Exhausts has adapted markedly less for USAuto than for Detroit Inc. Adaptations and Managerial Orientation The role of managerial orientation in explaining adaptive behavior has not been explored in prior research, but emerged from the preliminary analysis of the qualitative data. Each of the firms investigated has a unique orientation toward partnership development. However, these can be classified into three dominant categories.
Substantial adaptations can “emerge” incrementally. 1. Transactional. Inter-firm relationships are managed predominantly on a transactional basis: if a buying organization, then there is no policy to develop longterm partnership sources, if a selling organization, there is no (explicit or implicit) policy of relationship marketing. 2. Transitional. Historically, inter-firm relationships have been managed on a transactional basis. However, the organization is now committed, at the top management level, to develop a relational approach. If a buying organization, a policy of partnership sourcing has been developed, if a selling organization, efforts are being made to develop long-term customer relationships. 3. Partnering. Partnership sourcing, or relationship marketing, are now firmly embedded in organizational practice (i.e., the problems of implementation have been successfully addressed). Each organization has been classified according to this framework in Table 3. Figures 7 and 8 examine the following associations: • between supplier adaptations and customer orientation: does a partnership sourcing policy tend to promote adaptations on the part of supply firms?
Table 3 Buying and Selling Firms Managerial Orientation Transactional
Transitional
Partnering
Buying USAuto Selling ABC Deutsch Components
Buying UKTelco Intelco Detroit Inc Selling Softco UK Metal
Buying Newco UKAuto Selling Canatel International Exhausts Nippon Components UK Exhausts US Components
• between supplier adaptations and supplier orientation: does an orientation toward relationship marketing tend to promote adaptations within the supply firm? Only the direct association between supplier adaptations and supplier managerial orientation emerges clearly from the diagrams. In five relationships, supplier adaptations were judged to be substantial (level 4 or 5), and in four of these relationships the supplier has successfully implemented relationship marketing. In four relationships, supplier adaptations were judged to be relatively minor (level 1 or 2), and in three of these relationships the supplier pursues a transactional approach to marketing. Figures 9 and 10 examine the following associations: • between customer adaptations and supplier orientation: does a relationship marketing approach tend to promote adaptations on the part of customer firms? • between customer adaptations and customer orientation: does an orientation toward partnership sourcing tend to promote adaptations within the customer firm? There is no real support for these associations from the figures, nor from the detailed information which was gathered in the case studies. There is an outlier relationship (Newco/Canatel, T6) which, if excluded, would remove any discernible pattern from the scatter. This was, indeed, a rather unusual buyer–seller relationship, in which the relatively young buying organization (Newco) has made an explicit strategic management decision to out-source the bulk of its systems operations. The substantial adaptation of Newco for Canatel is best explained in terms of concrete managerial decision making, not in terms of resource dependence (power) or pre-existing trust/commitment. MANAGERIAL IMPLICATIONS Adaptive behavior in buyer–supplier relationships is both planned and unplanned. Where adaptation is planned it appears that the relationships between the magnitude of the adaptation decision, the seniority of the decision491
FIGURE 7.
Supplier adaptations and customer orientation.
making level, and the complexity of the data gathering and decision-making processes are fairly direct, as might be expected. However, substantial adaptations can emerge incrementally over time as a result of a sequence of decisions, each of which was individually relatively unimportant. This conclusion has immediate managerial significance. Managers must be aware that, as a result of a series of incremental decisions none of which is in itself substantial, their firm can become substantially adapted to the needs of one other firm. Han, Wilson, and Dant [7] have pointed out that close relationships have disadvantages as well as advantages and, consequently, that the
FIGURE 8.
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acquisition of such relationships should be handled with care. In the absence of some process of strategic relationship management, there is a danger that a firm could, through an unplanned process of adaptation, become deeply involved in a disadvantageous relationship. In the process of strategic relationship management, the actual and desired balance of adaptive behavior in the relationship is a matter which should receive attention. This study has provided further evidence to support the finding reported by Hallen et al. [5] that adaptations within a buyer–supplier relationship tend to increase levels of trust and enhance commitment to the relationship.
Supplier adaptations and supplier orientation.
FIGURE 9.
Customer adaptations and supplier orientation.
In turn, as trust and commitment grow, so there is a greater likelihood of mutually advantageous adaptive behavior. However, in one of the case study relationships there was evidence that this kind of virtuous cycle had gone too far, and the perception of both parties was that some reduction in intimacy would be desirable—sharing just a little less confidential information, being involved less in each other’s strategic planning processes, taking it less as a given that the supplier would always be first choice for certain types of equipment purchase. Managers should be aware that there is a healthy limit to the relationship development process, beyond which the costs begin to outweigh the benefits.
FIGURE 10.
The age of a relationship appears to be a poor predictor of the extent of current adaptation activity. If age is used as a proxy for the stage of relationship development, then there is no evidence of a link between relationship stage and adaptive behavior. Certainly there are cases where the early phase of a relationship is characterized by a burst of adaptation activity. Equally, there are relationships in which, after a “quiet period,” there is a further burst of adaptations—perhaps in response to some external change (e.g., in technology), perhaps in response to a change of managerial policy in one of the parties to the relationship (e.g., a customer implements “supplier partnering”). However, there seems to be no general relation-
Customer adaptations and customer orientation.
493
ship between adaptation intensity and relationship age. It might be possible to establish some link between adaptive behavior and the stage of development of a relationship measured using something other than relationship age. However, in recent years academic opinion has turned against the notion that buyer–supplier relationships pass through neat stages of development [20, 21]. On balance, these findings are probably good news for managers. What is implied is that the age of a relationship is not intrinsically a barrier to adaptive behavior. Relationships which appear to have settled into a long-term pattern of behavior, perhaps of only marginal value to the parties, can be revitalized by positive management action (for example, the UK Telco/Softco relationship). An unsurprising conclusion is that adaptive behavior is influenced by the power balance within the relationship. This confirms earlier findings [4], and corresponds with common sense. From a managerial perspective, perhaps the key finding is that adaptations are driven by other factors in addition to power. Admittedly, to the small supplier, dwarfed and dominated by a major OEM customer which accounts for a very large proportion of its sales, this finding may not be very comforting. Certainly, there are circumstances in which an imbalance of power is the primary factor driving adaptive behavior (for example, UK Metal/US Auto). Managerial orientation emerges as an important factor driving adaptations in the case of suppliers which adopt a relational approach to marketing. Other associations between managerial orientation and adaptations were less clear. In particular, examples have been found of buying firms which explicitly espouse a partnership sourcing philosophy, but whose suppliers perceive no enhanced support. No general relationship between a commitment to partnership sourcing and concrete actions to support suppliers emerged from the data. Managers marketing to firms which are in the process of implementing such programs are, therefore, advised to exercise all of their natural caution, and to look for tangible outcomes from the program before investing further in the relationship. Additional investment creates additional dependency, which enhances buyer power. In the absence of compensating relationship investments by the buying organization, all that has happened is that the supplier has reduced its bargaining power in the relationship.
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REFERENCES 1. Sheth, J.: Organizational Buying Behavior: Past Performance and Future Expectations. Journal of Business and Industrial Marketing 11, 7–24 (1996). 2. Sheth, J., and Sharma, A.: Relationship Marketing: An Agenda for Inquiry. Industrial Marketing Management 26, 91–100 (1997). 3. Lewin, J. E., and Johnston, W. J.: The Effects of Organizational Restructuring on Industrial Buying Behavior: 1990 and Beyond. Journal of Business and Industrial Marketing 11, 93–111 (1996). 4. Hakansson, H. (ed): International Marketing and Purchasing of Industrial Goods. John Wiley and Son, Chichester, 1982. 5. Hallen, L., Johanson, J., and Seyed-Mohamed, N.: Interfirm Adaptation in Business Relationships. Journal of Marketing 55, April, 29–37 (1991). 6. Hallen, L., Johanson, J., and Seyed-Mohamed, N.: Dyadic Business Relationships and Customer Technologies. Journal of Business-to-Business Marketing 1(4) 63–90 (1993). 7. Han, S.-L., Wilson, D. T., and Dant, S. P.: Buyer–Supplier Relationships Today. Industrial Marketing Management 22, 331–338 (1993). 8. Williamson, O. E.: The Economic Institutions of Capitalism. Free Press, New York, 1985. 9. Nielson, C. C.: An Empirical Examination of Switching Cost Investments in Business-to-Business Marketing Relationships. Journal of Business and Industrial Marketing 11(6) 38–60 (1996). 10. Möller, K., and Wilson, D. T. (eds): Business Marketing: An Interaction and Network Perspective. Kluwer Academic Publishers, Dordrecht, 1995. 11. Brennan, D. R.: Adaptations in Inter-Firm, Buyer-Seller Relationships, unpublished PhD thesis, University of Manchester Institute of Science and Technology (1998). 12. Wilson, E. J.: Theory Transitions in Organizational Buying Behavior Research. Journal of Business and Industrial Marketing 11(6) 7–19 (1996). 13. Yin, R. K.: Case Study Research: Design and Methods, 2nd edition. Sage, Thousand Oaks, CA, 1994. 14. Miles, M. B., and Huberman, A. M.: An Expanded Sourcebook: Qualitative Data Analysis, 2nd edition. Sage, Thousand Oaks, CA, 1994. 15. Weitzman, E. B., and Miles, M. B.: A Software Sourcebook: Computer Programs for Qualitative Data Analysis. Sage, Thousand Oaks, CA, 1995. 16. Brennan, R., and Turnbull, P. W.: The Process of Adaptation in Inter-Firm Relationships, in Relationships and Networks in International Markets, H-G. Gemunden, T. Ritter, A. Walter, eds., Elsevier, Oxford, 1997. 17. Mintzberg, H.: The Rise and Fall of Strategic Planning. Prentice Hall, New York, 1994. 18. Ford, D.: The Development of Buyer-Seller Relationships in Industrial Markets. European Journal of Marketing 14(5/6) 339–354 (1980). 19. Pfeffer, J., and Salancik, G. R.: The External Control of Organizations: A Resource Dependence Perspective. Harper and Row, New York, 1978. 20. Turnbull, P. W., Ford, D., and Cunningham, M.: Interaction, Relationships and Networks in Business Markets: An Evolving Perspective. Journal of Business and Industrial Marketing 11, 3/4, 44–62 (1996). 21. Halinen, A.: Exchange Relationships in Professional Services: A Study of Relationship Development in the Advertising Sector. Publications of the Turku School of Economics and Business Administration, Turku, 1994.
APPENDIX 1 Case Study Companies
APPENDIX 2 Basis for the Cross-Case Matrix Analysis
PURCHASING ORGANISATIONS UKTelco UK and international telecommunications provider Intelco UK based international telecommunications provider Newco UK telecommunications provider USAuto US based global automobile manufacturer Detroit Inc US based global automobile manufacturer UKAuto German owned, UK based automobile manufacturer SELLING ORGANISATIONS ABC UK/German owned, UK based telecommunications manufacturer Softco Major American software company Canatel Canadian owned global telecommunications manufacturer International Exhausts UK exhaust manufacturer, subsidiary of a US conglomerate UK Metal Small UK metal component manufacturer Nippon Components Joint UK/Japanese owned automotive component manufacturer Deutsch Components Large family-owned German automotive component manufacturer UK Exhausts UK exhaust manufacturer, subsidiary of a UK automotive Group US Components UK components subsidiary of USAuto RELATIONSHIPS INVESTIGATED Purchasing organization Selling organization UKTelco with ABC UK Telco with Softco Intelco with ABC Intelco with Canatel Newco with ABC Newco with Canatel USAuto with International Exhausts USAuto with UK Metal Detroit Inc with International Exhausts Detroit Inc with Nippon Components Detroit Inc with Deutsch Components UKAuto with UK Exhausts UKAuto with US Components
Definition of Terms Adaptations Scale I. Negligible adaptations of any kind II. Some adaptations, relatively minor (socialisation) III. Considerable socialisation adaptation or small-scale strategic adaptation IV. Substantial strategic adaptation has taken place V. The organization is substantially adapted to the partner, several strategic adaptations, or evidence of extensive tacit adaptation Orientation Scale • T 5 Transactional: buying and selling processes are managed on a predominantly transactional, arm’s length basis • (P) 5 Transitional: the organization is in the process of implementing a partnership sourcing or relationship marketing strategy (policy) • P 5 Partnering: evidence that the organization has successfully implemented a partnership sourcing or relationship marketing strategy (policy) Power Scale • Customer: the supplier is relatively more dependent than the customer on the relationship • Symmetrical: there is an approximate equivalence between the parties in terms of dependence • Supplier: the customer is relatively more dependent than the supplier on the relationship
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Industrial Marketing Management 28, 481–495 (1999) © 1999 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010
INTRODUCTION There is growing recognition that successful businessto-business marketing, in an era of globalization, outsourcing, right sizing, and intensifying competitive pressure, involves the positive management of individual buyer–supplier relationships. Sheth and Sharma [1, 2] have reviewed the evolution of our understanding of organizational buying behavior over three decades, and concluded that as a result of the environmental and competitive pressures which buying firms face, it is to be expected that there will be a continuing trend in procurement practices from transactional approaches toward relationship approaches. Lewin and Johnston [3] reinforced Sheth’s argument, and emphasized that such trends in organizational buying behavior have serious consequences for the conduct of business-to-business marketing. It is at the individual level that interactions between buyers and suppliers take place, and it is at this level that the well-being of buyer–supplier relationships
0019-8501/99/$–see front matter PII S0019-8501(99)00057-7
is affected. However, those individuals responsible for developing and managing buyer–supplier relationships need to work within a strategic framework, so that the “right” relationships are developed in the “right” ways. Developing buyer–supplier relationships in the right ways requires an understanding of the adaptations which two firms engaged in a long-term relationship implement for each other. The purposes of this article are to report the results of a study of adaptive behavior in the telecommunications and automotive industries, to draw conclusions about the forces which drive adaptive behavior in buyer–supplier relationships, and to reflect on the meaning of these findings for managers responsible for business relationship management. Prior studies have confirmed that specific adaptations by both buying and selling firms in the context of a single business relationship are not unusual. Hakansson [4] reported examples of adaptations, and concluded that they could be classified as adaptations of the product specification, product design, manufacturing processes, planning, delivery procedures, stockholding, administrative procedures or financial procedures. Hallen, Johanson, and SeyedMohamed [5, 6] found that adaptations were associated with the power balance in the relationship, and with the level of commitment and trust between the partners. They suggested that there might be a systematic relationship between the extent of adaptive behavior within a relationship and the development stage of the relationship. Han, Wilson, and Dant [7] emphasized that close buyer–supplier relationships can have a downside, because the specific investments which the parties make in adaptations for each other reduce their freedom of choice in developing alternative relationships. Adaptive behavior for a single partner often creates sunk costs within the relationship, and the opportunity cost of adapting for one partner may be foregoing another good partnering opportunity. Adaptations, and the adaptive behavior which brings them about, are, therefore, conceptually similar to the idea of transaction-specific investments [8, 9]. However, the concept of inter-firm, buyer–seller adaptations is rather broader than that of transaction-specific investments, and more
ROSS BRENNAN is Principal Lecturer in Marketing at Middlesex University Business School. PETER W. TURNBULL is Professor of Marketing at Birmingham Business School.
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compatible with what Möller and Wilson [10] have described as the interaction and network perspective on business marketing, since the unit of analysis is the dyadic relationship rather than the transaction. Adaptive behavior in buyer–supplier relationships can be usefully, and simply, conceptualized in terms of the motivation causing one or other party to adapt, the process by which the adaptation is brought about, and the outcomes of the behavioral process [11]. In this article the outcomes of adaptive behavior and the processes of adaptation are addressed only briefly. On the basis of case study data, confirmatory evidence is described supporting earlier arguments that the concepts of power and social exchange in relationships are important drivers of adaptive behavior. It is argued that, although important, these factors are not exhaustive, and that the strategic marketing (purchasing) orientation of the partners to a relationship is also relevant. A question of considerable interest to marketing practitioners emerges from this discussion, namely, to what extent is the rhetoric of partnership sourcing (and relationship marketing) reflected in the reality of genuine adaptive behavior for relationship partners?
METHODOLOGY Case Study Design Wilson [12] has urged researchers investigating buyer– supplier relationships in business-to-business markets to adopt methods which involve data collection at both ends of the dyad. She argued that the collection of richer data, incorporating the perspectives of respondents from both ends of the dyad, would compensate for the necessarily smaller sample sizes involved. That is the approach which has been adopted here. The results are based on the analysis of only 13 case studies of buyer–supplier relationships, but each of those case studies involved at least two in-depth interviews with managers directly involved in the management of the business relationship, one each from the buying and the selling organization. The case study approach adopted employed what Yin [13] has described as a multiple case, embedded design. Case studies were developed in the automotive and telecommunications sectors.1 In each sector the process of case study development began with an investigation of 1 Company pseudonyms are used throughout to preserve respondent confidentiality. A summary of the case study companies and relationships is provided in Appendix 1.
Adaptive behavior creates sunk costs. the purchasing and supplier management strategies of three major purchasing organizations. Contacts within the purchasing organizations were asked to suggest two supply companies which could be used for the development of dyadic case studies. Respondents in the purchasing and the selling organizations were interviewed regarding the nature of the relationship. In both the purchasing and selling organizations respondents were identified who had direct involvement in the management of the focal relationship. Semi-structured interviews were used as the primary method of data collection, with a topic guide indicating the following broad areas to be investigated: • background information on the respondent and the company • the marketing (purchasing) strategy of the company • trends in the business environment and market • identification of key actors within the broader industry network • history of the focal relationship • adaptations within the focal relationship. In all, 36 qualitative interviews were conducted with a total of 37 managers, representing 15 companies. The fieldwork was conducted in the United Kingdom, with firms headquartered in Europe and North America. A total of
13 buyer–supplier relationships were investigated, between six purchasing organizations and nine supply companies (see Table 1 (see Appendix 1)). Interview length varied from 1 hour to 4 hours, with a mean length of 2 hours. In addition to the face-to-face interviews, a variety of methods (fax, mail, phone, e-mail) were used to clarify or expand upon the data gathered. A number of characteristics of the fieldwork are noteworthy: • while it was anticipated that interviews would be on a one-to-one basis, a number of respondents chose to invite an interested colleague to the meeting, someone whom they believed could provide complementary information • a number of respondents were interviewed more than once • in the telecommunications sector, where the industrial concentration of the supply industry is high, a number of “purchasing” respondents selected the same supplier. This last point had not been anticipated in the original research design, but proved fortuitous as it enabled direct comparisons to be made of the interactions between a single supply company and two or three purchasing organizations. This echoes Yin’s [13] comparison of the case study method with the experimental method. In the origi-
TABLE 1 Summary Data on the Case Studies
Code T1 T2 T3 T4 T5 T6 A1 A2 A3 A4 A5 A6 A7
Customer/Supplier
Custr Adaptation
Custr Orientation
Supplier Adaptations
Supplier Orientation
Age (yrs)
UKTelco/ABC UKTelco/Softco Intelco/ABC Intelco/Canatel Newco/ABC Newco/Canatel USAuto/Intl Exhausts USAuto/UK Metal Detroit Inc/Intl Exhausts Detroit Inc/Nippon Components Detroit Inc/Deutsch Components UKAuto/UK Exhausts UKAuto/US Components
3 3 2 2 1 5 1 1 2 3 2 2 2
(P) (P) (P) (P) P P T T (P) (P) (P) P P
3 3 2 3 1 5 3 5 5 3 2 4 2
T (P) T P T P P (P) P P T P P
30 10 30 10 3 3 19 43 19 2 30 20 2
Power Balance Customer Symmetrical Symmetrical Symmetrical Supplier Supplier Customer Customer Customer Customer Symmetrical Customer Symmetrical
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An enormous variety of adaptive behavior. nal research design it was intended to hold the “purchaser” variable constant, and to alter the “supplier” variable. Fortuitously, the case studies created instances where the “supplier” variable was held constant while the “purchaser” variable was altered. This made it possible to explore the impact of one supplier’s marketing strategy in the context of two or more customer relationships. As a means of validating the information gathered, notes of each qualitative interview were sent to the respondent for comment shortly after the meeting. A number of respondents provided feedback on the interview notes, usually where a point of fact regarding the industry or the relationship needed to be clarified. Subsequently, respondents were sent a report summarizing the results from the complete series of interviews, and again invited to comment. At this stage, presumably because it was by now some time since the interviews had been conducted, the number of responses received was low. This kind of process, sending interview notes and findings to respondents, is advocated by Miles and Huberman [14] as one method of validating qualitative research data. In this study, some useful responses were received, and the process of engaging respondents in a dialogue improved the researcher/respondent relationship, facilitating subsequent access.
adaptation tends to be more visible than partner adaptation. Undoubtedly, there is a tendency to classify what the other party does as “no more than should be expected” (not an adaptation), and what one’s own company does as “over and above normal expectations” (an adaptation). 2. More particularly, where a large customer interacts with a small supplier, the customer tends to underestimate the effort required within the supplier organization to respond to routine requests. For example, the large car OEMs expect their suppliers to adopt the current fashion in quality standards (e.g., ISO9000, QS9000 and customer-specific systems), and appear not to realize the administrative burden which this places on a small firm. The scale of an adaptation is normally judged against the resources available to your own organization. 3. The interpretation placed on a specific adaptation by the supplier and the customer can be different. For example, an adaptation perceived by Intelco respondents as a “breakthrough” in developing their relationship with ABC (where ABC were persuaded to release proprietary source code) was regarded by ABC respondents as a crude exploitation of power by Intelco, if anything damaging rather than strengthening the relationship.
Measurement and Analysis
It follows that all the other aspects of measurement of adaptation are colored by the perspective of the respondent. A relationship in which the customer (let us say, an automobile OEM) believes that the supplier has adapted infrequently, and on only a small scale, could be the same one in which the supplier (say, a small-scale automotive component manufacturer) believes that he has adapted often, and has devoted substantial resources to specific investment for the customer. Therefore, straightforward measurement techniques based on the reporting of the frequency and magnitude of adaptations by a respondent from one or other party to a relationship are fundamentally flawed. To reinforce Wilson’s [12] argument concerning the desirability of dyadic methods, the measurement of adaptation frequency and magnitude must be based, at least, on reports from respondents in both organizations.
For purposes of research convenience it is easier to concentrate on the perceptions of one party to the relationship concerning inter-firm adaptations (single-end research). Where the research objectives clearly pertain to single-end perceptions of adaptation behavior, this approach is valid. However, where the research objectives are to establish the “truth” of inter-firm adaptation behavior, this approach can only be valid if the perceptions of the parties do not differ substantially. One of the findings from this study is that differences of perception regarding adaptive behavior do exist between buying and selling organizations. To summarize: 1. In general, respondents tended to emphasize adaptations made by their organization, and place less emphasis on adaptations made by the counterpart. Self484
Absence of trust will discourage important adaptive behavior. The preliminary analysis of the data was conducted using the qualitative data analysis software QSR NUD.IST (version 3 for Windows). The use of specialist software for the analysis of qualitative data has been discussed by Weitzman and Miles [15]. Such software only facilitates the traditional qualitative analytical processes of developing an appropriate coding structure and applying the codes to the data, it cannot do the analysis. Once the data had been coded, the procedures recommended by Miles and Huberman ([14, ], pp. 197–200) for the development of qualitative scatterplot displays were followed. The basis for the scatterplots is presented in Appendix 2, where the definitions of the variables constructed from the case study data are also provided. Clearly this kind of display is not intended to serve the same purpose as a scatterplot derived from a representative, large-scale sample, employing quantitative analytical procedures. In an intrinsically quantitative study the data points in a scatterplot are largely decontextualised (although, even here, the analyst is likely to return to the original data to try to explain outliers). In an intrinsically qualitative study, such as this, the purpose of the analysis is to identify patterns in the data, which can then be further explored by returning to the original, rich case descriptions—the displays cannot be interpreted on their own, but only in the context of the case analyses. Therefore, throughout the following sections of this article, in which the results are discussed, there is a constant interplay between the convenient, but highly simplified scatterplot displays, and the original qualitative data. Figures 3, 5, 7, and 8 present scatterplots of the association between supplier adaptations and relationship age, power balance, customer and supplier managerial orientation. Figures 4, 6, 9, and 10 present the same analyses for customer adaptations. PROCESSES OF DECISION MAKING IN BUYER–SELLER ADAPTATIONS In this section the findings from the study concerning managerial decision-making processes involved in adap-
tive behavior are discussed. The field research revealed an enormous variety of adaptive behavior, ranging from minor adaptations involving some additional inter-organizational contact and exchange of non-confidential information, to major adaptations such as investment in large-scale customer-specific manufacturing equipment. Not surprisingly, there was an equally wide range of decision-making processes. In some cases adaptations took place without any conscious decision having been taken, while in other cases adaptations occurred only after extensive and formal data gathering, analysis, and decisionmaking processes. In the former case, adaptation is an unplanned process that “just happens,” and there is no explicit evaluation of the net gain from adaptation either propter hoc or post hoc. In the latter case, adaptation is an extensively planned process, based explicitly on the formal evaluation of net gain, with post hoc evaluation of whether the anticipated return has been achieved. Given this diversity in the decision-making process, an attempt is made here to categorize the different decision processes, and to identify the circumstances under which different decision-making processes are applicable. The theoretical framework suggested by Brennan and Turnbull [16] is used to structure the analysis. In Figure 1 adaptive behavior in buyer–supplier relationships is evaluated using the dimensions scale and formality. Relatively minor adaptations which are also planned are designated “tactical adaptations,” because they can be thought of as political bargaining chips within the relationship. Major, planned adaptations, such as investment in large-scale manufacturing plant for a single customer, are designated “strategic adaptations,” and involve formalized decision-making processes such as discounted cash-flow analysis. Minor, unplanned adaptations are regarded as a kind of organizational socialization process, by which two organizations learn how best to do business with each other. However, the accumulation of relatively small-scale adaptations over time can cause one firm to become substantially adapted to meet the needs of another, by a process rather like Mintz485
FIGURE 1.
Adaptation process: Scale and formality.
berg’s [17] idea that strategy can emerge as a pattern in a stream of decisions. Another way of thinking about this is that one or both firms in a buyer–supplier relationship can evolve in such a way that, over time, they become highly adapted for that single relationship. In this way, without any explicit decision being taken, extensive relationship-specific adaptation can take place. The involvement and influence of different managerial levels and departments in the adaptation process is asso-
ciated with the nature of the adaptation and of the decision-making process. This association is illustrated in Table 2. Broadly, where planned adaptation decisions are involved the decision-making level, and the number of departments involved in the decision-making process vary with the magnitude of the prospective adaptation. Where the adaptations are unplanned, it is not possible to specify either a decision-making level or the range of departments involved in the process.
TABLE 2 Decision-Making in Adaptation Processes
EXPLAINING ADAPTIVE BEHAVIOR
Tactical adaptations: Political process Decision-making level: Typically at senior level of functional management (e.g. Purchasing Director to sign-off amended terms of contract) or at Board level Departments involved: Limited number of departments, nature of which depends upon the area in which the decision lies (e.g. purchasing and legal affairs where terms of contract are involved) Ad hoc adaptations: Socialization process Decision-making level: Various, but generally at operating manager level in a large company. Decisions may be made at a senior level within a small company (within which (a) there are fewer decision-making levels and (b) a given adaptation is comparatively more important than in a large company). Departments involved: Normally only the department actually implementing the adaptation. Strategic adaptations: Formal decision-making or investment process Decision-making level: Top management Departments involved: Wide range of departments for purposes of data gathering and analysis incl. marketing/purchasing, engineering, quality, production/operations, finance, legal affairs Tacit adaptations: Emergent decision or evolutionary process Decision-making level: Undefined, since such decisions are ‘emergent’ rather than planned. Departments involved: Also undefined. Multiple departments will have been involved in the decisions which have created a situation of ‘tacit adaptation’.
486
Trust and Commitment It is to be expected that the levels of trust and commitment will affect adaptive behavior, and that adaptations, in turn, will “feed back” into increased trust and commitment. A number of specific examples from the case studies illustrate this process: • Newco/Canatel: in a very short time, the parties to the relationship have succeeded in bringing about a relationship atmosphere which is so close and trusting that some of Canatel’s competitors have withdrawn from bidding for Newco contracts—adaptations on both sides have been extensive, bringing about a rapid growth of trust. • Detroit Inc./International Exhausts: International Exhausts’ investment in specific manufacturing capacity for Detroit Inc. was a demonstration of both trust and commitment within the relationship, and the atmosphere of the Detroit Inc./International Exhausts relationship is characterized by notably higher levels of
Little association between adaptations and relationship age. cooperation and trust than the comparable International Exhausts/USAuto relationship.
The evidence from the case studies, therefore, supports the following assertions:
Equally, it is to be expected that the absence of trust in a relationship will discourage important adaptive behavior. For example:
1. That a relationship characterized by high levels of trust and low antagonism is associated with high levels of adaptation. 2. That high levels of adaptation feed back into the relationship, increasing levels of trust and cooperation. 3. That a relationship characterized by low levels of trust and high antagonism, is associated with the withholding of potential adaptations.
• USAuto/UK Metal: UK Metal reported that they withhold important cost information from USAuto because they are convinced that it would be used against them (i.e., that USAuto would use their considerable power advantage to appropriate any efficiency gains achieved by UK Metal, in this case an atmosphere of mistrust prevents adaptations from taking place which could be of mutual benefit). • UKTelco/ABC: despite partnering overtures from senior management levels within UKTelco, operational managers within ABC have grown used to being treated harshly by this powerful customer in negotiations, and this inhibits adaptation; again, a low-trust/ high-antagonism atmosphere prevents potentially beneficial adaptations from taking place. • Intelco/Canatel: there is a similar pattern in this relationship, with the difference that power is more symmetrical, but again the problem was observed that entrenched mistrust and antagonism at operational levels was inhibiting a planned partnering initiative from bringing about beneficial adaptations. This relationship can be fruitfully compared with the Newco/Canatel relationship (the supplier is a constant, the purchasing organization is different), where substantial mutual adaptation was observed, alongside the rapid development of trust. In the Newco/Canatel relationship there was no entrenched mistrust to oppose the partnership development process, since Newco is a relatively young company, formed only a few years ago to exploit the deregulation of the British telecommunications market. It seems to follow, therefore, that absent adaptations can be regarded as the opportunity cost of a low trust, antagonistic relationship.
Given these assertions, reciprocal adaptation would be expected from the parties to high-trust/high-commitment relationships, and an association would be expected between levels of supplier and customer adaptation. Figure 2 provides limited evidence in support of this idea. There is a broadly positive association between supplier and customer adaptations. However, there is a discrepancy between the telecommunications case studies (prefix T) and the automotive case studies (prefix A). An explanation may lie in the generally asymmetrical balance of power in automotive industry relationships. The role of power in adaptive behavior is discussed below.
Adaptations and Relationship Age Ford [18] has suggested a link between adaptive behavior and relationship life-cycle stage, and Hallen et al. [5] proposed a systematic relationship between adaptations and the stage of relationship development. However, Figures 3 and 4 suggest that there is little association between adaptations and relationship age. There was some evidence from the automotive sector that OEMs expect certain adaptations (such as JIT delivery and implementation of recognized quality systems) as a matter of course from their new suppliers, implying a clustering of adaptations in the early years of the relationship. On the other hand, in the case of the longest-lived relationships in the telecommunications sector (UKTelco/ABC, In487
FIGURE 2.
Supplier and customer adaptations.
telco/ABC), it was the relative scarcity of adaptations which was a cause for surprise. In such cases, where two firms have done business together for so long, then it is possible that most of the necessary inter-firm adaptations have already been implemented, so that little recent activity is reported. This is akin to Ford’s idea that adaptations would become less noticeable during the long-term phase of the relationship life-cycle [18]. There is little evidence of any regular pattern in the timing of adaptations within buyer–seller relationships. In some cases there may be an early cluster of adaptations, primarily of the socialization type, in order to facil-
FIGURE 3.
488
itate business between the two firms. In other cases there are long periods of relative inactivity, followed by bursts of new adaptation (for example, UKTelco/Softco [T2]). Major investment-type adaptations have been observed both at an early stage of the relationship (Newco/Canatel [T6]) and in a well-established, mature relationship (Detroit Inc/International Exhausts [A3]). Naturally, adaptations which fall into the “tacit” or “emergent” category, and which follow from a long sequence of decisions which eventually bind a company very tightly to a partner, will only be seen in mature relationships (e.g., USAuto/UK Metal [A2]).
Supplier adaptations and relationship age.
FIGURE 4.
Customer adaptations and relationship age.
Adaptations and Relationship Power Balance Hallen et al. [5] found that adaptations in buyer–supplier relationships were associated with relative power. Figure 5 indicates the existence of an association between supplier adaptations and the relationship power balance, while Figure 6 indicates little association between customer adaptations and power balance. The association between supplier adaptations and the relationship power balance is expected, based on the resource-dependence theory of Pfeffer and Salancik [19]. The presumed causal mechanism linking adaptations to power is based upon the high degree of dependence of
FIGURE 5.
the supplier on the customer, and therefore the ability of the customer organization either through the coercive or the implicit exploitation of this power balance to enforce adaptations. Underlying this process is the knowledge that “you need us more than we need you,” and the threat (usually implicit, sometimes explicit) that “if you don’t do what we want, then we will take our business elsewhere.” Such a causal mechanism is highly plausible in the USAuto/UK Metal case (A2), but less plausible in the Detroit Inc/International Exhausts case (A3). In the former case, managers at UK Metal are very conscious of the company’s dependence on USAuto, and clearly feel co-
Supplier adaptations and power balance.
489
FIGURE 6.
Customer adaptations and power balance.
erced into substantial organizational adaptations. Where UK Metal resisted this coercion (and refused a specific adaptation for a USAuto division), they are convinced that this caused a loss of goodwill and of subsequent business. However, in the latter case the impression of the relationship is different. The Detroit Inc./International Exhausts case is characterized by apparently high levels of trust, and there is no evidence that International Exhausts was coerced into the major adaptations which it has undertaken for Detroit Inc. The managerial orientations of the two parties were at least as important as the relationship power balance in bringing about supplier adaptations. International Exhausts were determined to foster long-term relationships with key customers, while Detroit Inc. is in the process of developing a supplier partnering strategy. There is little evidence in Figure 6 of an association between customer adaptations and the relationship power balance. However, important instances of customer adaptation were identified during the field research which did seem to be associated with power. For example, Detroit Inc. has adapted their standard terms of contract for Deutsch Components—this is not a major adaptation in resource terms, but is significant from the Detroit Inc. perspective. In another case (from the pilot study), a Detroit Inc. manager described how Detroit Inc. had tamely acceded to an 8% price increase from an American supplier, when price reductions were being demanded from other suppliers. In both of these cases, the explanation from Detroit Inc. is that the supplier is acknowledged to have a world-wide technological lead in an important 490
product area, so that Detroit Inc.’s buying power is effectively canceled out. It may be that the contradiction between such examples and the absence of any association in Figure 8 may simply be attributed to the limitations of the data. The study was designed to understand adaptation behavior in context, and therefore uses comparatively few, in-depth case studies, which were selected non-randomly. The outlier relationships in Figures 5 and 6 revolve around the telecommunications organization Newco. In the Newco/Canatel relationship (T6), there has been substantial supplier adaptation, despite a power balance clearly favoring the supplier. In the Newco/ABC relationship (T5), there has been negligible customer adaptation, again despite a power balance which favors the supplier. These examples demonstrate that power alone is insufficient as an explanation of adaptation behavior. Another striking example is that between the USAuto/International Exhausts relationship (A1) and the Detroit Inc./International Exhausts relationship (A3). Despite a similar power balance in each case, International Exhausts has adapted markedly less for USAuto than for Detroit Inc. Adaptations and Managerial Orientation The role of managerial orientation in explaining adaptive behavior has not been explored in prior research, but emerged from the preliminary analysis of the qualitative data. Each of the firms investigated has a unique orientation toward partnership development. However, these can be classified into three dominant categories.
Substantial adaptations can “emerge” incrementally. 1. Transactional. Inter-firm relationships are managed predominantly on a transactional basis: if a buying organization, then there is no policy to develop longterm partnership sources, if a selling organization, there is no (explicit or implicit) policy of relationship marketing. 2. Transitional. Historically, inter-firm relationships have been managed on a transactional basis. However, the organization is now committed, at the top management level, to develop a relational approach. If a buying organization, a policy of partnership sourcing has been developed, if a selling organization, efforts are being made to develop long-term customer relationships. 3. Partnering. Partnership sourcing, or relationship marketing, are now firmly embedded in organizational practice (i.e., the problems of implementation have been successfully addressed). Each organization has been classified according to this framework in Table 3. Figures 7 and 8 examine the following associations: • between supplier adaptations and customer orientation: does a partnership sourcing policy tend to promote adaptations on the part of supply firms?
Table 3 Buying and Selling Firms Managerial Orientation Transactional
Transitional
Partnering
Buying USAuto Selling ABC Deutsch Components
Buying UKTelco Intelco Detroit Inc Selling Softco UK Metal
Buying Newco UKAuto Selling Canatel International Exhausts Nippon Components UK Exhausts US Components
• between supplier adaptations and supplier orientation: does an orientation toward relationship marketing tend to promote adaptations within the supply firm? Only the direct association between supplier adaptations and supplier managerial orientation emerges clearly from the diagrams. In five relationships, supplier adaptations were judged to be substantial (level 4 or 5), and in four of these relationships the supplier has successfully implemented relationship marketing. In four relationships, supplier adaptations were judged to be relatively minor (level 1 or 2), and in three of these relationships the supplier pursues a transactional approach to marketing. Figures 9 and 10 examine the following associations: • between customer adaptations and supplier orientation: does a relationship marketing approach tend to promote adaptations on the part of customer firms? • between customer adaptations and customer orientation: does an orientation toward partnership sourcing tend to promote adaptations within the customer firm? There is no real support for these associations from the figures, nor from the detailed information which was gathered in the case studies. There is an outlier relationship (Newco/Canatel, T6) which, if excluded, would remove any discernible pattern from the scatter. This was, indeed, a rather unusual buyer–seller relationship, in which the relatively young buying organization (Newco) has made an explicit strategic management decision to out-source the bulk of its systems operations. The substantial adaptation of Newco for Canatel is best explained in terms of concrete managerial decision making, not in terms of resource dependence (power) or pre-existing trust/commitment. MANAGERIAL IMPLICATIONS Adaptive behavior in buyer–supplier relationships is both planned and unplanned. Where adaptation is planned it appears that the relationships between the magnitude of the adaptation decision, the seniority of the decision491
FIGURE 7.
Supplier adaptations and customer orientation.
making level, and the complexity of the data gathering and decision-making processes are fairly direct, as might be expected. However, substantial adaptations can emerge incrementally over time as a result of a sequence of decisions, each of which was individually relatively unimportant. This conclusion has immediate managerial significance. Managers must be aware that, as a result of a series of incremental decisions none of which is in itself substantial, their firm can become substantially adapted to the needs of one other firm. Han, Wilson, and Dant [7] have pointed out that close relationships have disadvantages as well as advantages and, consequently, that the
FIGURE 8.
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acquisition of such relationships should be handled with care. In the absence of some process of strategic relationship management, there is a danger that a firm could, through an unplanned process of adaptation, become deeply involved in a disadvantageous relationship. In the process of strategic relationship management, the actual and desired balance of adaptive behavior in the relationship is a matter which should receive attention. This study has provided further evidence to support the finding reported by Hallen et al. [5] that adaptations within a buyer–supplier relationship tend to increase levels of trust and enhance commitment to the relationship.
Supplier adaptations and supplier orientation.
FIGURE 9.
Customer adaptations and supplier orientation.
In turn, as trust and commitment grow, so there is a greater likelihood of mutually advantageous adaptive behavior. However, in one of the case study relationships there was evidence that this kind of virtuous cycle had gone too far, and the perception of both parties was that some reduction in intimacy would be desirable—sharing just a little less confidential information, being involved less in each other’s strategic planning processes, taking it less as a given that the supplier would always be first choice for certain types of equipment purchase. Managers should be aware that there is a healthy limit to the relationship development process, beyond which the costs begin to outweigh the benefits.
FIGURE 10.
The age of a relationship appears to be a poor predictor of the extent of current adaptation activity. If age is used as a proxy for the stage of relationship development, then there is no evidence of a link between relationship stage and adaptive behavior. Certainly there are cases where the early phase of a relationship is characterized by a burst of adaptation activity. Equally, there are relationships in which, after a “quiet period,” there is a further burst of adaptations—perhaps in response to some external change (e.g., in technology), perhaps in response to a change of managerial policy in one of the parties to the relationship (e.g., a customer implements “supplier partnering”). However, there seems to be no general relation-
Customer adaptations and customer orientation.
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ship between adaptation intensity and relationship age. It might be possible to establish some link between adaptive behavior and the stage of development of a relationship measured using something other than relationship age. However, in recent years academic opinion has turned against the notion that buyer–supplier relationships pass through neat stages of development [20, 21]. On balance, these findings are probably good news for managers. What is implied is that the age of a relationship is not intrinsically a barrier to adaptive behavior. Relationships which appear to have settled into a long-term pattern of behavior, perhaps of only marginal value to the parties, can be revitalized by positive management action (for example, the UK Telco/Softco relationship). An unsurprising conclusion is that adaptive behavior is influenced by the power balance within the relationship. This confirms earlier findings [4], and corresponds with common sense. From a managerial perspective, perhaps the key finding is that adaptations are driven by other factors in addition to power. Admittedly, to the small supplier, dwarfed and dominated by a major OEM customer which accounts for a very large proportion of its sales, this finding may not be very comforting. Certainly, there are circumstances in which an imbalance of power is the primary factor driving adaptive behavior (for example, UK Metal/US Auto). Managerial orientation emerges as an important factor driving adaptations in the case of suppliers which adopt a relational approach to marketing. Other associations between managerial orientation and adaptations were less clear. In particular, examples have been found of buying firms which explicitly espouse a partnership sourcing philosophy, but whose suppliers perceive no enhanced support. No general relationship between a commitment to partnership sourcing and concrete actions to support suppliers emerged from the data. Managers marketing to firms which are in the process of implementing such programs are, therefore, advised to exercise all of their natural caution, and to look for tangible outcomes from the program before investing further in the relationship. Additional investment creates additional dependency, which enhances buyer power. In the absence of compensating relationship investments by the buying organization, all that has happened is that the supplier has reduced its bargaining power in the relationship.
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REFERENCES 1. Sheth, J.: Organizational Buying Behavior: Past Performance and Future Expectations. Journal of Business and Industrial Marketing 11, 7–24 (1996). 2. Sheth, J., and Sharma, A.: Relationship Marketing: An Agenda for Inquiry. Industrial Marketing Management 26, 91–100 (1997). 3. Lewin, J. E., and Johnston, W. J.: The Effects of Organizational Restructuring on Industrial Buying Behavior: 1990 and Beyond. Journal of Business and Industrial Marketing 11, 93–111 (1996). 4. Hakansson, H. (ed): International Marketing and Purchasing of Industrial Goods. John Wiley and Son, Chichester, 1982. 5. Hallen, L., Johanson, J., and Seyed-Mohamed, N.: Interfirm Adaptation in Business Relationships. Journal of Marketing 55, April, 29–37 (1991). 6. Hallen, L., Johanson, J., and Seyed-Mohamed, N.: Dyadic Business Relationships and Customer Technologies. Journal of Business-to-Business Marketing 1(4) 63–90 (1993). 7. Han, S.-L., Wilson, D. T., and Dant, S. P.: Buyer–Supplier Relationships Today. Industrial Marketing Management 22, 331–338 (1993). 8. Williamson, O. E.: The Economic Institutions of Capitalism. Free Press, New York, 1985. 9. Nielson, C. C.: An Empirical Examination of Switching Cost Investments in Business-to-Business Marketing Relationships. Journal of Business and Industrial Marketing 11(6) 38–60 (1996). 10. Möller, K., and Wilson, D. T. (eds): Business Marketing: An Interaction and Network Perspective. Kluwer Academic Publishers, Dordrecht, 1995. 11. Brennan, D. R.: Adaptations in Inter-Firm, Buyer-Seller Relationships, unpublished PhD thesis, University of Manchester Institute of Science and Technology (1998). 12. Wilson, E. J.: Theory Transitions in Organizational Buying Behavior Research. Journal of Business and Industrial Marketing 11(6) 7–19 (1996). 13. Yin, R. K.: Case Study Research: Design and Methods, 2nd edition. Sage, Thousand Oaks, CA, 1994. 14. Miles, M. B., and Huberman, A. M.: An Expanded Sourcebook: Qualitative Data Analysis, 2nd edition. Sage, Thousand Oaks, CA, 1994. 15. Weitzman, E. B., and Miles, M. B.: A Software Sourcebook: Computer Programs for Qualitative Data Analysis. Sage, Thousand Oaks, CA, 1995. 16. Brennan, R., and Turnbull, P. W.: The Process of Adaptation in Inter-Firm Relationships, in Relationships and Networks in International Markets, H-G. Gemunden, T. Ritter, A. Walter, eds., Elsevier, Oxford, 1997. 17. Mintzberg, H.: The Rise and Fall of Strategic Planning. Prentice Hall, New York, 1994. 18. Ford, D.: The Development of Buyer-Seller Relationships in Industrial Markets. European Journal of Marketing 14(5/6) 339–354 (1980). 19. Pfeffer, J., and Salancik, G. R.: The External Control of Organizations: A Resource Dependence Perspective. Harper and Row, New York, 1978. 20. Turnbull, P. W., Ford, D., and Cunningham, M.: Interaction, Relationships and Networks in Business Markets: An Evolving Perspective. Journal of Business and Industrial Marketing 11, 3/4, 44–62 (1996). 21. Halinen, A.: Exchange Relationships in Professional Services: A Study of Relationship Development in the Advertising Sector. Publications of the Turku School of Economics and Business Administration, Turku, 1994.
APPENDIX 1 Case Study Companies
APPENDIX 2 Basis for the Cross-Case Matrix Analysis
PURCHASING ORGANISATIONS UKTelco UK and international telecommunications provider Intelco UK based international telecommunications provider Newco UK telecommunications provider USAuto US based global automobile manufacturer Detroit Inc US based global automobile manufacturer UKAuto German owned, UK based automobile manufacturer SELLING ORGANISATIONS ABC UK/German owned, UK based telecommunications manufacturer Softco Major American software company Canatel Canadian owned global telecommunications manufacturer International Exhausts UK exhaust manufacturer, subsidiary of a US conglomerate UK Metal Small UK metal component manufacturer Nippon Components Joint UK/Japanese owned automotive component manufacturer Deutsch Components Large family-owned German automotive component manufacturer UK Exhausts UK exhaust manufacturer, subsidiary of a UK automotive Group US Components UK components subsidiary of USAuto RELATIONSHIPS INVESTIGATED Purchasing organization Selling organization UKTelco with ABC UK Telco with Softco Intelco with ABC Intelco with Canatel Newco with ABC Newco with Canatel USAuto with International Exhausts USAuto with UK Metal Detroit Inc with International Exhausts Detroit Inc with Nippon Components Detroit Inc with Deutsch Components UKAuto with UK Exhausts UKAuto with US Components
Definition of Terms Adaptations Scale I. Negligible adaptations of any kind II. Some adaptations, relatively minor (socialisation) III. Considerable socialisation adaptation or small-scale strategic adaptation IV. Substantial strategic adaptation has taken place V. The organization is substantially adapted to the partner, several strategic adaptations, or evidence of extensive tacit adaptation Orientation Scale • T 5 Transactional: buying and selling processes are managed on a predominantly transactional, arm’s length basis • (P) 5 Transitional: the organization is in the process of implementing a partnership sourcing or relationship marketing strategy (policy) • P 5 Partnering: evidence that the organization has successfully implemented a partnership sourcing or relationship marketing strategy (policy) Power Scale • Customer: the supplier is relatively more dependent than the customer on the relationship • Symmetrical: there is an approximate equivalence between the parties in terms of dependence • Supplier: the customer is relatively more dependent than the supplier on the relationship
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