Networks and the ARA model

irretrievable resources. Thus, long-term committed relationships are not inherently good or bad for business.

It takes time and resources to develop long-term relationships; there is a limit to the number of such committed relationships that an organization can sustain. Therefore, the majority of companies will hold a portfolio of relationships of varying strength and commitment (Blois 1998) which includes commercial as well as non-commercial actors (Singh et al. 2005). This being so, the combination of transactional and relational elements varies among relationships (Blois 2002). These combinations and the relationship

characteristics can be analyzed within the framework offered by the interaction model. It enables the inclusion of the relational aspect of long-term committed relationships, without ruling out transactional one-off exchanges.

However, the insight offered by the interaction model is not that business relationships are important. This was recognized in research on distribution channels from an early stage (Easton 1992, Wilkinson 2001), and channel research is predominantly dyadic, focusing on the manufacturer-distributor relationship (Frazier 1999, Gadde, Snehota 2001). What the MAN approach points out is that the development and maintenance of lasting

relationships is a way to handle the uncertainty arising from changing partners in heterogeneous and complex settings. This uncertainty is prevailing in many B2B markets.

Under such conditions, the development of existing relationships can be an attractive or the only existing alternative to finding new suppliers / buyers. If exit is not an option the only viable solution can be to invest further in a change, a development of an existing relationship. The investment is not necessarily smaller than the one needed for exit and initiation of a new relationship. But it is less uncertain.

a “generalized connectedness of business relationships implies existence of an aggregated structure, a form of organization that we have chosen to qualify as a network” (Håkansson, Snehota 1995b p. 19)

This is the conceptualization of networks applied in the ARA model of business networks illustrated below in figure 4.2. The acronym ARA refers to actors, resources and activities as the substance layers of business relationship

Figure 4.2: The ARA network model (Håkansson & Snehota 1995)

Actors are connected by exchange episodes producing relationships of varying strength, constituting a boundary-less network of direct and indirect relations (Easton 1992).

However, the type of networks that IMP scholars study are small, well structured subgroups of identifiable companies (Håkansson, Snehota 1989). Focus is on closely connected actors in committed networks of few actors, not on the study of the general connectedness. This scholarly background is visible in the modelling of networks offered by the ARA network model.

The purpose of the model is to point to a number of issues of importance for the analysis of development effects of relationships, and how to cope with business relationships (Håkansson, Snehota 1995b). So, in spite of the understanding of the networks as general connectedness, the ARA model apparently centres on a limited number of relations through which a focal actor is connected to the network.

The ARA-model illustrates how actors, resources and activities combine into functional and strategic structures via the activity links, actor bonds and resource ties. Three aspects of relationships are illustrated by the model.

1. Capability development: An individual actor in a network depends on the positive and negative effects of his relationships for intra-organizational development (capability development). Advantageous relationships can stimulate productivity, innovativeness and competence development of a focal actor, whereas less advantageous

relationships may have prohibitive effects on the capabilities of a focal actor.

2. Marketing and purchasing: The dependence of a focal actor on his relationships is the issue of the marketing and purchasing aspect of the model. It refers to the ability of the actors in a dyad to develop their relationship: To utilize resources and perform activities which none of them would otherwise have been able to accomplish. The marketing and purchasing aspect refers not only to episodic transactions, but also to the long-term potential of the relationship. Actors in a relationship may access the resources of the other party to the relationship, and actors may develop new resources together through resource ties. Such resource ties enable innovation and new

activities. Therefore, it is posited that existing relationships are “the most significant

resource in what makes a company capable of unique performance” (Håkansson,

Snehota 1995b p. 137).

3. Strategy development: Actors are assumed to have more than one relationship. A focal actor depends not only on the individual relationships (the identity of the parties to his relationships), but also on his web of actors. These two aspects define the network position of a focal actor. Strategy development is a matter of monitoring the potential of the existing collection of ties and strategizing for more advantageous network positions offering attractive collections of ties. This is achieved through exit from existing relationships, and initiation of new relationships; i.e. network positioning is a core instrument for strategy development in business networks.

As it is possible to access the resources of other actors through the network, the

boundaries of organizations become fuzzy (Easton 1992, Gummesson 1994). The resources needed for specific activities are not exclusively the asset of a focal actor; activities may also depend on the accessibility of other actors’ resources (e.g. Dyer, Singh 1998). The legal entity of an organization is not an absolute boundary. This is one of the main points of the MAN approach: That the network of relations enables and constrains the actions of actors, and that actors may be autonomous, but are not independent.

What the ARA model offers compared to the interaction model is a combined

simplification and expansion of analysis. The analysis is performed on the basis of the three substance layers of actors, resources and activities. These are replicated as descriptors of the actor, the dyad and the network. This is a simplification compared to the interaction model. But the contents of these layers involve numerous aspects of technology, financial, social, innovative and emotional exchange, which expand the number of possible

significant elements. Therefore, the ARA model probably is best suited for the analysis of relationships and processes in small groups; i.e. what goes on in the ties of tightly knitted networks involving a limited number of actors for which it is designed.

The ARA model focuses on the functional contents of the relationships (the resource and activity level) and how this functional element relates to position and positioning (the actor level). (C.f. Johanson, Mattsson 1992 for a discussion of functions as part of positions). It points to the resource and activity potential of relationships as an important part of the value that a relationship adds to the position, and thereby to the strategic platform of an actor. But it comes at a price: The functioning of networks as political organisms defined by power, influence, and trust (Thorelli 1986) is implicit, and the model is too detailed to support the analysis of the value of the position of a specific actor in a wider network structure.