Relationships and the Interaction Model

CHAPTER 4: EMERGING STRUCTURES

Japan, and focuses on the network aspects. These IMP studies of practice in business markets form the foundation of the MAN approach (Håkansson, Snehota 2000).

The MAN approach is a reaction against the understanding of markets as characterized by series of discrete transactions among atomistic, homogeneous actors (Turnbull, Ford &

Cunningham 1996). The first step in changing the perspective on markets from independence to interdependence is to focus on relationships as building blocks of networks (Ford, Håkansson 2006b). This is accomplished by taking the buyer-seller relationship, not the actor, as the unit of analysis. Demand and supply are assumed to be heterogeneous and coordination is achieved through interaction.

This change of perspective is incompatible with the conceptualization of 1) exchange as series of discrete episodes 2) actors as atomistic and independent 3) markets as segments with homogeneous demand 4) the coordination of activities as a result of competition which clears demand and supply. Therefore, the MAN approach developed as a separate discipline, with a distinctive understanding of markets (Vargo, Lusch 2008).

In the MAN approach, the interaction model (figure 4.1 below) is a core model for the analysis of buyer-seller relationship. The tenet of interdependence of actors is incorporated in the symmetry of the model which illustrates one of the observations underlying the model: That both buyers and sellers are active in the interaction process, which is the instrument of exchange and coordination.

Moreover, actors are defined at two levels: 1) An inter-organizational level in terms of the organizations’ strategy, structure and technology. 2) An inter-personal level defined as individual aims and experience. The inclusion of both levels signals that the actor is an organization which is composed by its members. But the interaction process is not exclusively a matter of interpersonal communication. It involves exchange of products, services and payments, as well as information and social exchange (Ford, Håkansson 2006a). These exchanges link episodes into relationships, and support the relationship building in terms of adaptation and institutionalization which demand mutual commitment (Dwyer, Schurr & Oh 1987).

Organization •Technology •Structure •Strategy Individual •Aims •Experience Organization •Technology •Structure •Strategy Individual •Aims •Experience

Short termExchange episodes

Product/service Information Financial Social Long termRelation- ShipsInstitutionalization Adaptations

Interactionprocess

Atmosphere Power / dependence CooperationClosenessExpectations

Environment

Figure 4.1: The interaction model of buyer seller relationships (IMP Group 1982a) Market structure, Dynamism, Internationalization, Position in the manufacturing channel, Social system

The interaction is influenced by the atmosphere; power/dependence, cooperation, closeness and expectations. The atmosphere is defined as a group of intervening variables.

The characteristic of these variables is that they describe combinations of elements relating to the environment, the organizations involved in the interaction, and the

interaction process (IMP Group 1982). A more recent definition of the atmosphere concept interprets it as a hybrid culture; a culture which reflects elements of both actors’ cultures, but is different from either actors’ culture (Wilson 1995). Both definitions indicate that the atmosphere is not a generalized phenomenon. It is a set of variables which defines the distinct context of a specific relationship. Finally, the interaction model includes the importance of environmental factors. These factors function as a context for interaction;

i.e. the actors in the dyad cannot influence these circumstances through their actions. In the interaction model the environment is defined as market structure, dynamism, internationalization, position in the manufacturing channel and social systems.

Relationships are not necessarily cooperative. They are built for different reasons based on different assumptions about markets (Hedaa, Ritter 2005). And they can be characterized by competition, conflict, control, co-existence, collusion, completion as well as cooperation (Easton 1992, McLoughlin, Horan 2002, Wilkinson, Young 1994). Consequently, different relationships offer different possibilities. E.g.: The power-dependence notion implies a situation in which the maintenance of access to alternative sources of valued resources enhances the relative power of an actor. Conversely, commitment increases mutual dependence and equality of power (Cook, Emerson 1984).

But long-term committed relationships are as much a burden as an asset (Håkansson, Snehota 1998). The development of selected committed relationships demands investment of resources which can be irretrievable for alternative use. It takes time and resources, before the relationship result in satisfactory performance, and especially before the value potential of trust and commitment materializes. Therefore, the value potential of a business relationship is uncertain; to initiate new relationships is a risky investment.

Costly adaptations by one party may not be reciprocated with offerings of an equivalent value, or yield the expected results. But when the investment in the creation of a committed business relationship has been made, the alternative of exit may be even more costly or risky, even if the committed relationship does not fulfil all the initial expectations.

The committed actor must stay in order to retrieve as much value from his irretrievable relationship investment as possible. So if the investment in a relationship does not result in equivalent value, a two-fold problem occurs: A low rate of interest in terms of value from the investment and the loss of the value potential from an alternative investment of the

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.