Measuring Value in Business Relationship Judit Simon Budapest, November 13, 2007.

Measuring Value in Business Relationship

Judit Simon

Budapest, November 13, 2007

Integrated Business Relationship Value Model

* value constituents



* value constituents Network level




* value constituents Relationship level




* value constituents Exchange episode

level

Social value(Motivation)

Economic value(Utility)



Value typesValue types

The SUPPLIER’s perceptionThe BUYER’s perception The prevalent

field of value




* value constituents Network level




* value constituents Relationship level




* value constituents Exchange episode

level





Value typesValue types

The SUPPLIER’s perceptionThe BUYER’s perception The prevalent

field of value

Operation Process of the Model

Value level Value types

Economic value (utility) Social value (motivation)

Exchange episode

recognition of the product importance of the product to the supplier suitability of the financial conditions

personal relationships satisfaction with the product security of supply of the product

Relationship profitability of the relationship decreasing the transactional costs supply potential of the relationship

smoothness of the relationship (routines) security of the relationship competence of the supplier

Network own portfolio management network potential related effects

emanation of the relationship the supplier’s position in his own industry non-market strategy of the supplier

The buyer’s perception


Value level Value types

Economic value (utility) Social value (motivation)

Exchange episode

possibility of manufacturing the product importance of the product to the buyer suitability of the financial conditions

personal relationships the buyer’s satisfaction with the product security of product sales

Relationship profitability of the relationship decreasing the transactional expenses income potential of the relationship

smoothness of the relationship (routines) security of the relationship competence of the buyer

Network own portfolio management network potential related effects

emanation of the relationship the buyer’s position in his own industry non-market strategy of the buyer

The supplier’s perception

Operation Process of the Model1. Definition of the indicators:

defined indicators describing the value constituents* Conducted interviews with experts to confirm whether the experts

understand the definitions and agree with them * Seller side: focus group interviews* Buyer side: individual interviews* Target group: persons responsible for buying decisions and/or for

relationships with partners (tried to use the multiple informants methodology, in some cases: successfully)

Result: clarification of definitions and some modifications

Operation Process of the Model2. Validation of the constructs

* Questionnaires for the sellers and buyers

* Company selected: one oil company in Hungary

* Sample: 31 sellers, 15 buyers (test-sample)

* Target group: persons responsible for buying decisions and/or for relationships with partners

Operation Process of the ModelThe validation methods:

First generation methods: Cronbach alpha Item-to-total correlation Explorative factor analysis

Operation Process of the ModelThe validation methods:

Second generation methods: Confirmatory factor analysis Discriminant Validity:

Test of Χ2 -differences Fornell-Larcker criteria


Reliability analysis Explorative Factor analysis

EconomicValue

Indicator Item-to-Total Correlation

Cronbach Alpha

Factor loading Total variance explained

S12 S11_1 0.71 0.92

S11_2 0.71 0.83 0.92 85%

S21 S21_3 0.58 0.88

S21_4 0.41 0.77

S21_5 0.29 0.59 0.57 57%

S31 S31_6 0.55 0.78

S31_7 0.73 0.86

S31_8 0.69 0.85

S31_9 0.48 0.79 0.68 63%




Economicvalue


Cronbach Alpha


S41 S41_10 0.59 0.89

S41_11 0.59 0.75 0.89 79%

S41_12 To eliminate

S51 S51_13 0.28 0.80

S51_14 0.28 0.44 0.80 64%

S51_15 To eliminate

S61 S61_16 0.66 0.84

S61_17 0.82 0.93

S61_18 0.75 0.86 0.90 79%




Economicvalue


Cronbach Alpha


S71 S71_19 0.26 0.81

S71_20 0.54 0.94

S71_21 0.59 0.69

S71_22 0.18 0.59 0.20 51%

S71_23 To eliminate

S81 S81_24 0.78 0.91

S81_25 0.78 0.92

S81_26 0.64 0.85 0.82 78%

S61 S91_27 0.24 0.42

S91_28 0.51 0.76

S91_29 0.53 0.81

S91_30 0.42 0.62 0.76 49%


Operation Process of the ModelResults of the first and second generation-

methods for both the seller and buyer samples and economic and social values:

Good or satisfactory statistical results EFA proves almost in all cases the hypotesis

of one-dimensionality CFA proves the latent variables are

measured by the indicators at a satisfactory level (some eliminations or re-assignment are necessary)

The construct of sub-model (economic const.)

Ongoing and further researchApplication of the second generation methods: Confirmatory factor analysis Test of the sub-constructs as measurement models

(each value-constructs) Test of the integrated model (it means the 9 value

constituents of the economic and social value types) After the evaluation of the pretest with the sellers

and buyers we do some modifications in some set of indicators (eliminations)

Ongoing and further researchThe set of indicators are finalized after the

pretest

Data collection for the main samples will be conducted at the same company

Conclusion after the pretest

At this stage of pretest we can suppose:

Integrated Value Model seems to be adequate (with some changes compared to the initial model)

Indicators measure well value constituents (latent variables)

Business relationship value always contains the economic and the social value types

Results of MDS

Map of dyads (buyer-supplier pairs)The map is in a test-phase The map is calculated based on differencies

between the buyer and seller evaluation Similarities and differencies of the positions

can be explained mainly by being in other business, less with other parameter of the dyad

Value of relationship variables – economic Value constituents Supplier Average value Buyer Average value

1 Possibility of manufacturing of the product

7.33 Recognition of the product

8.80

2 Importance of the product for the buyer

8.20 Importance of the product for the supplier

8.83

3 Sustainability of financial conditions

12.42 Sustainability of financial conditions (B31)

10.83

4 Profitability of the realationship

7.83 Profitability of the realationship

6.59

5 Reduction of transactional costs

4.36 Reduction of transactional costs

6.35

6 The income potential of the relationship

10.64 The supply potential of the relationship

10.62

7 The role of the relationship with the buyer

10.46 The role of the relationship with the supplier

13.08

8 Network potencial 10.32 Network potencial 13.11

9 The related effect 10.24 The related effect 8.05

Average value Economic value constituents of supplier

9.08 Economic value constituents of buyer

9.58

Value of relationship variables - socialValue constituents Supplier Average value Buyer Average value

1 Personal relationships 5.31 Personal relationships 5.84

2 Satisfaction with the product

12.78 Satisfaction with the product

6.66

3 Security in product sales

5.73 Security in product supply

14.10

4 Smoothness of the relationship (routines)

13.43 Smoothness of the relationship (routines)

15.53

5 Security of the relationship

15.97 Security of the relationship

11..88

6 Competence of the buyer

10.30 Competence of the supplier

10.96

7 Emanation of the relationship

12.34 Emanation of the relationship

9.96

8 The buyer’s position in his own industry

15.77 The supplier’s position in his own industry

19.49

9 The non-market strategy of the buyer

12.54 The non-market strategy of the supplier

12.89

Averagage value Social value constituents

11.57 Social value constituents

12.51

Matching of evaluations

Differences between the supplier’s and buyer’s evaluation: no big discrepancies

The buyer’s total evaluation is slightly higher, than the supplier’s evaluation

There are some fluctuations in differencies

Ongoing and further researchTo formulate the final version of model

To find some focuses for the further research that can be pointed out and investigated more in detailes

Theoretical goals: to prove how the relationships of the model work (levels – type of relationships)

Managerial implication: the matching of the elements and levels of the value perceived on the buyer and supplier sides

Measuring Value in Business Relationship Judit Simon Budapest, November 13, 2007.

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