The Markets-as-Networks approach to intermediation

when the customer has confirmed the order, even if the customer is unable to receive and pay for delivery when the agreed time of delivery occurs. Moreover, C can also include the credit facilities which intermediaries of this type offer to their customers. This being so, availability facilitates the acquisition and direct exchange. D is related to operations after exchange. For example it includes situations in which a product does not comply with specifications, in the case of faulty deliveries, etc. In such situations the intermediary takes the responsibility, and handles complaints and problem solving on behalf of or together with the customer.

It is claimed that the bundling of these activities is a precondition for offering these services at a lower price (Brousseau 2002). Thus, it seems that the understanding of intermediation as cost-economizing market making is founded on a specific type of intermediary; the all-inclusive title-taking distributor.

But as pointed out by Bucklin, Ramaswamy and Majumdar (1996) the customers’ increased need for logistics as well as information services has to be handled in two separate channels. This situation occurs when markets are characterized by postponement, as a result of customization and specialization. Specialized functions demand the un-bundling of the all-inclusive distributors’ activities (Gadde 2000) and entails high levels of

communication in order to integrate and coordinate activities (Gadde, Mattsson 2005).

The risk function is one of these activities, and as pointed out in the above description of studies of dis-intermediation, safeguarding and securization on deliveries are expected to be a field of future activities for intermediaries (Anderson, Anderson 2002, Brousseau 2002). Consequently, the un-bundling of activities may increase the significance and value of the risk function offered by intermediaries.

7.3 The Markets-as-Networks approach to intermediation

4. It redefines the understanding of indirect channels as a matter of coordinated interaction between a number of actors, not a matter of the participation of a title-holding actor

This implies that the channel as a generalized and uniform phenomenon has to give way to the conceptualization of a channel as a differentiated structure of an enacted business environment. Thus, a network approach offers an alternative understanding of marketing and distribution channels, but also entails a re-conceptualization of a number of issues related to the understanding of intermediation and channels. These include:

 The change of focus from a logic of production to a logic of use

 The separation of the flows of materials and information

 The inclusion of a parallel horizontal perspective on distribution along with the sequential vertical perspective of channel research

 Functional shiftability

 Channel management

From a logic of production to a logic of use

In network literature this change has been studied as a change of distribution moving away from speculation towards postponement, enabled by technology which makes economies of production less dependent on large scale manufacturing (Gadde 2004). Channel arrangements are no longer defined by technology of production (factory output), but by the technology of use (end-user inputs) (Hulthén, Gadde 2007). The logic of

individualization substitutes the logic of aggregation. This shift defines the difference between traditional channels and evolving networks (Gadde 2004), and requires a change from managing individual functions to the integration and coordination of activities in business processes.

Separation of the flows of materials and information

The focus on business processes is accompanied by a combined pressure to cut costs and improve customer service, resulting in a differentiation of the distribution system. This differentiation creates a separation of the flow of information, and the flow of materials (Gadde 2000). The separation between these two flows implies that it is possible to analyze and organize distribution as two processes: One related to the logistics which demands physical resources, and another related to the information and decision aspect of sorting which demands human resources (Hulthén, Gadde 2007). The separation into two flows creates a growing need for coordination. This is why actors in channels of

distribution and marketing may profit from long-lasting relationships characterized by trust, cooperation and commitment (Nevin 1995)

The inclusion of horizontal as well as vertical aspect of channels

The need for coordination also depends on the degree of standardization. Standardization and specialization have adverse effects on the structure of distribution nets.

Standardization is supported by the sourcing of similar activities from various parallel actors who offer the same type of capabilities. Specialization is facilitated by quite the opposite; sourcing of closely complementary activities offered by sequentially related actors with dissimilar capabilities. In a network context these effects are studied as vertical sequential, versus horizontal parallel processes (Dubois, Gadde & Mattsson 1999).

The inclusion of both the sequential and parallel perspective enables another

understanding of efficiency in complex systems (Gadde, Mattsson 2005). Efficiency may be achieved either by dissolving or creating closely complementary activities. This network dynamic is a matter of a trade-off between flexibility and adaptability versus adaptation and stability (Andersson 1992). Adaptation demands tightening between the vertical elements of the system, whereas adaptability demands loosening between the vertical elements of the system.

Functional shiftability

Institutionalization and adaptation are part of the relational exchange among actors, which creates heterogeneity of demand and supply. This heterogeneity is an indicator of

commitments among actors, which implies that one actor cannot substitute another one immediately. In a competitive market model such commitments are interpreted as market imperfections, because they limit shiftability of functions among actors, and reduce competition. In a market model based on relations and interdependence, various degrees of commitment among actors indicate that parties are linked into a network structure (Cook, Emerson 1984). Such structures formed by relations, of which some are long-lasting and very committed, do not give in to a pressure for functional reorganization in a short-time perspective, but rather constrain change (Halinen, Salmi & Havila 1999). This is why the idea that marketing channels emerge exclusively as the result of functional shiftability (Blois, Shaw & Ennis 2000), is difficult to combine with a network approach.

Channel management

Due to interdependence, business development does not take place in a setting of independent actors in a market created by externalities, but in a structure created by interaction among interdependent actors (Ford, Håkansson 2006b). The idea that a company can develop and implement a channel strategy independent of other actors becomes obsolete. In this structure an advantageous strategic position no longer refers to the product, but to the position of an actor in a network (Gadde, Hakansson 1992). The network is a result of and the platform for the actors’ strategizing for advantageous network positions (Johanson, Mattsson 1992), not a result of the channel captain’s operation of an external contractual organization independent of other actors.

The above studies illustrate how the re-conceptualization of a number of issues related to the understanding of intermediation and channels create inclusiveness in a MAN approach to intermediation. In consequence, a network approach can support the analysis and description of complex contextual and differentiated channel relationships. A net around a distributor offering assortment is an example of a contextual phenomenon which can be analyzed as a specific network constellation: The example on which much channel research is built. In a network approach the existence of a net of loosely coupled relationships simply indicates that this specific net of actors is characterized by high adaptability and flexibility. But it does not imply that all channel relationships are organized like this.

The network approach substitutes generalization of channel phenomena with contextualization. In spite of these differences, the conceptualization of intermediary activities originating in channel research is immediately applicable in a network approach.

Logistics, information and risk are also core elements in the conceptualization of intermediary activities in a network approach and they can support the contextualization of activities in a micro-network. However, the application of these functions in a network perspective is based on the assumption that these functions are not necessarily bundled, but can be distributed among the parties to the triadic network. And each actor might only perform some of the activities related to a function.

Summing up, channel research offers conceptualizations of intermediation activities applicable for the contextualization of the direct value function of intermediation. And the conceptualization of various intermediary roles illustrates towards whom the actors direct their activities. The significant contribution of the MAN approach to channels is the conceptualization of channels as differentiated phenomena. Two types of efficiencies are observable in channel relationships: One is the value of closure, resulting from adaptation

and institutionalization. The other is autonomy related to the shiftability of functions, which demands high adaptability and flexibility. Autonomy and closure can exist in various degrees, depending on the desired efficiencies. Moreover, the differentiation of channels and the recognition of the efficiency of closure as well as autonomy indicate that a continuum of intermediation patterns can exist. The distinction between direct and indirect channels is an insufficient categorization.