No Business is an Island

The issue dealt with in this chapter is the role of management in developing and maintaining business relationships among companies. Interdependent business network structures result from interactions in dyads between single actors and interactions among all involved actors collectively. Managers as ‘architects and constructors’ of business relationships, involved directly in developing the relationships between customers and suppliers, are mostly middle-management positions rather than top management. Purchasing managers, sales managers and technical managers are fundamental for the development of business relationships as they create value in business relationships. Relationships between companies cannot be developed unilaterally; they have to be developed jointly. Since value creation requires involvement of others, motivating other actors and mediating are fundamental in developing relationships and creating value. The effective development of business relationships of value hinges on the capability and skills of management to work with and through others, to relate to others and to cope with interdependencies that arise in relationships. However, the capability of a company to interact and create value in business relationships is not simply a sum of individual managerial skills; it is an issue of organising the interfaces in relationships to other business.

A highly relevant issue for management is the measurement and appropriation of jointly created value. The existence of relationships is challenging for accounting and for the sharing and appropriation of values. Interdependences that characterise business relationships make value measurement and appropriation problematic. Yet, measuring value is important for orienting managers’ behaviours, and it affects the solutions implemented in business relationships on which value creation and appropriation depend. Values are created in relationships because resources are combined through relationships. Defining clear boundaries is important to produce measurements, but setting boundaries in interdependent relationships and networks is always problematic, and to some extent, arbitrary.

Business relationships have a number of soft and multiple effects that are difficult to measure and consequently difficult to divide among the involved business actors creating specific appropriation problems. An interesting development is underway as companies attempt to develop special tools for handling these problems.

In a relationship both sides are important for the development. This is one reason why purchasing has always been as central as marketing in the empirical studies in IMP. The manner in which the features of business networks affect the role of purchasing and the roles of the suppliers and supply management is here in focus. The existence and importance of business relationships have normative consequences for purchasing that are very distinct and break clearly with some of the traditional normative recommendations for purchasing. The authors believe that ‘buying organisations increasingly need to develop interactive interfaces with their suppliers. One reason is that collaborative innovation and therefore the development role of PSM (purchasing and supply management) is becoming more important’. The conclusion is clear: If the buying organisations want to get more out of the suppliers than the supply of a standard product at a certain price, they have to engage in a more extensive interaction and develop a broader and closer business relationship that must be properly managed. That implies giving up some autonomy and accepting dependence on suppliers as developmental partners.

This chapter explores the issue of an outsider entering an existing business network in an interactive, interdependent and interconnected business world. Developing the new venture appears a ‘mission impossible’ as the new venture has no relationship in the relevant network or a tenuous one at best. The critical issue and major difficulty for the new company are to make established business actors perceive that there are good reasons to admit the new venture into the existing business network. The fate of the new venture, its acceptance by at least some other business actors, will largely depend on how the incumbents perceive the new company to affect their existing relational assets which result from past investments. In attempting to become a new node of a business relationship, the ‘management’ of the new venture has to address two issues. First, it has to find some actors interested in relating to the new venture and to engage them in developing the initial business relationships. Second, the new venture has to manage the networking that is combining the initial relationships with each other. The authors identify and discuss six spaces for action for new business ventures related to these two challenges.

Policies aimed at intensifying innovation, and how they relate to industrial activities, is the major theme of this chapter. We build on Industrial Marketing and Purchasing (IMP) studies of innovation, as well as relational approaches to policy studies, to examine the means and goals of innovation policy. From the IMP literature, we take the notion that interaction in business relationships implies continuous learning and adaptations. From this perspective, investments in innovation are marginal in relation to existing patterns of investment, including those in business relationships. From policy studies, we take the view that policymaking and implementation should be treated as sets of interactions, whose outcomes are the effects of multiple and heterogeneous relationships. Based on these principles, we pursue three arguments: (1) Innovations are not primarily effects of innovation policies; (2) Policy-initiated innovation systems, clusters and networks do not necessarily intensify innovation; and (3) Innovation policies and their instruments produce tangible effects, although often in unexpected or unintended ways. We conclude the chapter with suggestions for research and for innovation policymaking.

In this chapter, the authors discuss how the features of the business landscape affect policies aiming to promote regional development. Regional development policies have been central in the European Union and at the single-country level. Measures taken to promote development in a geographical area, based on the concept of clusters and (national or regional) innovation systems, often fall short of their objectives. That is discussed against the findings on features of the business landscape that emphasise its heterogeneity and the importance of specific couplings within and across geographical areas. Prior Industrial Marketing and Purchasing (IMP) research emphasised the importance of firm-specific linkages to places and across places. One consequence is the relatedness of one place with other places, which implies that crossing the (imaginary) boundaries of a place appears to be the essence of business activity. The chapter concludes by highlighting how regional policies can benefit from acknowledging and taking into account firm-specific interdependences.

This chapter addresses the topic of ‘localisation policies’ (measures and incentives for attracting and developing companies) in relation to the actual subjects of such policies, their aims and targets. The existence of business relationships and networks, and the ubiquity of interaction processes make contemporary policy measures problematic in all these three aspects. Conceiving the business landscape as interactive and heterogeneous business networks leads the authors to argue that policy measures become ineffective when these neglect the networked nature of the business landscape. It is argued that localisation policies consist of multiple initiatives and involve ‘a network of policy actors’, rather than only one institution. Acknowledging the plurality of policy actors and means leads to focus on the need to orchestrate multifaceted localisation policies. Incentives, regulatory frameworks and public investments are some of the elements of the toolbox of localisation policy. The authors also argue that the business network perspective translates into the need to tailor policy measures differentiated for specific companies.

A special type of interaction and relationship exists between owners and public companies. Applying the business relationship perspective to owner relationships has some interesting implications. Contemporary theory assumes that the role of the owner is mainly providing financial resources (funding). Taking the business network perspective, the owner’s relationships are also important as these influence and shape interaction patterns including business relationships and thus the business network. Prior research has shown that the owner – especially if it is a business unit – can be directly involved in both the choice and development of specific customer and/or supplier relationships. These influences from owners can be much more important for the development of the company in question than providing financial resources. One consequence of applying this relationship view on ownership is that it offers the possibility of discussing public ownership in a similar way as private ownership.

Public procurement is important in itself but is also an important intervening force in some business networks. Two aspects are of particular interest. The first is that public purchasing is an important ingredient in public policy in relation to a number of business networks; it is substantial in areas such as transportation, communication, health care and defence, where the ‘public’ is often the most dominating actor. As such it can be one of the measures in innovation policies, as well as in regional and local development policies. The second aspect is that public purchasing is highly regulated by law, based mostly on the assumption of ‘homogeneous, competitive, product markets’. That restricts public procurement in forming close and continuous supplier relationships, thus making more effective use of these relationships, particularly for development purposes. A consequence is that suppliers’ capabilities cannot be used in the same way as in the private sphere. The chapter concludes with a discussion of current developments in regulation that allow closer collaboration with suppliers and the likely benefits, a feature that has been evidenced in prior Industrial Marketing and Purchasing (IMP) research.

The first and most basic issue is the position and role of Industrial Marketing and Purchasing (IMP) research in relation to contemporary economic research, where the authors raise the issue of phenomenon-driven theory development. The discussion hinges on the methodological implications of phenomenon-driven research and emphasizes the interplay of phenomena in focus, theory development and methodological approaches. Two approaches identified in a natural science field, depicted as image- and logic-based research, are used to examine research on business relationships, networks and interactions. The authors argue that the bulk of IMP studies has taken the image-based approach which, in the natural sciences, is considered to produce as hard facts as logic-based (theory testing) research. The detailed images (pictures) of the business landscape that IMP research has produced must be taken as seriously as any quantitative study of the same landscape. Greater awareness and more discussion of the ontological and methodological issues in researching the business world are needed.

Boundary setting is identified as an important and highly useful factor, both in management practice and in dealing with phenomena in management research. It has significant implications for how circumstances and phenomena will be analysed and interpreted. Change – moving or change in nature – is a key factor in all attempts to strategise and economise. The authors argue that boundary setting is critical in analysing and interpreting business problems, both in the practice of management and in business research. The nature and function of boundaries vary. It can be exemplified with two archetypes of organisation – the integrated hierarchy and the connected company. In the first, the basic principle for boundary setting is buffering to protect the company from external variations. In the second type, it is bridging – connecting the company with specific changing factors. One important consequence is that when analysing and handling boundaries, both location and permeability become the central aspects to consider.

This chapter contains a discussion of interdependencies as an explanatory construct in conceptualising the business world and explaining managerial behaviours. Specific interdependencies that exist in business networks influence the outcomes of business relationships. Such interdependencies can be more or less clearly acknowledged and perceived by the practitioners (managers), who can act upon them and create new interdependencies. Interdependence thus also plays an important role in developing effective explanations and conceptualisations of the business world. Some of the interdependencies are consequences of actions focusing on rationalisations, development or positioning, while other interdependencies are made with the intention of creating a specific position or some other effects. To live with, and be competent in, handling interdependencies is thus imperative in the interactive business landscape; as a consequence interdependencies need to be addressed when theorising the business world and its dynamics.

In this chapter, the authors focus on three challenges related to the attributes of the interactive business world and on the related implications for methodology. The first challenge is how to capture the continuity of business relationships, which implies: (1) Taking a two-sided (bilateral) view when researching business relationships, (2) collecting data on content and consequences of business relationships and (3) developing a research design to capture development over time. The second challenge is how to set boundaries and trace network-like structures, which implies: (1) identifying the relevant relationships that appear to affect each other in a network-like manner, (2) capturing interdependences among relationships (how they affect each other) and (3) researching forces generating network dynamics (how these interdependencies are established and change over time). The third challenge is how to observe and research interaction processes in business relationships, which leave little traces and are difficult to record. This requires the attention on (1) the choice of point(s) of observation, (2) the handling of the subjective understanding of interaction and (3) researching how interaction unfolds. The authors conclude with a discussion on the complexity of handling these challenges, and related methodological choices, when ‘research objects’ are interconnected.

Interactivity is a dimension that describes a certain condition in business networks – a propensity to use interaction in business as a major means in development processes. Expectations formed as a collective attitude and knowledge about existing economic conditions and the importance of joint solutions formed through interactions to handle them are an expression of interactivity in the network. This collective condition is important because there are some obstacles confronting the development of substantive interaction. Businesses engage in interaction only when they acknowledge and accept that mutuality is something positive and a necessary condition to achieve some positive outcomes that cannot be achieved in isolation, and that interdependencies can be used in a constructive way. Finally, there must be managers prepared to use resources to build up relationships and to develop joint solutions that will pay in the long run. All relationships require investments. These attitude and knowledge factors, which are aspects of interactivity, are a condition for handling resources and activities to create efficiency and innovativeness.