Interactive resource development in new business relationships

Journal of Business Research 65 (2012) 210–217

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Journal of Business Research

Interactive resource development in new business relationships Lars-Erik Gadde a,⁎, Daniel Hjelmgren b, 1, Fredrik Skarp a, 2 a b

Industrial Marketing, Chalmers University of Technology, SE-412 96 Gothenburg, Sweden School of Business and Informatics, University of Borås, SE-501 90 Borås, Sweden

a r t i c l e

i n f o

Article history: Received 1 July 2009 Received in revised form 1 August 2010 Accepted 1 November 2010 Available online 12 June 2011 Keywords: Resource development Interaction New relationships Business networks

a b s t r a c t Interaction in business relationships is a significant means of resource development. Studies of these processes have focused on interactive development in long-term relationships between buyer and supplier. This study explores the characteristics of joint resource development in new business relationships, where the two parties have no previous experience of interacting with each other. The study is based on the industrial network model and contains two cases of interactive development of new products with entirely different features. This research shows that joint development in a new relationship is strongly dependent on the resources of other business partners, since no previous adaptations exist between the two focal actors. Access to these resources is achieved through the established business relationships of the two parties. Furthermore, previous interactions with other business partners have a significant impact on the outcome of interactive development in a new business relationship. The main reason for these conditions is that the features of the resources of the two parties have evolved during these interactions. © 2011 Elsevier Inc. All rights reserved.

1. Introduction Resources provide the basis for the operations of a firm, and the way in which they are utilized is always a significant determinant of financial outcome. Owing to this crucial role of resources, firms have been portrayed as resource entities (Penrose, 1959). From this perspective the specific features of a firm in terms of its uniqueness and evolution are explained by the abilities to combine the heterogeneous resources that render the services offered to customers. Some of these resources are influential in terms of their financial impact, while a specialized resource “may be critical to the organization even though it comprises only a small proportion of the total input” (Pfeffer & Salancik, 1978: 46). Business conditions change continuously and so the resource base of a company is modified over time. Resource development is therefore a critical issue to any organization. Firms are actively involved in efforts to “alter their resource base — acquire and shed resources, integrate them together and recombine them” (Eisenhardt & Martin, 2000: 1107). In this combining and recombining of resources, interaction in business relationships plays a crucial role because companies are increasingly dependent on access to the resources of their business partners (e.g., Bensaou, 1998; Dwyer, Schurr, & Oh, 1987; Gadde & Håkansson, 2001; Håkansson & Snehota,

⁎ Corresponding author. Tel.: + 46 31 772 12 11; fax: + 46 31 772 37 83. E-mail addresses: [email protected] (L.-E. Gadde), [email protected] (D. Hjelmgren), [email protected] (F. Skarp). 1 Tel.: + 46 33 435 41 45; fax: + 46 33 435 40 07. 2 Tel.: + 46 31 772 12 11; fax: + 46 31 772 37 83. 0148-2963/$ – see front matter © 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2010.11.027

1995; Leenders, Johnson, Flynn, & Fearon, 2006). Hence the relationship between two companies provides an arena for interactive resource development. Furthermore, what has been built up jointly in this relationship over time represents major resources that actively impact on the combining and development of other resources (Christensen, 1997; Ford, Gadde, Håkansson, & Snehota, 2003; Håkansson, Ford, Gadde, Snehota, & Waluszewski, 2009; Norman & Ramirez, 1993). The relationship base of a company evolves over time. A highly influential business partner may become less important for various reasons. Owing to changing conditions significant relationships are dissolved (see e.g., Giller & Matear, 2001; Halinen & Tähtinen, 2002). For example, Alajoutsijärvi, Möller, and Tähtinen (2000) provide recommendations for these procedures. One pertinent example is that technological changes may require connections to new business partners in order to enhance long-term resource acquisition and development. In these situations no previous relationship exists between the two parties. This implies particular conditions for interaction and joint development. Previous research on resource development in business relationships focuses on interaction in relationships to which buyer and supplier have been committed for long time. Since only scant attention has been directed to resource development in newly established relationships, this calls for more research in this area. This paper centers on interactive resource development when there is no established relationship between the two parties. The overall purpose of the paper is to explore the consequences for resource development in interaction when the buyer and the supplier have no previous experience of interaction with each other. Since

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business relationships need time to evolve it is expected that a lack of familiarity between the parties provides specific conditions for joint action. In this light the paper begins with a description of central features of interactive development in established relationships which are then modified in order to frame the situation focused on in this research. The three following sections contain the research methodology applied and the two case studies providing the empirical basis for the paper. The concluding section comprises a discussion of the research findings followed by theoretical and managerial implications.

2. Interactive resource development According to the argument of Penrose (1959) the value of a specific resource is determined by the services it provides through the way it is combined with other resources. The significant role of this interplay among resources is further emphasized by the claim that the features of a resource are actually created through these connections, which become manifest over time (Rosenberg, 1994). In a similar vein, other scholars argue that this combining and connecting implies that a single resource is systematically confronted with other resources “and through this process is given some specific characteristics” (Håkansson & Waluszewski, 2002: 15). The combining of resources in this interplay is characterized as “a coupling and matching process where interaction is the critical element” (Tidd, Bessant, & Pavitt, 1997: 29). Thus, the processes of coupling and matching are significant in the active combining of resources for effective value generation. The better a new resource fits with the existing resources in a specific resource constellation, the greater its value (Håkansson et al., 2009). Two critical aspects can be identified with regard to this interplay. First, new resources have to function in relation to existing resources since no resource operates in isolation. For example, any new product or service must fit with connected products and services, as well as to the equipment and other facilities to which it relates. Second, every resource is related to two milieus with quite different characteristics since it has to function both in the setting where it is created and in the setting where it is applied — referred to as the technology of production and the technology of use, respectively (Alderson, 1965). The conditions concerning the most appropriate features of a new product or service may differ considerably between the two technologies. The connection between the two technologies is a key since individual products “are only components in a larger usage pattern that may involve many products” (von Hippel, 1988: 103). The larger usage pattern can be conceptualized in various ways. The first building block of the framework of this study is the industrial network model, which distinguishes between three layers of industry reality (Håkansson & Snehota, 1995). One represents the activities undertaken in the network, another involves the resources used, and the third concerns the actors who control the resources and undertake the activities. In reality these layers are completely intertwined, but from an analytical point of view this separation is useful since the three perspectives provide different views on reality. Interaction among network actors provides the means for resource combining and the connecting of the technologies of production and use. This interaction between two companies can be interpreted as multidimensional courses of action that “change and transform the resources and the activities of those companies and the companies themselves” (Håkansson et al., 2009: 28). The business relationship between the two companies is a key factor for these modifications, through the evolution of relationship substance in terms of activity links, resource ties and actor bonds (Håkansson & Snehota, 1995). This substance accumulates over time through mutual adaptations between the two parties which improve their joint performance (Håkansson et al., 2009).

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As stated above, this paper deals with the situation where no relationship has been established between the parties and consequently no adaptations have been made. In the framing of this situation the nature of resource development and the role of interaction in established relationships provide the starting point. A business relationship begins to evolve when two parties perceive the potential benefits of joint arrangements as being greater than those stemming from market-like transactions. Such conditions typically occur when a supplier offers a tailor-made solution to a specific customer. The development of this offering calls for resource combining and adaptations since the new product or service must fit with other resources of the two, as well as connect the technology of production to the technology of use. In the analysis of such processes the 4R-model (four resources model) is recommended as an appropriate research tool (Håkansson & Waluszewski, 2002). With this model, resource development is analyzed as the interplay between physical resources and organizational resources, each type consisting of two categories. First, physical resources include the products exchanged between firms and the facilities used for their transformation and exchange. Second, organizational resources embrace the business units that comprise the skills and capabilities needed for resource development and the business relationships between firms. According to the 4R-model, the development of the features of a specific resource is contingent on its interplay with other resources in the four categories. Through this interplay various types of connections evolve among the resources. These connections are vital to the outcome of the interplay, and are identified as resource interfaces (Gadde & Håkansson, 2008; Håkansson & Waluszewski, 2002). The 4R-model constitutes the second building block of the framework and has been applied in several studies of resource development — for example Baraldi (2003), Gressetvold (2004), Holmen (2001), Wedin (2001), and Vercauteren (2007). The first research issue of this study is to explore the interplay between a new resource and connected resources and the role of the interfaces in interactive research development in new business relationships. The coupling of the production of a resource with its usage is pointed out as a highly critical issue in any development effort (e.g., Dosi, 1988; Håkansson & Snehota, 1995; Harrison & Waluszewski, 2008; Lundvall, 1985). In these coupling processes, the role of interaction between actors is significant since this connection provides access to the resources of the business partner. Over time these external resources have become increasingly important owing to specialization and outsourcing. For these reasons interaction in business relationships forms the third building block of the framework. Long-term interaction processes, such as a joint resource development project, contain a series of individual interaction episodes. The characteristics and the outcome of a specific episode depend on two interaction contexts: one in time and one in space (Håkansson et al., 2009). The dependence on the time context implies that experiences from previous interaction episodes impact on the outcome of the current episode. The crucial role of previous interaction is shown in several studies (e.g., Baraldi, 2003; David, 1985; Hughes, 1983; Lundgren, 1994). The influence of the time context is particularly significant for resource development since time enhances the learning processes that represent “the spring moving the whole system by its constant application to improving the production processes” (Pasinetti, 1981: 23). In this study there is no experience of previous interaction between the buyer and the supplier to make use of. Despite this fact, the time context may be important since both parties have been involved in interaction with other business partners. The skills, capabilities and other resources of the two firms have been formed through these interaction episodes, and these conditions are likely to impact on the joint development in the current episode. The second research issue of this study is to trace the influence of the time context and identify the extent to which previous interaction with other business partners affects the interactive development in a new business relationship.

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The outcome of the interaction between two parties is also spatially related and depends on what is referred to as the space context (Håkansson et al., 2009). Fig. 1 illustrates an interaction episode in its space context, implying that interaction between two parties is affected by other firms to which they are related. Through the relationships of the business partner, a firm may access the resources of other companies which are significant for their own resource development (Anderson, Håkansson, & Johanson, 1994). In interactive resource development where the two parties have no experience of each other these connected relationships can be expected to be particularly significant. Hence, the third research issue of this study is to investigate the role of the connected relationships in the space context for the development of the features of a new resource. 3. Research method This study deals with the multifaceted phenomenon of how the technology of production is connected to the technology of use in the interaction between buyer, supplier, and their connected relationships in the space context. Furthermore, the research method applied must capture the influence of the time context in terms of the two firms' previous interactions with other business partners. These conditions call for a methodology through which it is possible to handle this complexity in space and time. On this basis a case study approach was considered the most appropriate method. Case studies are advocated in situations like this since “the interaction between a phenomenon and its context is best understood through in-depth case studies” (Dubois & Gadde, 2002: 554). In particular, a case study approach is recommended when the boundaries between the research object and its environment are not clearly evident (Yin, 1994), and when the focus is on understanding dynamics over time (Eisenhardt, 1989). As shown above, all these conditions are at hand in this study. Furthermore, several authors recommend the case study approach in research on industrial networks (e.g., Dubois & Araujo, 2004; Easton, 1995; Halinen & Törnroos, 2005). This paper is based on two cases representing interactive resource development for new products with very different characteristics. The first case, described in detail in Skarp (2006), deals with joint technical development between a steel supplier and one of its customers and their combined efforts to adapt a new steel quality to the operations of the buyer. The second case concerns similar issues between a supplier of systems for enterprise resource planning (ERP systems) and a customer in the manufacturing industry, described fully in Hjelmgren (2005). The two cases were not chosen to enable comparisons, but to supplement each other, since they illustrate different conditions concerning resource development in interaction. In both cases, the basic approach was to apply the 4R-model to the analysis of the development of the new product with an emphasis on

the interplay between physical and organizational resources. This approach called for information about the development over time of the impact on the new product of the four resource categories (business units, business relationships, facilities and other products). The analysis of interaction among actors focuses on the role of the business relationship between buyer and supplier in these coupling processes and the impact of other relationships. The steel case is used primarily for the illustration of the role of the space context and how other relationships and firms become involved. The findings from the ERP case shows the development of the features of the product through the interaction between buyer and supplier, as well as the influence of the time context and how previous interaction with other companies affects the focal resource development. The analysis of these conditions required considerable amounts of data. This information includes interviews, official company documents and internal records. The steel case is based on 23 personal interviews and the ERP case on 45 interviews with 36 people in six companies. The interviews varied in length between one and three hours, and involved personnel representing various functions in the organizations. In addition, secondary data in terms of official company information like annual reports, product brochures, technical descriptions, websites, etc. was used. Furthermore, owing to excellent company contacts a great deal of internal information in the firms was accessible to the researchers, for example in terms of sales reports, agendas, market research studies and minutes of meetings. The multiple sources of data enabled cross-checking of information through triangulation, which is recommended for ensuring credibility in qualitative studies (Lincoln & Guba, 1985). Triangulation is a means of developing converging lines of inquiry and expressed as “self-consciously setting out to collect and double check findings” (Miles & Huberman, 1994: 226). Like these authors, we found that the main benefit of triangulation is not always the verification of the accuracy of data. Multiple sources of information may also contribute to the discovery of new dimensions of the research problem and in this way redirect the study. Other important criteria for evaluating case study quality include prolonged engagement, persistent observation, and member checks (Lincoln & Guba, 1985: 302). Prolonged engagement concerns the time spent in the empirical reality and is necessary “to be certain that the context is thoroughly appreciated and understood”. In both cases the data collection period extended over three years, which provided opportunities for grasping the complex realities and also for capturing the time context of interaction. Prolonged engagement also played a role in persistent observation, which emphasizes the criticality of gaining sufficient depth in the knowledge of the phenomenon studied. A further contributing factor to this knowledge depth is the fact that the researchers involved had working experience in two of the industries in the study. In addition, the understanding of reality was enhanced through the large number of interviews and the access

Focal interaction

Supplier Space context on the produce side Firm

Resource

Customer Space context on the use side

Connected relationship

Fig. 1. Interactive resource development in its space context.

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to company information. Finally, through member checks, informants should be given the opportunity to check whether or not the researcher has correctly understood the data collected. Member checks in the forms of follow-up interviews, telephone calls and email correspondence resolved remaining issues and provided supplementary information. These member checks seldom caused revisions of the original interpretations, but in some cases generated new perspectives on the research issues, with new leads to follow in the data collection. 4. The steel case This case concerns a business deal involving a steel producer and one of its customers. The supplier is Steel, a manufacturer of highquality products, and the buyer is the seat manufacturer Seats, a global supplier to car manufacturers. In the development of a new seat model for one of its customers, Seats experienced problems with the steel quality used in some of the components. The current steel supplier was unable to offer what Seats needed and, for various reasons, they approached Steel. This company was a medium-sized steel supplier specializing in the development of new types of steels with advanced features, particularly in terms of strength and formability (high-strength steels). Since steels with these characteristics were not well known on the market, Steel had to identify potential customers for which the new features could be of value. Therefore, the contact with Seats was perceived as very important for the future as it could be a potential gate-opener to other applications in the car industry. Seats had no experience of high-strength steels and Steel was lacking knowledge of the specific technical requirements in applications for car seats, which called for a great deal of interaction between the two companies. In the initial phase of the relationship there were frequent meetings and discussions between various representatives of the two companies' commercial and technical expertise. As Seats became more interested an increasing number of people in the two organizations were involved in technical seminars and practical testing of the new steel quality. The final decision of Seats to change to the new material also required the approval of the particular car assembler that was the main target for Seats' new model. The tests of the new material were promising in the beginning, but over time several problems appeared and had to be solved. There were continuous discussions on technical issues concerning the new steel and the features of the production tools to be used. Soon it became obvious that other firms had to be mobilized in the implementation of the new steel in the manufacturing of the car seat components in Germany. Owing to the geographical distance between Steel and Seats a steel service center was used for local slitting of the bulky coils that were delivered from Steel. The manufacturing of the seat components was outsourced from Seats to a press shop named Metalworking. The seat components were of two main types, each produced in one of Metalworking's two factories. The operations in the two factories required company specific tooling equipment, which involved interaction with the supplier Tools. The final assembly of the two seat components was undertaken by Seats and then sent to the

Raw steel production

Processing

Firm A STEEL Firm B

Slitting of coils

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company's satellite plants located in geographical proximity to the car manufacturer's final assembly lines. At the satellites these components were integrated with other components to form the car seat system. All firms involved in these operations had limited knowledge of the technical features of the new steel. Therefore, the representatives of Steel had to invest major resources in the coordination of the arrangements both between these firms and in their connections to the relevant departments at Steel that had to be mobilized. For an overview of the main actors and activities involved — see Fig. 2. However, the development of the new resource did not proceed as planned. The main problem appeared in the pressing operations at one of Metalworking's factories and led to extra costs for inspection at both Metalworking and Seats. These issues were somewhat difficult to handle since investigations of the faulty components showed that there were no deviations from the material specifications that had been decided jointly by the parties. Attempts to solve the problems through process modifications at Service Center 1 were not successful, nor did the involvement of Tools change these conditions. Metalworking claimed that the material supplied varied greatly in mechanical properties and thickness, while representatives of Steel argued that the problems occurred because of Metalworking's lack of experience in processing high-strength steel. The design of the components and tools was decided long ago, implying that only minor adjustments of the pressing tools could now be undertaken. Therefore, modifications of the interfaces among the resources in the manufacturing arrangements were necessary. First, Steel changed supplier of raw steel since Firm B was able to deliver somewhat purer steel than Firm A, owing to its specific equipment for detection of features that could lead to problems in pressing. Second, Metalworking Factory 2 had particular problems with variations in the material supplied. Furthermore, the capacity of this factory for pressing and roll forming of the dimensions delivered by Service Center 1 was much lower than what Factory 1 was able to handle for the components they manufactured. These conditions caused productivity problems for Factory 1 since they could not use the full capacity because their components had to be manufactured at the same pace as those from Factory 2. After thorough investigations, a complementary steel service center was identified. Service Center 2 was able to slit coils in dimensions that made it possible to increase the capacity utilization at Factory 2. Furthermore, the equipment of this new service center also sorted the material into different grades of hardness which contributed to increased process stability at Factory 2. Connecting the technology of production with the technology of use thus required a great deal of interaction among many parties. As is obvious from the case it would not have been possible for Steel and Seats to bridge the two technologies without interaction with other firms and relationships and their resources residing in the space context. In reality the number of important business partners involved was much greater than illustrated in Fig. 2. The original intention was that the cars for which the new seat was developed should be manufactured by the car assembler's UK operations. When the car assembler moved this production to its German subsidiary the interaction processes between Steel and Seats were drastically

Pressing and roll forming

Service Center 1

Metalworking Factory 1

Service Center 2

Metalworking Factory 2

Component assembly

SEATS

Seat system Assembly of cars assembly

Satellite

Plant

Satellite

Plant

Satellite

Plant

Fig. 2. Central activities and actors in resource development in the steel case.

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affected, as was the space context in terms of other business partners required. 5. The ERP system case The second case deals with an entirely different type of product since it centers on Infosyst — a supplier of ERP systems (Enterprise Resource Planning Systems). ERP is a means of integrating the data and processes of an organization into one coherent system. An ERP system relies on a unified database storing information to be used for the various functions within an organization. The system determines what data to store, how to collect and group data, and what analyses should be used in the processing of data to support the operations of the company. The case presented in this paper involves a specific business deal between Infosyst and one of its customers, Textile. This firm manufactures fabric which is supplied to various types of customers. One of the most important targets is the system suppliers in the automotive industry, which use the fabric in various applications in the car. System suppliers put increasing demands on the lead times of Textile, which is problematic since production of fabric is complex and involves many processes. Therefore, an ERP system is particularly useful in the operations of a firm like Textile, and they had tried to implement such a system before. However, this attempt failed since the ERP system had too many shortcomings. In Textile's second attempt to implement ERP, Infosyst became involved. The complete ERP system of Infosyst contains about 60 standard modules covering the different functions in a company such as demand planning, purchasing, manufacturing, invoicing, etc. At each implementation Infosyst combines a set of these standard modules into a customer specific solution. Most implementations call for minor adjustments of some of the standard modules in relation to the buyer's operative context. A customer specific ERP system normally consists of a mix of standard modules and customer adjusted modules. The system implemented to support Textile's operations contained 14 modules, some of which were taken directly from the standard assortment of Infosyst. Others required only minor adjustments to fit with Textile's operations, while some modules called for major customization and adaptations to Textile's specific situation. Textile's production system involves three manufacturing facilities dealing with knitting, dyeing and laminating. These three sites are geographically spread and characterized by their specific manufacturing conditions in terms of batch sizes, product variety, setting times and lead times. Since strong serial interdependences characterize the activities at the three sites, planning conditions are complex and the ERP system therefore had to be able to deal with both actual orders and forecasts for future orders. These conditions required adaptation of the standard version of the customer scheduling module utilized for storage and presentation of planning data. Furthermore, owing to frequent late order changes and unforeseeable production problems, Textile needed ERP features supporting decentralized production planning and purchasing at the three sites. Adaptations of the module for supplier scheduling made it possible to dissolve the material resource planning into three steps — one for each factory. The efficient utilization of the dyeing facility required data processing concerning color tones and fixation temperatures. This called for major adaptation of the production module which in turn impacted on the interface to the inventory module, where temperature data is collected. Furthermore, some of Textile's important customers require a special priority in terms of options for changing orders and plans, and the handling of these issues made it necessary to gather such priority data from the production module. The adjustments discussed so far concerned modifications of the features of the standard modules of Infosyst. In addition, two customer specific modules were developed. Textile's planning activities relied on an inspection system for calculation of volumes, and this system was linked to the ERP system through a customized

module with interfaces to the production and inventory modules. Furthermore, like other fabric producers, Textile handles a huge number of color recipes. The system containing these recipes also had to be linked to the ERP system through a customized module which, in turn, requires linkages to, and further modifications of, the inventory and production modules. The connecting of the technology of production and the technology of use thus required modification of both resource features and the interfaces among resources (Fig. 3). These adjustments called for a great deal of interaction between system developers at the supplier and those responsible for the buyer's operations. Infosyst and Textile had not been involved in interaction prior to this business deal. In spite of that, previous interaction episodes turned out to be highly significant for what was exchanged between the two, since the features of the standard modules had been developed in interaction with other customers. In cases where a customer specific adjustment was perceived as useful for other firms, Infosyst integrated these features into this specific standard module. This was done when the costs of making a general adaptation was perceived as being lower than the total costs of future customer specific adjustments. Table 1 shows the successive evolution of one of the standard modules (customer scheduling) through adjustments in previous implementations that added functionalities. Many standard features developed in Infosyst's previous interactions were important to Textile. Like the producer of plastic profiles, Textile needed Functionality 1 for calculation and scheduling. Similar to the producer of foodstuffs, Textile required Functionality 4 making it possible to measure the maximum capacity of a specific resource. Furthermore, the scheduling features of Functionalities 5–6, developed in interaction with the producers of bread and gear boxes were useful in the implementation processes at Textile. 6. Conclusions In this final section we discuss the main findings of the study and present the theoretical and managerial implications following from these findings. 6.1. Discussion In relation to the first research issue, both cases show how the development of a new resource calls for extensive coupling and matching in relation to other physical and organizational resources. Concerning the interplay with physical resources, the features of the high-strength steel were modified through adjustments in the supply of raw steel and production tools. The interplay with the resources at the steel service centers was important for connecting

Customer scheduling Customized module1 Inventory module

Production module Customized module 2 Supplier scheduling

Adjusted standard module

Customer-specific module

Resource interface

Fig. 3. Central resources and interfaces in the ERP case.

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Table 1 Modifications of the features of the customer scheduling module over time. Functionality added in previous interactions

Customer involved

1) 2) 3) 4) 5) 6)

Plastic profile producer Steel producer Cement manufacturer Foodstuffs producer Bread producer Gear box producer

Ability to define the most effective production schedule in relation to variation in set-up time Option to dissolve the scheduling process in order to improve capacity utilization Ability to estimate competence required and the size of the workforce needed in different types of operations Ability to measure the maximum capacity of a resource Ability to identify the most effective scheduling, considering extra costs associated with late deliveries Ability to find the most cost effective production schedule concerning waiting times

the technologies of production and use, as were the two factories of Metalworking that operated as Seats' subcontractor. Organizational resources were particularly important in two respects. First, the skills and capabilities embedded in the various business units were critical to the handling of problems appearing in the matching processes. Second, the business relationships of buyer and supplier made it possible to access and exploit the physical resources of other companies to which the two were connected in the space context. The resource interaction in the coupling and matching processes affects not only the inherent features of resources, but equally important is the impact on the interfaces between resources. Adjustments of these interfaces contribute significantly to the bridging of the technologies of production and use without necessarily affecting the basic features of the individual resources. Interfaces between physical resources primarily involve technical and functional issues such as the adjustments between raw steel quality, steel service center equipment and the facilities for pressing of seat components. Interfaces between organizational resources include social and administrative issues, for example the adjustments of the knowledge required for module design in Infosyst and the planning procedures in Textile's plants. Interfaces among organizational and physical resources are multidimensional and thus more complex to handle. For example, this interplay involves economic considerations in terms of the value generated for each business unit in comparison with the investments required in physical and organizational resources (Håkansson et al., 2009). The second research issue concerns the time context and to what extent previous interaction with other business partners influence interaction in the focal relationship. In the steel case it can be concluded that Steel's approach in relation to Seats was affected by learning from previous adaptations to other customers. Furthermore, Seats' interaction with its previous supplier impacted considerably on the requirements they put on both the steel quality and the new supplier. The ERP case shows how the standard modules of Infosyst developed over time in interaction with other customers. The functionality that is of value for a buyer obviously is dependent on the nature of the business processes rather than on the type of industry. Textile – a manufacturer of fabrics – was thus able to utilize the same resource features as suppliers of plastic profiles, foodstuffs, bread, gear boxes, steel and cement. In this respect, Textile benefitted more from the standardized features developed in Infosyst's previous interactions than from a customized solution. Another impact of the time context is that some of the customized features implemented at Textile were later integrated into two of the standard modules, since these adaptations were expected to be useful in subsequent implementations. The third research issue concerns the space context of the interaction in the focal relationship, and emphasizes how other firms influence the development of a new resource. The steel case shows that the joint resource collections of Steel and Seats were not sufficient for the implementation of the new steel in Seats' operations. The coupling and matching processes required the involvement of several other firms and their resources. Coordinating the efforts of these various firms proved to be an onerous task, especially since some of the adjustments made in relation to business partners in the

UK were useless for the implementation in Germany. The findings of the study indicate that the connections to other business partners may be more important for interactive resource development in a new business relationship than in an established one. The main reason is that in long-term relationships successive adjustments between the focal actors tend to connect their resources to the resources in the network around the business partner. In the ERP case the customers of Textile played a significant role. They formulated the requirements for the business processes of Textile that guided the features of the ERP system developed in interaction with Infosyst. These features were determined by the interfaces between the resources of Textile and those of their customers. 6.2. Theoretical implications This study deals with the characteristics of interactive resource development in business relationships without previous interaction between the two focal actors. Similar to studies of joint development in established relationships this research shows the crucial role of adaptations and adjustments. In the space context the combining of new and existing resources and the connecting of the technologies of production and use called for extensive adaptations among resources. These adaptations concern both changes in resource features and modifications of interfaces, and required the involvement of other resources, physical as well as organizational. Fig. 4 represents one way of illustrating the patterns of adaptations and the subsequent role of business relationships. Some adaptations represented one-sided modifications on either the supplier or the buyer side (1 and 2 in Fig. 4). Other adaptations were mutual and affected both parties in the relationship (3). In these processes both the supplier and the buyer sometimes relied on access to resources in other relationships (4a and 4b). In some cases they exploited the resources of firms to which both were connected (6a). These findings illustrate the significance of the established business relationships of companies. However, the combining of a new resource with existing ones also called for new relationships. Some of these were developed by the supplier (5a), some by the buyer (5b) and some by the two parties jointly (6b). The finding that firms cannot control all the resources necessary for their development and innovation is in accordance with previous research by, for example, Brandenburger and Nalebuff (1996), Dyer and Singh (1998), Gulati,

4a

4b 6a

1

3

2

Focal relationship

6b 5a

Firm

5b

Existing relationship New relationship

Fig. 4. Adaptations in interactive resource development.

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Nohria, and Zaheer (2000), Håkansson and Snehota (1995), and Powell (1990). In most cases the benefits of such resource sharing concerns cooperation in established relationships (such as 4a, 4b and 6a) where firms learn about the capabilities and skills of the other party over time. The first implication for theory is that in situations without previous interaction between the two focal actors the establishment of new relationships is a critical issue (alternatives 5a, 5b, and 6b in Fig. 4). In these situations, firms that are more or less unknown to the two parties may be reservoirs of untapped physical and organizational resources that can be exploited. Therefore, systematic investigation and utilization of resources available at other companies is crucial to value-generating resource development. The important role of these additional business partners is pointed out in other studies of joint resource development which claim that it is necessary to “mobilize a development net containing firms having the required capabilities” (Möller, 2006: 920). However, these capabilities and resources are not automatically available. Exploitation of the resources of another firm calls for active mobilization of the interest of this potential partner. Numerous opportunities for external resource combining are available to the counterpart, and specific reasons must therefore be at hand for the prioritization of one of these alternatives. Active engagement in a relationship requires that both firms perceive the potential benefits of resource sharing to be greater than the associated costs and other sacrifices. The second implication concerns the impact of time. Previous research clarifies that interaction concerning a particular issue is affected by previous interactions in the relationship. In this study no prior interaction had occurred between the focal actors. This study shows that in these situations previous interaction with other business partners is significant for coupling and matching in the new relationship. The resources and capabilities of the two firms develop and are modified in the business exchange with other firms. For example, adaptations in relation to other companies may require a firm to complement a specific resource with additional features. Other features may be modified in order to make the resource fit better with the resources of groups of customers and suppliers. Furthermore, interactive resource development may discover resource dimensions not previously identified. Such effects appear because the value of a particular resource is dependent on its combining with other resources. Therefore, the interaction with a new business partner can lead to the discovery of resource features that were unknown because resources “always have hidden qualities” (Håkansson & Waluszewski, 2002: 32). This study demonstrates the central role of business relationships in the long-term development of the features of a resource. Research on interactive development in established relationships shows that these processes tend to be path dependent and evolve along certain trajectories through which resources are systematically transformed and acquire their features (e.g., Arthur, 1988; Håkansson et al., 2009; Nelson & Winter, 1982). Such paths clearly impact on the potential outcome of interactive resource development in a new relationship. In the same way, the development path of a specific resource will be affected by the interaction in the new relationship. The particular adjustments made in relation to this business partner will favor some future development paths while others will be constrained. 6.3. Managerial implications This study offers two significant implications for practice. Involvement in a new business relationship is a significant strategic issue because this engagement will impact on both the future development of the resources of the company and the company itself. The first managerial implication deals with decisions concerning what new relationships and what interactive development to prioritize. Evaluation of potential business partners tends to focus on

internal capabilities and resources. As demonstrated in this study, however, decisions concerning the selection of interaction partners require a broader perspective. The resources the potential partners can access through its relationships are as significant as the internal resources of a counterpart. Therefore, evaluation of business partners should involve analysis of the larger resource constellation around the other company. Furthermore, a new business relationship is also a significant investment for the potential partner, who has a number of alternatives for cooperation. Therefore, the mobilization process is not only about prioritizing and selecting a business partner, but also about acting in order to be given priority and be selected by this potential partner. The second implication deals with the forms of interaction and the outcome of joint resource development. The study shows that these coupling and matching processes may be difficult to design beforehand and to execute as planned, since their consequences are to a large extent unknown. These findings are supported by other researchers who claim, for example, that resource combining cannot always be planned since “the possible interaction between products and their environments are sometimes too complex to be predicted” (von Hippel & Tyre, 1995: 9). Therefore, interactive resource development in a new relationship features substantial uncertainty owing to inherent complexity, and lack of experience of the counterpart and of the resource constellation residing in the space context. In these situations, firms should handle this uncertainty through experimentation rather than through sophisticated strategic planning. This experimentation may take the form of small scale projects involving several business partners and differentiation in the forms of interaction. This is in accordance with Langlois and Robertson (1992: 311), who point out that particularly in the early stages of resource development “experimentation is a much more important concern than coordination”. Finally, it is important to bear in mind that uncertainty concerning the outcome of experimental resource development has positive sides, since other studies have found that in complex interaction processes “technological problem solving almost always reaches beyond the range of options that are perfectly understood” (Nelson, 2003: 912).

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