Market orientation and quasi-integration: Adding value through relationships

Industrial Marketing Management 35 (2006) 140 – 155

Market orientation and quasi-integration: Adding value through relationships Katy Masona,T, Peter Doyle, Veronica Wongb,1 a

Cardiff University, Cardiff Business School, Aberconway Building, Colum Drive Cardiff CF10 3EU, Wales, United Kingdom b Aston University, Aston Business School, Aston Triangle, Birmingham B4 7ET United Kingdom Received 21 August 2003; received in revised form 16 December 2004; accepted 4 January 2005 Available online 8 March 2005

Abstract This study explores and describes the rationales and approaches of a market orientated supply chain — labeled the bdemand chainQ. The objective is to develop theory by providing grounded insights into how and why managers design and implement a market orientated supply chain. Analysis of twenty field interviews uncovered three main rationales for demand chain configuration. Further, a continuum of integration typologies is presented and three key responses explored and described. These findings are discussed and implications for theory and practice are offered. D 2005 Elsevier Inc. All rights reserved. Keywords: Demand chain; Inter-firm relationships; Market orientation; Supply chain; Supply chain configuration; Quasi-integration

1. Introduction The past two decades have witnessed a growing understanding and interest in the market orientation concept (Grewal & Tansuhaj, 2001; Hunt & Morgan, 1995; Lee et al., 1997; Narver & Slater, 1991; Pulendran, Speed, & Widing, 2003; Ruekert, 1992; Schlegelmilch & Ram, 2001). While research in this area initially focused on the conceptualization of the market orientation construct (Kohli & Jaworski, 1990; Narver & Slater, 1991), it has since developed to encompass different contexts, (c.f. Bhuian, 1998; Chang & Chen, 1998; Hooley, Moller, & Broderick, 1998; Pelham, 1997) and different antecedents and consequences (c.f. Harris, 2000; Jaworski & Kohli, 1993; Ruekert, 1992; Siguaw, Brown, & Widing, 1994), identifying the market orientation construct with a multitude of factors. One factor that is consistently recognized as significant is organizational structure. Despite these studies T Corresponding author. Tel.: +44 29 20 876951. E-mail addresses: [email protected] (K. Mason)8 [email protected] (V. Wong). 1 Tel.: +44 121 204 3273. 0019-8501/$ - see front matter D 2005 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2005.01.005

having examined a number of important dimensions of organizational structure (such as centralization, formalization, departmentalization), the relationship between market orientation and supply chain configuration has been neglected. For example, while Siguaw, Simpson, and Baker (1998) explore the market orientation typologies within buyer–seller relationships, they do not take a holistic view of the supply chain. The identification of the need for a holistic view of supply chain configuration is consistent across the economics, strategy, and operations management literatures and is regularly linked with marketing. For example, in the economics literature transaction cost theory has been developed with the key objective of identifying suitable supply chain configurations by understanding their boundaries within markets (Coase & Coy, 1937; Williamson, 1971; Williamson, 1975). Equally the vertical integration literature suggests supply chain configuration decisions are made with customer needs in mind (Burgelman & Doz, 2001; Harrigan, 1984, 1985a, 1985b), while the supply chain literature observes control of the supply chain is essential in delivering on promises to customers (c.f. Lee et al., 1997; Pereira, 2001). A common theme is emerging. Supply chain

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configurations are increasingly disintermediated, adopting partial or quasi-integration rather than pursuing more traditional, full vertical integration. Quasi-integration allows firms to maximize their ability to quickly adapt to changing market/customer demands (c.f. Blois, 1972; Cairncross, 2002; Levitt, 1983; Porter, 1980). Despite the recognition of the need for a ddemandT driven approach to the supply chain (c.f. Levitt, 1983) the implications for market orientation are poorly understood. The aim of this paper is to focus on supply chain configuration through exploring and describing the strategies and tactics employed by organizations in order to create a market orientated supply chain — more recently labeled the ddemand chainT. In this regard, the objective is to develop theory through generating insights into how and why market orientated firms organize their supply chain configuration. It is anticipated that such insights will not only contribute to our understanding of the supply chain configuration adopted, but of the processes necessary for its successful implementation. This paper begins with a brief overview of the supply chain literature. Thereafter, a broader exploration of the literature is undertaken that considers the ways in which market orientation and the supply chain configuration might interact. Following a description of research design, approach, and research methodology within a leading European firm, insights from an in-depth case are presented and discussed. Finally conclusions and implications are presented.

2. The supply chain The supply chain literature concerns itself with value creation within the supply chain (Fig. 1). At each stage raw materials are processed in a way which adds value for customers downstream. Two key features of supply chains that have changed over the years are the level of ownership and the subsequent management of inter-firm relationships Value Chains for Multiple Raw Material Suppliers

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(Helfert, Ritter, & Walter, 2002; Ogbonna & Harris, 2001; Webster, 1992). In the 1950s and 1960s firms protected themselves from uncertainty of supply and sought economies of scale by seeking to control the entire supply chain through ownership (Chandler, 1969). By the 1980s the business environment had become increasingly competitive and some firms began to pursue quasi-integration models. For example, some clothing and footwear manufacturers adopted part ownership of downstream retail outlets through the development of franchise agreements, while in the grocery sector, smaller retailers formed buying cooperatives in order to leverage their purchasing power and compete with larger retail chains (Bloom & Perry, 2001). Many firms found themselves exploring cost cutting and efficiency drives within their supply chain. This resulted in a dramatic shift towards disintermediated supply chains as outsourcing strategies were increasingly pursued. A new set of problems was created, which became known as the dhollowing outT of firms (Quinn & Hilmer, 1995). Firms with misguided outsourcing strategies began endangering the long-term prospects of their businesses by outsourcing core capabilities. By the new millennium the industrial landscape throughout the Western world was increasingly becoming a knowledge-based society (Cairncross, 2002; Pereira, 2001). Previously successful industries of the 1960s and 1970s tended to be those associated with a high degree of labor and raw material intensity, for example, the textiles industry, coal mining, and steel manufacturing. These traditional industries had become increasingly unprofitable as developing countries invested aggressively, seeking to gain world market share. Their lower cost-base (particularly labor costs) had facilitated this shift. As a consequence, industry in the Western world has been forced to evolve and the past decade has seen the rapid growth of knowledgebased industries. These characteristically require less manpower but greater information and knowledge, for example, pharmaceuticals, communications equipment, electronics, and computers. Here labor costs are typically less than 5%

The Value System

Raw Material SUPPLIER Raw Material (Stage 1) Material SUPPLIER Raw (Stage Raw1)Material SUPPLIER SUPPLIER (Stage 1) (Stage 1)

Value Chain

Value Chain

Spike-Paints

Alpha

Delta

Paint MANUFACTURER (Stage 2)

MANUFACTURE & PACKAGING (Stage 3)

Car Body Shop RETAILER (Stage 4)

Vertical Integration Upstream

Ownership replaced by inter-firm relationships

Ownership

Fig. 1. A supply chain for the Alpha Corporation.

Downstream

CUSTOMER With re-sprayed car

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firms adopting these structures including Dell, Benetton, and Nike. In order to understand how these configurations might be related to market orientation and business performance, we identify existing supply chain typologies and explore how they might be implemented.

of total costs (Doyle, 2000). Indeed, most costs are information related: research, design, development, testing, marketing, and customer service and support (Doyle, 2000). These new industries require a reduced labor force and flatter, less hierarchical organizational structures than the more traditional industries. In this regard, as the industrial base of the Western world changed, the prominence of industry transposed. While Western industrial output has remained fairly constant, the service sector has more than doubled in size over the past decade, driven by increased efficiencies and new information technologies (Doyle, 2000; Davenport, Harris, & Kohli, 2001; Griffith, Zeybek, & O’Brien, 2001). As a result, supply chains have been shortened and reconfigured. In an effort to overcome the shortcoming of the inflexibility of full vertical integration, while avoiding the drawbacks of purely transaction based outsourcing, today’s firms are reacting to the new industrial landscape by shifting their emphasis to a strategic sourcing approach where inter-firm relationships play a central role in supply chain management (Dyer & Wilkins, 1991; Ganesan, 1994; Ford & McDowell, 1999)(See Fig. 1). Today, many supply chains are not as linear as Fig. 1 suggests. Forming web-like structures of interdependent firms, integration is being achieved through the development and management of inter-firm relationships instead of through total ownership or what economists traditionally referred to as the fully vertically integrated supply chain. We are observing a shift, from traditional vertical integration to virtual integration. These quasi-integrated (QI) supply chain configurations have been referred to in the literature as networks (Miles & Snow, 1986), shamrocks (Handy, 1990), value added partnerships (Johnston & Lawrence, 1988), alliances (Ohmae, 1989), and virtual organizations (Magretta, 1998). Such configurations are becoming increasingly common, with some of today’s most successful

3. Integration typologies Supply chain configuration is dependent on the level of integration within the supply chain. Webster (1992) identifies seven types of integration. These typologies are placed on an integration continuum, combining both ownership and relationship strategies. By transforming interfirm relationships into partnerships, firms are able to influence the behavior of their trading partners without incurring the costs and asset risk associated with ownership. The level of supply chain integration achievable increases along the continuum, starting with pure transactional, repeat transaction, long-term relationship, buyer–seller partnership, strategic alliance, network organizations, and finally full vertical integration. From these typologies, three distinct approaches to the supply chain can be observed. At the two poles we see transactional relationship (TR) and full vertical integration (VI). The third approach involves the middle section of the continuum, what we label quasi-integration (QI) (See Fig. 2). TR involves minimized ownership and supply chain influence and is defined as a short-term contractual agreement between two vertically linked but independent firms. The fulfillment of the contract signals the end of the relationship (Quinn & Hilmer, 1995). Transactional relationships are often found where the goods being traded are widely available commodities, purchased on quality and price. VI represents the other pole on Webster’s continuum whereby maximum impact is achieved through ownership

1

2

3

Transactional

Supply Chain Influence

Ownership

Supply Chain Influence

Pure Transactional Relationship

Full Vertical Integration

1

2

3

4

5

6

7

Transactional

Repeat Transactional

Long-term Relationship

Buyer-Seller Partnership (mutual total dependence)

Strategic Alliance

Network Organisation

Vertical Integration

QI Structures Source: Adapted from Webster (1992, p.5) Fig. 2. The continuum of integration typologies.

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MANUFACTURER Influence

DESIGN/ASSEMBLY Ownership

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CUSTOMERS (B2B)

Upstream

Downstream

Fig. 3. The QI supply chain configuration of Dell computers (Magretta, 1998).

of every stage from raw materials supply to retail. With this approach inter-firm relationships are restricted to value chain activities such as technology development, services, and procurement (Porter, 1985). Examples of full VI are increasingly uncommon. However, capital intensive industries such as the oil industry continue to adopt fully vertically integrated structures. Firms in this industry typically own every stage of the supply chain, from oil exploration to the delivery of refined fuel to consumers. Nevertheless, such companies continue to buy—in support activities such as logistics and marketing services. The third approach, QI, encompasses all integration types between the two poles where combinations of ownership and relationship strategies are used to create added value. This raises a further issue. Relationship strategies are strongly associated with the QI configuration. The objective is to build supply chain influence in order to integrate the various supply chain stages without the financial commitment of ownership. We examine one such QI configuration implemented at the Alpha Corporation, in an attempt to understand this process and how it might create added value. Alpha is a European based auto parts distributor and, as such, is positioned centrally within the supply chain. When we consider the position of a firm in its supply chain, we can see that the choice of integration typologies applies in two directions; upstream (towards the supplier) and downstream (towards the customer). Thus, the advantages and disadvantages of either approach are dependent on the core firm’s position within the supply chain. Dell, for example, position themselves downstream of the supply

Possible Approach Upstream

Core Firm Ownership

chain, acting as direct sales agents. They do not own any of the manufacturing operations for their branded computers but use customer information acquired through downstream integration to influence long-term relationships with upstream, disintermediated suppliers (Magretta, 1998). Dell has demonstrated the importance of minimized ownership through positioning, identifying the key value adding activities for ownership, and restricting ownership to this single supply chain stage. As Wise and Baumgartner (1999) observe, the key value adding activities are, with increasing frequency, found downstream of the supply chain (See Fig. 3). The recognition that the approach to supply chain integration (i.e. transactional relationship, supply chain influence, or ownership) may differ upstream and downstream suggests the beginnings of a taxonomy (Fig. 4). The literature suggests that certain supply chain configurations are more likely to be successful than others (Webster, 1992). This, it is suggested, is because organizations that hold the customer as central to their operations strategy evolve their supply chain configuration accordingly (Cairncross, 2002; Langabeer & Rose, 2001; Pereira, 2001). This puts marketing at the center of supply chain configuration design, transforming the primary driver of the supply chain from supply to demand. Despite these observations, the design and implementation of demand driven supply chains is poorly understood (c.f. Cairncross, 2002; Doyle, 2000). In response, the following section explains how we used a discovery-oriented approach to understand the market orientated supply chain known as the demand chain (Langabeer & Rose, 2001). We then compare our findings

Possible Approach Downstream

Transactional Relationship

Transactional Relationship

Supply Chain Influence

Supply Chain Influence

Ownership

Ownership

Fig. 4. A taxonomy of possible supply chain configurations.

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with the literature in marketing and related disciplines (See Fig. 4).

4. Research design, approach, and methodology The investigation of the relationship between market orientation and supply chain configuration requires the adoption of a research methodology which allows for exploration, description, and analyses of the complex and frequently hidden dimensions, not only of the supply chain configuration itself, but also the implementation of the design through the creation of supply chain influence. In particular, the use of case study methodology is deemed suitable due to the flexibility of the approach in the study of organizational idiosyncrasies (Ogbonna & Harris, 2001). Given the need for both depth and understanding, a single in-depth case study was adopted. This follows the suggestions of Dyer and Wilkins (1991) that this approach is effective in researching organizational nuances. The research design adopted is partly exploratory (to aid the exposure of the dynamics of the supply chain influence in order to facilitate construct development) and partly descriptive (to help in describing supply chain characteristics and activities). The case selection was based on three criteria. Firstly, that the selected firm had to be operating in a competitive market place. Care was taken not to select a firm that had achieved a virtual monopoly of its markets because the literature suggests that the QI form we wanted to investigate was driven by a need for competitive change (c.f. Handy, 1990; Harrigan, 1985a; Porter, 1980; Wise & Baumgartner, 1999). Secondly, the selected firm should have a high level of market orientation. If the relationship between supply chain configuration and market orientation was to be investigated then the fact that the selected firm implemented market orientation had to be ascertained. It followed that if the selected firm displayed a strong market orientation then any relationship with how that supply chain was configured would be more easily identifiable. This approach required the predicting or measuring of market orientation levels as part of the case selection process. The fact that market orientation has been widely recognized as having a positive impact on business performance (Narver & Slater, 1991; Sin, Tse, Yau, Chow, & Lee, 2003) helped us do this. Therefore, we surmised that a strong business performance (identified through published accounts and industry reports) would be a useful indicator of market orientation levels, suggesting the adoption of a third criterion: that the selected firm had to demonstrate a strong business performance over the medium term (c.f. Kaplan & Norton, 1992). Once a firm had been selected on the basis of strong business performance, market orientation was then measured by using the Narver and Slater (1991) five point, Likert type

scale (Churchill, 1995). The Narver and Slater scale was adopted because the measure reflects both cultural and behavioral aspects of the construct (c.f. Helfert et al., 2002), both thought to be pertinent to the development and adoption of any given supply chain configuration (Frohlich & Westbrook, 2001; Webster, 1992). The motor industry was selected because of its reaction to intense competition. Globalization and the increasing competitiveness of world markets has meant that firms and their supply chains have had to evolve in order to survive. In the UK we have seen examples of manufacturers seeking forward integration through mergers and acquisitions, e.g. the Ford Motor Company purchasing Kwik Fit, the exhaust-fitting business. There has also been a consolidation of the main motor manufacturers to form powerful buying outfits. At the same time increased outsourcing activity has provided opportunities for a variety of companies to build up new service and niche product offerings. Such firms have developed strong core competencies in their specialist fields and this has made them attractive alternatives for manufacturers considering strategic sourcing opportunities. For reasons of confidentiality, the company is known under the pseudonym dAlphaT, and all of its SBU’s are referred to using the phonetic alphabet (Bravo, Charlie, Delta and Foxtrot). This exploratory research was conducted using an iterative approach. An initial meeting with the communications director was arranged. An in-depth interview was conducted from an interview guide prepared from the literature review. Reflections from that interview were used to prepare for subsequent meetings and also to determine further interviews and sources. A total of twenty interviews were conducted over a three month period, both within Alpha and at selected strategic partners both upstream and downstream of the supply chain. These interviews comprised four executives, six middle managers and ten front-line workers. Interviews varied in length, typically lasting 1h (though in some instances, as long as 6h). All interviews were audiorecorded and were transcribed verbatim and analyzed through a discovery-oriented method consistent with grounded theory (c.f. Strauss & Corbin, 1990), influencing the search for secondary data. Yin (1994) maintains that a unique strength of the case study method is derived from the ability of the method to encompass a variety of data sources. Consequently, additional data were generated from a wide range of internal and external documents, which were made available to the researchers (minutes from board meetings, administrative documents, trade press, strategy records, annual reports, and training materials). While it is important to recognize that some publicly available archives may well reflect biases of public relations personnel (c.f. Ott, 1989), the selected firm did not have catalogued archives and there was no evidence of systematic editing of archives (Ogbonna & Harris, 2001).

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For reasons of brevity, the detailed case study is not reported here. Instead, illustrative quotations taken from the analysis of the transcripts are presented to reflect the consistency of views.

The Retail division comprises consumer retailer, dCar WorldT. Car World operates 403 sites across the UK, supplying car accessories, consumables, leisure, and in-car entertainment products.

5. A case study at Alpha: background

6. The holistic demand chain perspective of Alpha

The Alpha Corporation is a successful European automotive parts distribution company, with more than 7500 employees and annual revenues approaching o500 million (US$800 million). While Alpha was, at the time of data collection, the largest supplier to the UK aftermarket for vehicle parts, accessories, and consumables, its market share remained around 10%. This demonstrates the highly fragmented nature of the market. Alpha had a clear strategic vision of where the UK auto parts distribution sector was going. Over the past three years it has effectively set the sector’s agenda by building an integrated distribution system downstream, servicing all parts of the aftermarket. Further, strong, long-term partnerships with upstream suppliers have been forged and carefully fostered. Market share and volumes achieved typically exceed industry averages. Indeed, industry analysts comment,

As can be seen from the three divisions described above, the group structure forms part of an internal supply chain between the different Alpha business units (packaging and manufacturer Y wholesale distribution (trade) Y retail Y customer). Every time there is a break in the chain, i.e. between packaging and wholesale, between wholesale and retail, a market exists. Alpha has attempted to identify this in its configuration of the three divisions. Therefore, partnerships develop on two levels. 1) inter-group partnerships i.e. Bravo supply Foxtrot, and 2) inter-firm partnerships i.e. Spike-Paints (non Alpha) supply Delta (Alpha). Alpha have identified their position in the supply chain and have integrated downstream through ownership, purchasing distribution and retail outlets. They have integrated upstream using supply chain influence, forming long-term relationships with their key suppliers. This supply chain configuration is consistent with the QI supply chain influence/ownership model (see Fig. 4.) and has enabled Alpha to achieve a high level of market orientation by becoming demand driven. We now examine the demand chain concept and then look to see how this has been implemented at the Alpha Corporation.

bThe trading environment remains tough but Alpha is expected to continue to outperform its competitors, aided by further market share gains and a pro-active program of cost reductionsQ (Apex Partners & Co., 1999). 5.1. Group structure The fourteen operating companies that comprise the Alpha Group are consolidated into three divisions; 1) Packaging and Manufacturing, 2) Trade, and 3) Retail. Divisional managing directors report through to the main board. The Packaging and Manufacturing division operates through six strong brands, which enables the group to supply all major customers through either trade distribution or, if volumes justify, direct from the factories and packaging units. The Trade Division includes motor factors and warehouse distribution. Motor factors comprise 300 branches giving rapid delivery of vehicle parts and consumables to 40,000 trade customers. Seventy-five percent of these customers receive delivery within an hour of order placement. This division services the market through five wellknown brand leaders (including Foxtrot for the commercial vehicle, engine, and fleet market). Each of these brands has an independent operating board responsible for delivering the agreed strategy and business plan. Bravo and Charlie Express are the warehouse distribution businesses and are market leaders in the UK. They service motor factors, and body workshops (including Delta), delivering up to 60,000 part numbers with two, three, or four times-a-day delivery service.

7. Exploring the demand chain 7.1. Comparing literature and field perspectives The literature review reveals an emerging consensus (though contrasting emphasis) in the conceptualization of the ddemand chainT construct. Langabeer and Rose (2001) define the demand chain as a bdemand-driven supply chainQ placing consumer demand at the center of supply chain strategy, whereas Pereira (2001) and Cairncross (2002) focus on the need to gather, distribute, and appropriately utilize market information throughout an organization and where pertinent, with strategic partnering firms (c.f. Amaldoss, Meyer, Raju, & Rapport, 2000; Buvik & John, 2000; Johnston & Lawrence, 1988). This demand chain perspective differs from the traditional view of supply chains where operational manufacturing and logistics processes performed within organizations focused on maximized efficiencies (Dong, Carter, & Dresner, 2001). It is increasingly recognized that the efficiency approach falls short of bringing sustainable competitive advantage (Hammer, 2001). Further, there is a ground swell of opinion that suggests that, in order to take the next step, firms must strive to incorporate the business knowledge and practices

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that help understand their marketplace and to use this to drive strategy at an operational level (Champion, 2001; Craig & Douglas, 2000; Davenport et al., 2001; Frohlich & Westbrook, 2001). Because business knowledge is bound up with the principles of marketing (c.f. Felton, 1959; Kohli & Jaworski, 1990; McKitterick, 1957; McNamara, 1972; Narver & Slater, 1991), understanding how it is or needs to be generated and utilized in order to maximize business performance is an important consideration in the supply chain configuration process. The practice through which the marketing philosophy is implemented is referred to in the literature as market orientation (Kohli & Jaworski, 1990; Narver & Slater, 1991). Thus the conceptualization of the demand chain does not strive to re-define market orientation, but rather attempts to explicate our understanding of how market orientation might be used to drive supply chain strategy. This requires that firms understand the tools (i.e. the integration typologies) available to them and their appropriate application when configuring the supply chain. In the following discussion we first compare the field-based view with the received view of integration typologies — transactional relationships, ownership, and supply chain influence — and then elaborate on the elements of the field-based view. 7.2. Explicating the integration typology and market orientation relationship 7.2.1. Transactional relationships Without exception the managers interviewed were consistent in the view that TR were an important part of supply chain configuration. Though they agreed with the transaction cost theory view that the marketplace offered cost and efficiency benefits (c.f. Coase & Coy, 1937; Williamson, 1985), several executives emphasized the complexity in identifying and retaining suppliers. Where time and effort was invested in identifying key suppliers, strong partnerships were fostered and thus transactional relationships avoided. Adopting transactional relationships with upstream suppliers was dependent on: 1) the purchased product being a commodity (steel, grease, cotton); 2) a key strategic sourcing partnership having already been established with a competing firm; 3) the dependence on supply not impinging on the core competence of the core firm and 4) a firm’s requirements for flexibility in supply as fluctuations in demand surpass the capacity of their strategic sourcing partner. These comments help explain how upstream transactional relationships formed the third tier of a tiered supply system that ranks suppliers in order of preference [c.f. Ballew & Schnorbus, 1994; Raia, 1994]. The higher the tier the less likely the core firm is to use that supplier and the more transactional the inter-firm relationship is likely to be. It appears that when the marketplace satisfies any or all of these conditions, market orientation drives upstream TR through the need to create flexible, quick-response solutions to demand peaks and troughs. This dynamic interpretation

of the supply chain concurs with the understanding of Choi et al. (2001) of the supply network as a complex adaptive system that constantly evolves. This, they theorize requires unique management skills, that allow the supply chain configuration to self organize (to a certain degree) and as such, transactional relationships are likely to always form part of the supply network upstream. While transactional relationships may be appropriate for the purchase of commodities, the lack of integration downstream in particular is thought to be a hindrance to achieving customer satisfaction (Wise & Baumgartner, 1999). The difficulties and proportionately higher costs associated with finding new customers, (compared with selling additional or different goods to existing customers) were raised. Talking of customers, one account manager observed, bOnce we’ve found them, we really like to keep them.. . . So we need to know as much about them as possible; what they want, when the want it, what they might need in future — we often help them work this out.Q Interviewees cited a second reason for transactional relationships being deliberately avoided downstream. It presented difficulties with the generation of market information necessary to be market orientated. This suggests that market orientation is likely to have a negative impact on transactional relationships being adopted downstream. The importance of downstream integration for intelligence generation is widely referred to in the marketing literature (c.f. Webster, 1992; Wise & Baumgartner, 1999) but what is less prevalent is the concept of avoiding TR downstream. This suggests that firms might turn away customers or be more selective about who they target. While no empirical evidence could be found to support this finding, the concept of customer selection is raised by Cairncross (2002) and warrants further investigation. 7.2.2. Ownership Investment through ownership results in the expansion of the firm. With the high asset risk associated with ownership, interviewees felt that there had to be strong justification for this action. Here we compared the field view with the transaction cost theory, which concerns itself with why firms grow (Coase & Coy, 1937; Williamson, 1975, 1985). Consistent with the literature, interviewees explicitly identified the risks associated with full financial ownership of multiple supply chain stages — limited flexibility to respond quickly to changing customer needs, employment protection legislation, high investment in research and development, and fixed assets leading to high asset risk (Levitt, 1983; Lonsdale & Cox, 1998). They also recognized the benefits offered by ownership — increased control over product/service offerings, advantages of economies of scale and increased margins, the generation of market intelligence, and the development of high value adding core competencies. Interestingly, few managers found these advantages exclusive to ownership agreements and felt that

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they also held true in strategic sourcing and partnering agreements (c.f. Mahoney, 1992). Changes in technology capabilities and usage were cited as the primary reason for this ability; described as dunsustainableT in the management literature of the 1950s and 1960s (c.f. Chandler, 1969). Managers also felt that ownership strategy was often dbeyond their controlT. The role of merger and acquisition within groups of companies such as Alpha sometimes means that firms end up with unsolicited ownership of supply chain stages. The subsequent decisions to sell or integrate the supply chain stage that had effectively been acquired by default, was described as being bsensitiveQ and surrounded by bpolitical undercurrentsQ. These issues were consistently referred to, directly and indirectly. Upstream ownership has historically been used to ensure security of supply but our interviewees saw little benefit in owning upstream supply chain stages in an increasingly competitive marketplace. The emphasis was on the need for flexibility and thus QI upstream. For example, the procurement director explained, bWe can source anywhere in the world these days. . .the trick is understanding the marketplace. When there are lots of suppliers all selling the same thing, the product you’re buying becomes a commodity. This effectively devalues it. Then all you’re doing is buying on quality and price — as much or as little as you like; whenever you like.Q This describes a typical upstream transactional relationship. However, when upstream suppliers develop core competencies that offer them sustainable competitive advantage, might firms consider upstream integration through ownership? The procurement director continued, b. . . But when a firm offers something special, then it’s a different game. That typically means they have, for example, a strong R and D department and are coming up with new innovations. . .that give real advantages to our customers. . . That’s when we start looking at partnership agreements — but not usually ownership. In fact never ownership. Not in my time anyway. They [the supplier] do what they do, and we do what we do. . .Q There is an apparent reluctance for upstream integration through ownership. The representatives interviewed from the various Alpha SBU’s all suggested that when integration upstream was considered necessary the development of supply chain influence was preferable to ownership. The reluctance to own upstream supply chain stages could be explained by transaction cost theory. Coase and Coy (1937) suggest ownership of supply chain stages should be determined through relative cost. Therefore, in this case transaction costs associated with the markets (suppliers) must be less than the administrative costs of organizing this supply chain function within the firm. However, this explanation is problematic. Transaction costs are notoriously difficult to measure (c.f. Dwyer & Welsh, 1985; Klein

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& Roth, 1988). Further, what the interviewees describe here seems more complex than this. The underlying concern of managers appears not to be cost, but rather the flexibility of supply and the need to capitalize on supplier firm’s core competencies which enable core firms to create their own sustainable competitive advantage and unique product/ service offering to customers. This suggests that upstream ownership might restrict market orientation. In contrast, downstream ownership was actively pursued. Again, the emphasis from interviewees was placed on marketing principles and not on transaction cost arguments. Interviewees frequently referred to the need for and role of market intelligence. Downstream ownership was considered an important strategic tool in generating this. An account manager, describing downstream franchise agreements with small, independent garages, explained, b. . .even though we are part owners,. . .we still treat them as customers. . .. They’re not the consumer but they are our only contact with consumers. By part-owning these garages and by providing all the support and commitment that a franchise agreement can offer, we are gaining useful data that helps us understand two principle things 1) what the consumer wants in the way of products and services and 2) what our customer wants and needs are.Q This need, to carefully identify and interact with customers is an important consideration in market intelligence gathering. As Kohli and Jaworksi (1990) observe, bThe appropriate focus appears to be the market which includes end users and distributors as well as exogenous forces that affect their needs and preferencesQ (p. 4). Integrating downstream through ownership or part ownership (franchise and joint ventures) appears to make the role of market intelligence gathering more straight forwards, regular, and consistent. For example, interviewees explained how shared databases, stock control, and automatic reordering systems helped record and relay market trends to the core firm. This suggests that market orientation might drive ownership downstream. 7.2.3. Supply chain influence Managers did not hesitate in identifying the fact that bspecial relationshipsQ existed upstream in the form of bstrategic sourcing partnershipsQ. These relationships were typically described as blong-termQ, bbeneficial to both partiesQ, bproviding expertise that couldn’t be found internallyQ and as being binfluential on both partiesQ. The idea of creating influence within the supply chain has been discussed at length in the relationship marketing literature, but defining the construct has proved illusive (c.f. Gro¨nroos, 1995, 1997; Gummesson, 1987, 1994). Interviewees described the implementation of supply chain influence as bcomplexQ and as brequiring careful handlingQ. Our analysis of the Alpha case provided some insights as to how supply chain influence might be defined.

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7.3. Defining supply chain influence 7.3.1. Relationship focus The bcareful handlingQ was interpreted by interviewers as the need for trust (both on a corporate and individual level) and commitment to the project from both parties. This was thought to engender co-operation between the parties. Interviewees emphasized the importance of finding the right partner, explaining, bif they’re not committed you’re just wasting your time and effortQ. A procurement manager explained, b. . .you’re better off just to keep buying from the marketplace than trying to work with someone who doesn’t have the same goals and objectivesQ. Thus, the relationship focuses on developing trust, commitment, and co-operation. This in-turn appears to contribute to the development of supply chain influence. Trust, commitment and co-operation have been widely discussed in the marketing literature, largely in conjunction with their relationship to one another (c.f. Ganesan, 1994; Morgan & Hunt, 1994; Mohr, Fisher, & Nevin, 1996; Sirdeshmukh, Singh, & Sabol, 2002). Because of this reported inter-relationship, we labeled the phenomenon Relationship Focus. There is limited empirical evidence of the impact of relationship focus on market orientation. A notable exception being the work of Siguaw et al. (1998), whose findings indicate that, a supplier’s market-oriented behaviors affect not only the distributor’s perspective of relationship focus but also the distributors market orientated behaviors and satisfaction with financial performance (c.f. Steinman, Deshpande, & Farley, 2000). Interviewees appeared acutely aware of these issues as they discussed the need to identify, ban appropriate partnerQ. This impact of relationship focus on market orientation is illustrated by Alpha’s partnering with a paint supplier (Spike-Paints). Dissatisfied with their current transactional relationships with disparate car paint suppliers (one supplier was a paint manufacturer that was integrating downstream through its own chain of retail outlets. The supplier’s downstream integration strategy meant that they were supplying Alpha, who would become a direct competitor downstream through their Delta chain. This clash of objectives was proving problematic in servicing even a transactional relationship) thus, Alpha set out to identify a single strategic supplier from which they might source their entire car paint product range. This would then be offered to their nationwide chain of body workshops — Delta. Delta would be able to purchase a superior and discounted product via Alpha’s centralized strategic sourcing agreement, thus capitalizing on economies of scale. After several months of careful negotiation, shared strategic objectives were developed and a partnership agreement was drawn up to ensure all parties had agreed objectives. Also detailed in the agreement were expected quantities, product ranges, new product development plans, time scales and role out procedures. Alpha used their knowledge of the marketplace, their experience with other

paint suppliers and related products, their customer base knowledge (from Delta) and the knowledge of consumer needs to identify what they needed from Spike-Paints. Spike-Paints (who had a limited knowledge of the UK marketplace) provided technical know-how, identified gaps in the market that required innovations beyond that offered by their current product range, and developed training and educational programs for Delta employees (the downstream paint shops responsible for the purchasing decisions on paints) and the individual body workers (responsible for spraying the consumers3 cars). Because a different car paint requires different knowledge and skills to mix and apply, this technical support proved an integral part of the agreement. The principle objectives of Alpha was to capitalize on the economies of scale offered through a centrally managed strategic sourcing agreement and ascertain security of supply facilitating the delivery of a core competence in the bodywork. Talking of the agreement, the communications director explained, bSpike-Paints was a good find. They had a great deal of technical know-how but virtually no market knowledge. We could provide this, so this is the foundation of a real partnership, it’s a win:win situation.Q The supplier’s lack of market knowledge (or customer orientation) suggests that the relationships between the suppliers and distributors market orientation levels might not be one-way as Siguaw et al. (1998) suggest, but twoway (c.f. Helfert et al., 2002). Therefore, the strong market orientation of a distributor might leverage the market orientation of a supplier. Alpha demonstrated strong leadership through their sharing of market knowledge with SpikePaints, carefully identifying practical problems with paint storage, application, mixing, and ranges. This required the development of trust between the parties. The communications director explained, b. . .that’s why forging these partnerships is always risky and always takes time. . .. When you’re sharing valuable market knowledge, you have to proceed with extreme caution. It makes you feel so vulnerable. That’s why it’s essential that you get a sense that you can trust the people you’re going to be working with. . .Q These findings support the growing body of theoretical and empirical evidence to suggest that trust, commitment, and co-operation are important components of successful inter-firm relations (c.f. Anderson & Weitz, 1992; Moorman, Deshpande, & Zaltman, 1993; Ganesan, 1994; Siguaw et al., 1998; Urban, Sultan, & Wualls, 2000) and, as such, relationship focus should be considered a dimension of the supply chain influence construct. Further, successful implementation of the relationship focus appears to be positively associated with the level of market orientation achieved by supply chain members (c.f. Farrelly & Quester, 2003).

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7.3.2. Channel leadership Market knowledge sharing appears to give Alpha a supply chain leadership role. The marketing literature defines channel leadership as the activities carried out by a supply chain stage in order to influence the strategies of other supply chain members with the objective of controlling various aspects of channel operations (Schul, Pride, & Little, 1983, p.22). While some authors suggest that channel leadership impedes another channel member’s marketing policies and may create channel conflict (e.g. Rosenberg & Stern, 1971), several of our interviewees suggested that channel leadership was bgratefully receivedQ, not only upstream as was the case with Spike-Paints, but also downstream. For example, in dealings with Alpha’s franchised motor factor agreements, Alpha introduced database management systems to enable the motor factors to manage inventory more efficiently and effectively, thus offering customers a better service and more information on product availability and delivery times. Through their research into the effect of leadership styles on intra-channel conflict, Schul et al. (1983) conclude that, to ensure success, firms must orchestrate an effective leadership climate (c.f. Meyer & Collier, 2001). In other words, it is necessary to adjust the channel environment to fit the need and predisposition of supply chain partners, (this concept sits well with the theory of an evolving supply chain configuration discussed by Choi, Dooley, and Rungtusanstham (2001) in their paper on complex adaptive systems). Interviewees were at pains to describe the period within which the agreement with Spike-Paints was being developed. A procurement manager explained, b. . .you need to spend so much time making sure that you’re [Alpha and Spike-Paints] both on the same lines; making absolutely sure that they [Spike-Paints] understand what we need and the detail of how that is likely to be delivered. The more specific we were able to be about what our customer problems were, what we thought would over come that (like the education program with the body workers) and basically what the customer needed, the easier it became to put plans into action. It’s our job to be crystal clear on what we want and expect. . .. And it’s even our job to help them deliver it — that’s what sets us apart from our competitors.Q Christensen, Raynor, and Verlinden (2001) claim that those who show leadership by controlling the interdependent links in a value chain, capture the most profit. The evidence overall suggests that channel leadership is an important component of supply chain influence. The channel leadership approach adopted by Alpha also suggests that they hold a powerful position when offering guidance to strategic partners. 7.3.3. Channel power Channel power is thought to be dependent on firm size, brand strength, competitive positioning, downstream inte-

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gration and market knowledge (Blois, 1972; Wise & Baumgartner, 1999). The Alpha Corporation appears aware of the role of power and seems to have taken action with the objective of creating power. Such actions include investment in brand development, brand awareness and brand value, the development of common IT and database platforms throughout the supply chain and the development of franchise agreements downstream, and strategic sourcing partnerships upstream that capitalize on these assets. While these actions may well be interpreted as channel leadership, a careful distinction must be drawn. In the 1970s the control literature (c.f. Walker and Shooshtari, 1979, for a review of these studies) often used the terms power and leadership interchangeably. By the mid 1980s a deliberate attempt had been made to define and construct the two separate concepts in a more scientific manner (c.f. Gaski & Nevin, 1985; Schul et al., 1983). Gaski and Nevin (1985) highlight the difference between channel power and channel leadership, commenting, bnote, especially that power is defined as an ability, a potential, rather than actual alteration of behaviorQ (p.130, original emphasis). Power is conventionally defined in the behavioral science literature as the ability to evoke a change in another’s behavior (c.f. Cartwright, 1965; Emerson, 1962; Munson, Rosenblatt, & Rosenblatt, 1999). Unlike channel leadership, channel power is associated with a coercive nature that appears in the power research (Hunt & Nevin, 1974; Lusch, 1976) and a firm’s ability or potential to alter behavior. Gaski and Nevin (1985) interpret power in terms of its sources. They identify four sources of power, dividing these concepts dependent on whether the power was purely perceived by the trading partner or actually exercised and whether the power was implemented through coercion or a reward system. Their research into the effect of a supplier’s exercised and unexercised power on dealers suggests the application of punishment reduces a dealer’s satisfaction and causes intra-channel conflict to a greater degree than merely the dealer’s perception of the supplier’s ability to impose punishments. Further, the granting of rewards increases the amount of power a supplier holds over the dealer. In our case, we see how Alpha has used channel power to institute franchise agreements with the customer facing operations capitalizing on cost saving activities through close stock control and inventory management systems all provided by Alpha. This has facilitated the flow and quality of market intelligence upstream. This has been significant to the type of strategic sourcing partnerships Alpha has subsequently been able to develop. Market intelligence has facilitated the building of strong brands for Alpha. Ailawadi (2001) reviews the literature that identifies brand strength as a driver of channel power. This combination of power through brand development and power through consumer knowledge developed via a consumer interface (i.e. the shop floor; motor factors; the Internet site) suggests that channel power is being used to

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great effect. Interviewees suggested that building knowledge of the customer and the consumer was the key to creating power upstream in the supply chain. When firms had channel power, they had more influence over pricing, advertising, promotions, inventory control, and increased efficiency. Interviewees spoke of btaking controlQ and bunderstanding different needs of different stagesQ. Power appears to be associated with the development of core skills that add value downstream. The literature regarding channel power makes much of its association with profitability (e.g. Ailawadi, Borin, & Farris, 1995; Bloom & Perry, 2001), suggesting that when a firm becomes more profitable, by implication, it also becomes more powerful. Yet the issue of power is a complex one. The very fact that channel power enables a firm to influence its partner’s behavior suggests that a market orientated firm with channel power should be able to create supply chain influence over other members (c.f. Ailawadi, 2001; Bloom & Perry, 2001). An important caveat here is that channel power must be applied in an appropriate manner, i.e. through reward and not punishment. Perhaps because of this caveat, the effect of channel power is not always clear cut. The concept of a demand chain suggests that there should be a positive effect of channel power on the profitability of other members. While both upstream and downstream members that had entered into partnerships with Alpha reported increased profitability over the period of the relationship, firms dealing with Alpha through transactional relationships did not. This suggests that power may not reside within a single supply chain stage and that the interaction of two powerful supply chain stages might bring mutual benefits for both parties. While this finding offers only anecdotal evidence, it is concurrent with the findings of Bloom and Perry (2001) into the supermarket sector. This has implications for firms seeking an appropriate dbalanceT of power within the supply chain. Channel power appears to play an important role in the creation of supply chain influence. But, in line with the conceptualization of ""Gaski and Nevin (1985) of perceived power, channel power necessarily needs to be communicated to other supply chain members. 7.3.4. Channel communications Communications, both between functions and between firms, was consistently emphasized by interviewees as being central to the success of any inter-firm relationship (c.f. Mohr & Nevin, 1990; Sawhney & Parikh, 2001; Stern & ElAnsary, 1992). Interviewees spoke of the role of the timeliness, the quality and accessibility of information sharing. They spoke of the need for partnering firms to bspeak the same languageQ — this appeared to be a reference to the cultural interpretation of aims and objections on strategic and operational levels. As we have seen, market orientation has been defined both from cultural (Narver & Slater, 1991) and behavioral (Kohli & Jaworski,

1990) perspectives (or a useful summary of how these two perspectives overlap see Helfert et al. (2002)). The idea that market orientation might act as a common cultural platform (c.f. Ogbonna & Harris, 2001) and thus play an important role in creating partnerships has been little explored in the literature. By contrasting successful examples of supply chain influence with less successful or disappointing partnership agreements, interviewees identified both the role of communications and its dependence on a common cultural platform. They made numerous references to customer orientation in their attempt to define the cultural platform they set out to create. Thus, when both trading partners have a high level of market orientation their relationship is more likely to succeed and supply chain influence is likely to be stronger. When interviewees described problems that had arisen within relationships, they made such comments as, bthey didn’t tell us. . .Q, b. . .we didn’t know that. . .Q, b. . .they never explained. . .Q, b. . .if only we’d known. . .Q and b. . .that simply was not how we understood it. . .Q. Firstly this suggests a close association between the dimensions of relationship focus, i.e. trust, commitment, co-operation, and those of communications, direction of information flow, and quality and level of information sharing. The relationship marketing literature, while making reference to the dimensions of relationship focus and channel communications, does not specifically link them. Yet our analysis suggested a possible association. Strong communications seem to build the confidence in the ability of the strategic partnership to create and deliver value (though it is recognized that, in order to be sustainable, this must be reinforced by delivery of promise). Thus it appears that channel communications (along side relationship focus) are feasibly part of the supply chain influence construct. Interestingly, the literature that discusses the other theorized dimensions of supply chain influence also discusses the significance of channel communications. For example, in their discussion on directive leadership, Ivancevich, Szilagyi, & Wallace (1977) highlight the importance of channel communication. Indeed, channel communication has been linked to trust (Anderson & Narus, 1990), commitment (Anderson & Weitz, 1992; Morgan & Hunt, 1994), co-operation (Anderson & Narus, 1990), and power and influence strategies (Boyle, Dwyer, Robicheaux, & Simpson, 1992; Munson et al., 1999). Mohr and Nevin (1990) describe communication as; b. . .the glue that holds together the channels of distributionQ (p.36). The Alpha case appears to underpin the findings of Mohr and Sohi (1995) who observe, communication behaviors as being an important factor in not only the development of partnerships, but also in the assessment of relationship quality. The methods used to facilitate communications were thought to be highly relevant by interviewees. There was consistency of the opinion that information technologies greatly enhance the opportunities for improved channel

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communications. Interviewees explained that they regularly make use of video meetings, conference calls, teleconferences, e-mails, Extranets, and the Internet with their first tier suppliers to ensure the appropriate information is bsharedQ. Closely allied with communications is the potential for knowledge transfer between supply chain stages (Griffith et al., 2001) and the opportunities for innovation (c.f. Hammer, 2001; Rindfleisch & Moorman, 2001; Sawhney, 2001).

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standardized on the same hardware and software platforms facilitating inter-function co-ordination (Ford & McDowell, 1999), inter-group trading, and enhanced supply chain influence. It appears that when compatible co-ordination technologies exist throughout the supply chain, it facilitates channel communications and thus generates supply chain influence (Fig. 5). 7.4. Discussion and managerial implications

7.3.5. Co-ordination technology Technology appeared to be central to success, facilitating timely communications and co-ordination actives between demand chain members. Indeed, market orientation’s concept of inter-function co-ordination within a single firm appears to have become a boundary-less activity and to have proliferated between inter-firm inter-functional activities (c.f. Helfert et al., 2002). Considerable effort has been made by the Alpha management to maximize returns, in the form of greater product focus, response and throughput, from the fully operational EPOS system; there has been substantial IT investment (some o7 million (US$11.2 million). During past years, many significant projects were instigated. All the warehouse distribution systems have been brought onto the same Hewlett Packard base platform that supports other main group operations. New commercial IT systems have been installed at the head office to consolidate the various IT systems in use throughout the motor factor division. Foxtrot branches have been supplied with direct, on-line connection to the new systems. The net result of these developments is that trading operations have been

The aim of this study was to explore and describe why and how executives and managers configured their supply chains in order to achieve higher market orientation and thus leverage business performance. The phenomenon and framework discussed in this paper identify three principle implications for managers. The first involves the appropriate selection of integration typologies in order to facilitate a ddemand drivenT supply chain configuration. The second is the recognition of the need for careful identification of supply chain partners in order to facilitate supply chain influence. Finally, the third principle is concerned with the way firms define and manage supply chain influence with partnering firms. The first principle implication requires managers to distinguish three categories of supply chain approach: transactional relationship, supply chain influence, and ownership. Which of these three approaches is appropriate for any supply chain stage will be dependent on a firm’s positioning within the supply chain, its size, industry sector, history, competitive environment, and the value to be

Supply Chain Influence Relationship Focus

Channel Leadership MARKET ORIENTATION Channel Power

Customer Orientation Competitor Orientation Inter-functional Co-ordination

Channel Communication

Co-ordination Technology

Fig. 5. The relationship between supply chain influence factors and market orientation.

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gained. Wise and Baumgartner (1999) explore the supply chain configurations of manufacturers that have prospered with healthy growth in revenues, profits, and shareholder value over the past decade. They observe that diverse, but thriving manufacturers, such as Honeywell, General Electric and Coca-Cola, have all adopted a similar QI supply chain configuration. They have integrated downstream, toward the customer, tapping into the valuable economic activity that occurs throughout the entire product life-cycle without relinquishing their core competencies in manufacturing capabilities. Their manufacturing capabilities form part of their history of ownership and positioning within the supply chain. As with our case study, these examples are cited as having achieved integration downstream in different ways. As with the Alpha Corporation, all these firms have benefited from downstream integration whether through ownership or supply chain influence. However Honeywell, GE, and Coca-Cola strategies were dependent on their firm history (as manufacturers) and their competitive environment. Alpha, our case study and Dell, both younger companies, looked at the markets and their supply chain to see were they could position themselves in order to own the strongest value adding activities, which today occur downstream. Positioning also affects upstream relationships. Alpha, positioned downstream, have gained from developing supply chain influence with suppliers. In partnership with suppliers they have improved product quality, product distribution, and gained through shared customer information and technological know-how. But what if your firm is a manufacturer and purchases raw materials, which are pure commodities? Do you still increase your market orientation by building long-term relationships? Developing supply chain influence requires the investment of a great deal of management time. This approach needs to be based on the reality of individual self-interest (Ford & McDowell, 1999) so that both firms are committed to working towards shared goals. Managers must understand if there is to be value from such a substantial investment in developing supply chain influence and what that value is. Tate and Lyle is a UK sugar manufacturer and buys sugar cane on the world spot market. With such a limited scope for product differentiation, Tate and Lyle buys sugar cane on price. They have no long-term relationships with suppliers as they would gain no benefits from shared resources, knowledge, or learning. Further, government regulation dictates sugar manufacturing quotas and country of origin for raw materials purchasing. A transactional relationship is an appropriate strategy for their upstream trading needs. The Alpha case illustrates how managers need to go about analyzing and understanding their firm’s core competencies, their supply chain, and the value system in which that supply chain exists (c.f. Mo¨ller & To¨rro¨nen, 2003). They must be able to understand at which stage in the supply chain the maximum value adding activities occur and

aim to integrate or position themselves to take advantage of these opportunities. The second implication recognizes the need for careful identification of supply chain partners. Using market orientation as a common cultural platform (c.f. Narver & Slater, 1991) offers opportunities for building supply chain influence through a series of shared aims and objectives — through customer orientation, inter-functional (inter-firm) co-ordination, and competitor orientation. While this may be dependent on the ability of managers to define and implement supply chain influence, the need to identify a unified starting point at the partner selection stage has important implications for the market orientation concept. Equally, where proposed partnering firms do not have a strong market orientation it may be possible for the core firm to lever the market orientation of the partnering firm (Siguaw et al., 1998) through the development of supply chain influence. This two-way relationship between the levels of market orientation at the different firms that comprise the demand chain and the level of supply chain influence they exert over each other emphasizes the complex nature of the interaction between the phenomenon. The third implication requires managers to define and implement supply chain influence as part of their chosen supply chain configuration. It is important that managers have a clear view of the value that any single inter-firm relationship might bring (c.f. Mo¨ller & To¨rro¨nen, 2003). But further than this, how they define the relationship will affect how it is managed and implemented. The theorized dimensions of supply chain influence presented in this paper should provide some guidance as to what may facilitate the successful implementation of supply chain influence. Its close association with market orientation dimensions suggests that the constructs are mutually supportive. Principally, once a decision on the supply chain approach has been made (with downstream integration at the center of configuration decisions), potential partners need to be selected and managed from the market orientation perspective. Managers need to understand how the dimensions of supply chain influence (relationship focus, channel power, channel leadership, communication, and co-ordination technology) can add value for customers. 7.5. Direction for further research This research provides anecdotal evidence in support of our theory that the level of market orientation achieved will be significantly affected by the relationship focus, channel power, channel leadership, communication, and co-ordination technology present in quasi-integrated forms. It is expected that firms with a high market orientation will adopt particular QI forms dependent upon industry sector, maturity of the industry, and firm size. In the development of supply chain configuration, what is the role of market orientation? Is market orientation just

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another independent variable that influences the firm’s performance or is market orientation somehow central to the supply chain configuration adopted and its success? Theorizing that there is a relationship between market orientation and supply chain configuration, we have suggested that supply chain influence is a multidimensional construct, and have illustrated through the Alpha case the five dimensions. We believe that these five dimensions are inter-related and therefore likely to be part of the same construct and not different ones. Further, if these dimensions of supply chain influence independently suggest a positive impact on business performance, then it seems feasible that market orientation is acting as a mechanism through which relationships can maximize business performance. We acknowledge that this paper does not provide empirical evidence to support this proposition, this is the remit of further research. The next step is to develop and test the emergent hypotheses. The purpose of this paper was to explore the concept of the demand chain. As part of this exploration we have theorized dimensions of supply chain influence and their relationship with market orientation in order to highlight best practice in one of the Europe’s most innovative and successful firms. Alpha has achieved high levels of supply chain influence and market orientation in a marketplace usually considered as inflexible and traditional. This model needs testing in a wider context; across industry sectors, both in the UK and internationally. It poses a structural equation-modeling problem. Existing measures for previously tested constructs may be adopted (Gaski & Nevin, 1985; Mohr & Sohi, 1995; Schul et al., 1983; Siguaw et al., 1998) but it is certainly possible that better or different measures could be developed for several of the constructs. As a further study, the investigation into the moderating or mediating effect of market orientation on supply chain influence and business performance should be investigated. This would help us in the development of our understanding of how marketing can be used to leverage business performance and what the drivers behind market orientation might be (Kohli & Jaworski, 1990).

8. Concluding remarks Supply chain configuration is important to managers for a number of reasons. First, the key objective of the firm is to maximize business performance. Both internal and external factors affect business performance. Two internal factors are market orientation and supply chain configuration. Market orientation is the customer focus on achieving business performance, while supply chain configuration is the organizational focus on achieving business performance. Market orientation is about maximizing value to the business as well as maximizing competitive advantage in the marketplace. This requires a detailed understanding of added

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value; what creates it for the customer and where it exists within the supply chain. The ability of the firm to do this will be partly dependent upon the supply chain configuration it adopts. We believe that where firms adopt QI forms that involve integration downstream, their opportunities to increase market orientation and business performance are improved. Whether firms’ foster transactional or supply chain influence approaches upstream will depend on their positioning in the supply chain, the demands they have of their suppliers, and the marketplace. Developing supply chain influence is an important ability when wishing to implement a QI supply chain configuration. We have theorized that relationship focus, channel leadership, channel power, channel communications, and co-ordination technology are all important dimensions of supply chain influence. Finally, we suggest that there is a two-way relationship between the development of supply chain influence and market orientation that together facilitates the creation of a demand chain. These findings have important implications for managers and future research.

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