Managing Business Relationships and Networks

1. Managing Business Relationships and Networks Morten H. Abrahamsen, PhD Associate Professor at BI Associate Professor II at TØH

2. Overview of Module • Introduction to Industrial Marketing • Briefhistorical and economicalbackground • Business Network and Business Relationships • Someunderlyingtheoreticalassumptions • Implications for strategy

3. Traditional market view Sellers Buyers - Transactions are important

4. However, what do we find? • Limited amount of sellers and buyers • Market consentrations • Repeated transactions – relationships over time • Mutual adaptations • Both parties are active • Mutual interdependence • Cooperation and conflict

5. Relationship Marketing • A few number of customers represents the majority of turnover (80 – 20) • A whole range of contacts across the organisations involved • Purchases are few but substantial • Handling of key relationships becomes main factor for success

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

7. Agenda I • What is a business relationship? • What is a business network and what is it not? • Industrial Network Approach to industrial marketing • Myths and paradoxes related to business markets

11. Business Relationship • Connects two organizations • Economic dimension • Technical dimension • Social dimension • Immaterial • Interdependence!

12. What is a Business Network? • Business network vs. Cluster • Business network vs. Market

13. A Busines Network is not: • …a “cluster”. • ...a personal network. • ...mainly something that is based on • power/politics. • ...something ”secret”.

14. What is a ”cluster”? • A group of companies... • In the same type of industry ? • ...develops/uses closely related technology? • Located in the same region? • Visible from ”outside”?

17. Business Networks:Basic Assumptions Perspective A • Designed • Formal • Within a business sector • Relationships as • ”chosen” • Center/”locomotive” • Common Goal Perspective B • Emergent • Informal • Across business sectors • Relationships as • ”inevitable” • No center • No common goal

18. A network perspective Network = Connected relationships

19. So, what is a Business Network? • A business network consists of two ”building blocks”: • companies and business relationships. • The companies and business relationships are interconnected, and together form a complex, web-like structure.

20. Traditional value chain Raw materials Horizontal integration Producer Vertical integration Wholesaler Retailer

21. The network on the contrary has no centre, no beginning and no end.. ’No company is an island’

22. Industrial Network Approach

23. Industrial Network Approachand the IMP Group • Ever-changing number of researchers in business markets, and is therefore a loosely defined group of researchers • (Ford, in Naude & Turnbull, 1998) • IMP1 Research Project: Interaction Model • Håkansson (ed., 1982) • IMP2 Research Project: Industrial Networks • http://www.impgroup.org/

24. Appliance of theIndustrial Network Approach(Håkansson & Snehota, 2000) • IMP = International/Industrial Marketing and Purchasing. • Industrial Marketing and Purchasing. • Internationalization (’The Uppsala Internationalization Model, Johanson & Vahlne, 1977) • Technical development. • Strategy development and organization.

25. The Norwegian story.. • We identified an segment in Japan with strong potential • We started by making initial sales • We positioned our farmed salmon as suitable for sushi • We managed to convice the Japanese of our superiority • Gradually export volumes increased and we extended our operations • Sales from Norway at first • Then we set up our own sales office in Tokyoand subsequently our own import company • This strategy has made us the main supplier of fresh salmon in Japan

26. The Japanese story.. • Fresh salmon first introduced by Japanese chefs working in French restaurants • Kaiten belt made sushi affordable for a larger public • Price of salmon fell due to increased production volumes • Yen became stronger to the NOK • “It was not our aim, but it happened”

27. Who is right? • Is the success of salmon in Japan a consequence of the Norwegians being good sellers? • Is the success of salmon in Japan a consequence of the Japanese being good buyers?

28. 3 Myths in Business • The Myth of Action • The Myth of Independence • The Myth of Completeness

29. 1. The Myth of Action • The supplier acts and the customer reacts • The marketing actions of a supplier and the purchasing reactions of a customer can be analyzed separately from each other

30. Rather: Business Interaction • Each business sale and purchase is not an isolated event, but part of a continuing relationship between a supplier and a customer

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

32. Rather: Interdependence • The management process in any company is interactive, evolutionary and responsive - management involves lots of reacting to the actions of others • Strategising is not simply concerned with competition • A company’s ”position” is based on its total set of relationships • A company’s network position changes and develops through interaction with other companies

33. 3. The Myth of Completeness • Based on traditional ideas of strategy: • A belief that a company is a complete organisation able to operate on the basis of its own abilities and resources

34. Traditional view on marketing strategy Mission • Corporate mission statement • Vision SWOT anaysis • Internal (Strengths and Weaknesses) • External (Opportunities and Threats) Objectives • Clear, consise, measurable, etc. Strategy • Segmentation, Targeting and Positioning • 4 P s Implemen- tation • Excecution of market plan (who, what where, when and how)

35. Rather: Interconnectedness • A large part of what a company sells is made up of what it buys • Companies are becoming less complete • Core competencies are based in the network • Technologies are developed interactively

36. The network on the contrary has no centre, no beginning and no end.. ’No company is an island’

37. An empirical example from my research

39. The Norwegian story.. • We identified an segment in Japan with strong potential • We started by making initial sales • We positioned our farmed salmon as suitable for sushi • We managed to convice the Japanese of our superiority • Gradually export volumes increased and we extended our operations • Sales from Norway at first • Then we set up our own sales office in Tokyoand subsequently our own import company • This strategy has made us the main supplier of fresh salmon in Japan

40. The Japanese story.. • Fresh salmon first introduced by Japanese chefs working in French restaurants • Japanese chefs approached their existing suppliers of seafood • Existing suppliers contacted their Norwegian suppliers • Norwegian exporters developed farming facilities • Kaiten belt made sushi affordable for a larger public • Price of salmon fell due to increased production volumes • Yen became stronger to the NOK • “It was not our aim, but it happened”

41. Implications for marketing strategy • The key issue is to handle a complex set of relationships to your benefit • Value creation through co-operation and competition with key partners (”co-opetition”) • Segmentation in terms of partners or other actors • Targeting and positioning in terms of value co-creation and mutual dependence

42. Oppgave 1: • Diskuter de tre ”mytene” om markedsføring. Hvor representative er disse for måten dere tenker på? • Gi konkrete eksempler.

43. Network Paradoxes(Håkansson & Ford, 2000) • Opportunities - Limitations • Influencing - Being influenced • Controlling - Being out of control

44. The First Network Paradox • Both opportunities and constraints • The diversity of the network gives every decision-maker myriad opportunities to act • Can not think of its own interests in isolation • Many network designers, even though companies often see themselves as the ”sun in the universe” • Change can only be achieved through the network • Any change in a network involves costs, both for those involved in the change and perhaps for others elsewhere in the network

45. The Second Network Paradox • Influence or being influenced • ’The chicken and egg dilemma’: • A company’s relationships are the outcomes of its own decisions and actions • A company is the outcome of those relationships and of what has happened in them • Meaningless to determine what came first • Both situations exist simultaneously and both premises are equally valid

46. The Second Network Paradox • Strategy is inter-active. Not just a question of generating a plan internally, but to generate plans with others • Both parties necessary for relationship development • least committed company restricts development • most committed company drives development • Nodes and threads are interdependent

47. The Third Network Paradox • Control and letting go of control • Companies try to manage their relationships and control the network that surrounds them to achieve their own aims • The more a company achieves this ambition of control, the less effective and innovative will the network be – and ultimately the less successful they will be

48. Implications for marketing strategy • The key issue is to handle a complex set of relationships to your benefit • Value creation through co-operation and competition with key partners (”co-opetition”) • Segmentation in terms of partners or other actors • Targeting and positioning in terms of value co-creation and mutual dependence:

49. Industrial Marketing is not a new thing: The Stavanger Canning industry • 14 canneries in Stavanger in 1900 • 36 in 1915, equaling 350 million cans • 72 in 1922 • Exports to almost every corner of the world. Labels were found in French, German, Spanish, Finnish, Icelandic, Chinese, Thai, Arabic and Hebrew, besides English for the markets in the US, England, Australia, New Zealand and South Africa!

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