Salo 2013 visiting lecture_university of bergamo_digital relationships and networks

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P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

Digital relationships and network theory: a focus on professional service firms

Jari Salo, Professor of Marketing

Adjunct Professor (Aalto School of Economics)Founding editor of Journal of Digital Marketing

Associate Editor of Journal of Information Technology ResearchOulu Business School

University of OuluDepartment of Marketing

Objective

• To shed some light on the complexity of business relationships and business networks

• To prepare students to understand the challenges related to networked collaboration

• To give some conceptual tools for analyzing business relationships and networks


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Digital economy cube: Choi et al 1997 modified


Physical – Digital (Value delivery)


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”Range of marketing relationships”

Marketing mix management

• Transactional relationship

• Focus on short-term

exchange

• Basic products

• Highly competitive market

Interaction/Network approach and Services and Relationship Marketing

• Collaborative relatioship

• Strong social,economic,

technical and legal bonds

• Long-term perspective

• Aim to achieve mutual benefit

Alajoutsijärvi, Mannermaa & Tikkanen 1999Information & Management

Why networks are important nowadays?

• Pressure of global competition

• Need to move ”lazy capitals” , focusing on core competences, more complex offerings, possibilities of information technology

• Not only production-related cooperation, but R&D cooperation, new technologies and innovations.

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Why networks are important nowadays?

• Capability to work in networks and to build new ones important

• Industries as networks vs. networks build for some strategic aim.

• In brief, to innovate and commercialize more quickly by cooperating with customers, suppliers and competitors to learn faster and deeper in order to achieve cost advantage and benefit advantage that creates superior value.

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Outcomes of business relationships and networking• Cost efficiency

• High quality

• Shorter delivery times

• Producing offers

• New products

• New technologies

• New markets

• Competitive advantage

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Connectedness of business relationshipsOther

Supplier Unit

Other Ancillary

Firms

Third Parties inCommon

Other Ancillary

Firms

Supplementary Supplier

Customer’s Customer

Supplier’sSupplier

Competing Supplier

Other Units inFocal

Supplier Firm

Other Customers

Other Units in Focal

Customer Firm?

Supplier Business

Unit

CustomerBusiness

Unit

Focal Relationship

Anderson et al. 1994

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Network perspective

• No relationship between two firms exist in a vacuum - independent of others

• A network is made up of inter-coupled connections - a change in one relationship will affect other relationships(+/-)- firms can affect each other indirectly- one area can be used to affect another area

• A large part of any firm’s behavior must be seen as reactions to the behavior of others

• Conflict and co-operation can exist simultaneously

• Networks are never entirely stable


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Network perspective

• A network models consists of three components:• 1) Actors, 2) Activities and 3) Resources

• Actors perform activities and own resources• Activities are carried out by actors, they “consume” resources

and aim at adding value to other resources• Resources are controlled by actors, their value is determined by

activities in which they are used


See also Anderson & Narus 2004, 30-or Ford et al. 1998, 44-

Actors

Resources ActivitiesNetwork

Example of Mobile marketing network (Salo et al 2008, JBIM)


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Network perspective

Resources:• Although we say that resources are specific to a company for e.g.

accounting purposes, they may be also interdependent• Some resources are only activated through interaction with others.

They acquire their value when they become useful to others• “know-how”, “know-what”, “know-why”, either general or specific to

relationships• Examples of resources: technical know-how, equipment, personnel,

capital that a firm can use to generate greater value for themselves and others.

• Companies seek to activate this value potential through relationships to other companies


Network perspective

Resources:• Resources are difficult to change in the short term

• Technical equipment• Skills of staff

• Restrictions on what a company can do. A company must be production oriented to be market oriented


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Network perspective: Resource interfacesThe interface between companies must be organised1. What resources are required?

• Example: Access to aluminium supplies, components, assistance in designing aluminium cars, access to process technologies or designing manufacturing plant

2. How to manage the way resources are related to each other?• Co-operation or developing own resources


Network perspective: Resource adaptation

Adapted resources are often a part of a specific long-term relationship

Companies use own resources as well as those owned and controlled by other companies

Once adapted, resources often have little use elsewhere - This force goes in the direction of further strengthening a relationship and also underlines the importance of understanding business partner needs correctly. Thus, are the resources transferable or not?

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Network perspective: A firm’s network position

• Made up of a firm’s portfolio of relationships, including activity links, resource ties, and actor bonds

• The position is the basis of a company’s reputation, rights, limitations on behaviour, and obligations in the network

• Different counterparts, different expectation• Position partially created by counterparts• Positions of two companies can be directly bonded

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Note: Large corporations are hubs and participants in all kinds of nets

Stable, well - defined value system

Established value system, incremental improvements

Emerging value system, radical changes

Describes ideal types of the value systems and their overlapping characteristics

Value-system characteristics

- Well-known and specified value activities

- Well-known actors - Well known technologies - Well-known business

processes - Stable value-systems

- Emerging new value-systems - Old and new actors - Radical changes in old value

activities - Creation of new value activities - Uncertainty about both value

activities and actors - Radical system-wide change

- Well-known value-systems - Change through: local and

incremental modifications within the existing value-system

Value System Continuum

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Value system continuum with example nets (Möller & al. 2005)

Stable, well-definedvalue system

Established value system,incremental improvements

Emerging value system,radical changes

NMP´ssupply system

Benetton

IKEAInternet portals

”Future Home”concept

Puustelli

Note: Large corporations are hubs and participants in all kinds of nets

Nokia orchestratingMobile services

Nokia´s R&D nets

Lead supplier & Pilot customerrelated development nets

ToyotaNike

New products, business concepts,radical changes inthe value system.Often crosses the

borders of traditionalindustries”weak ties”

Development projectsrelated to

production, logistics,management or

products

Efficiency of the established value system

Möller, Rajala and Svahn 2005:Journal of Business Research 58, 1274-1284

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Conclusive remarks on Network perspective1) Firms operate in certain contexts in which their behaviour is

affected by a limited number of other organizations (actors, activities, resources = network)

2) Using and exploiting other firms’ resources and linking activities with them is made possible through relationships

3) Firms build their capabilities through interactions in different relationships. These interactions give the firm its identity

4) A firm’s performance is conditioned by the whole network interdependency


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Conclusive remarks on Network perspective• How can the network perspective change the way we think about

business strategy and strategic management?

• Traditionally a distinction between internal/external resources

• From network perspective organizational relationships in the network are the most valuable resources of firms - a way to acquire other resource

• Difficult to define where one company ends and another begins, “boundaries blurred”

• No more internal/external resources and activities - rather make a distinction between controllable and non-controllable variables


Conclusive remarks on Network perspectiveOrganizational effectiveness:

• Before effectiveness was determined based on how well a firm could adapt to its environment: acquire resources (exploit its environment) through exchange processes

• Network effectiveness is determined by how well a company relates to its context - how well it acquires resources by using its relationships with others

Managing the effectiveness:• Before: The adaptation to the external environment secured

efficiency (planning approach)• In networks companies have to create distinctive strategic

identity ( = a company’s position in the total network)


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Conclusive remarks on Network perspective

• Strategic identity is achieved by interaction behavior of individuals in relationships -linking activities and resources within a network

• Emphasis is not on production, but on managing relationships!


Learning outcomes

• Business networks are important

• Business networks can be conceptualized & evaluated

• Business networks or at least some of the relationships can be managed to some extent under specific conditions

• Understanding value creation mechanisms is the key to network management


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Digital relationships and network theory: a focus on professional service firms

Jari Salo, Professor of Marketing

Adjunct Professor (Aalto School of Economics)Founding editor of Journal of Digital Marketing

Associate Editor of Journal of Information Technology ResearchOulu Business School

University of OuluDepartment of Marketing

THANK YOU !

Salo 2013 visiting lecture_university of bergamo_digital relationships and networks

Business

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