ISSN 0885-8624
Journal of
BUSINESS & INDUSTRIAL MARKETING
Volume 17 Number 2/3 2002
Business marketing in the decade ahead: the key challenges we face Guest Editor: Michael K. Rich
This issue is part of a comprehensive multiple access information service Paper format Journal of Business & Industrial Marketing includes seven issues in traditional paper format. The contents of this issue are detailed below.
Internet Online Publishing with Archive, Active Reference Linking, Key Readings, Research Register, Institution-wide Licence, E-mail Alerting Service and Usage Statistics. Access via the Emerald Web site:
Access to Journal of Business & Industrial Marketing online . . . . . . . . . . . .
98
Editorial advisory board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99
Abstracts and keywords
........................................................
100
Guest editorial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Customer perceived value: a substitute for satisfaction in business markets? Andreas Eggert and Wolfgang Ulaga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Measuring network competence: some international evidence Thomas Ritter, Ian F. Wilkinson and Wesley J. Johnston . . . . . . . . . . . . . . . . . . . . 119 Supplier Web-page design and organizational buyer preferences Kenneth R. Lord and Alice Ford Collins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 Adoption of electronic commerce tools in business procurement: enhanced buying center structure and processes Talai Osmonbekov, Daniel C. Bello and David I. Gilliland . . . . . . . . . . . . . . . . . 151 Simulating buyer center decision processes: propositions and methodology Regina McNally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Stakeholder analysis for multi-sector innovations Michele D. Bunn, Grant T. Savage and Betsy B. Holloway
.................
181
Marketing’s role in the knowledge economy Cynthia J. Bean and Leroy Robinson Jnr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Are we losing trust through technology? Michael K. Rich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Internet currency Edited by Dennis A. Pitta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Executive summary and implications for managers and executives . . . . 225
Journal of Business & Industrial Marketing online An advanced knowledge resource for the entire organization Access via the Emerald Web site – http://www.emeraldinsight.com/ft Subscribers to this journal benefit from access to a fully searchable knowledge resource stretching far beyond the current volume and issue. Journal of Business & Industrial Marketing online is enhanced with a wealth of features to meet the need for fast, effortless, and instant access to the core body of knowledge. Furthermore, this user friendly electronic library may be networked throughout the subscribing organization to maximize the use and value of the subscription. This is augmented with advanced search facilities and ‘‘choice of access’’ through a variety of alternative journal gateways.
Emerald online access includes: Institution-wide Licence Our liberal licence allows everyone within your institution to access the journals via the Internet, making your subscription more cost-effective. It has been designed to provide a comprehensive, simple system with minimum administration. Access can be granted by IP range or username and password. ATHENS authentication is enabled.
Current Issue + Journal Archive Instant access via Emerald Fulltext to information as it becomes available online and to material from past volumes. Users can choose to browse the database for relevant articles or search using the powerful search engine provided.
Active Reference Linking Direct links from the journal article references to abstracts of the most influential articles cited. Where possible, this link is to the full text of the article.
Key Readings Abstracts of articles, relating to keyword, are selected to provide readers with current awareness of interesting articles from other publications in the field. The abstracts are available online and are updated regularly upon publication of the latest issue.
details of your own research, you will find this feature invaluable.
Emerald Alert The table of contents e-mail alerting service will e-mail you the contents page of any chosen journal whenever the latest issue becomes available online. For further information please go to http://www.emeraldinsight.com/alerts.
Support Resources A comprehensive range of resources is available online that help users learn how to effectively use online information resources and that helps information professionals market resources to their users. For further information please go to http://www.emeraldinsight.com/support
Choice of Access Electronic access to this journal is available via a number of channels, enabling end users’ libraries to reach the content through their preferred delivery system. The Emerald Web site – http://www. emeraldinsight.com/ft – is the recommended means of electronic access as it provides fully searchable and high value-added access to the complete content of the journal. Refer to the next section for ‘‘how to access’’ via the Emerald Web site. Subscribers can also access and search the article content of this journal through the following services: Ebsco Online http://www.ebsco.com/online Huber E-Journals http://e-journals.hanshuber.com/english Minerva http://www.minerva.at/ OCLC Firstsearch ‘‘Electronic Collections Online’’ http://www.uk.oclc.org/oclc/menu/eco.htm RoweCom’s ‘‘Information Quest’’ http://www.informationquest.com SilverPlatter http://www.silverplatter.com SwetsBlackwell’s ‘‘SwetsnetNavigator’’ http://www.swetsnetnavigator.nl
Usage Statistics Online Journal Usage Statistics are now available. This feature allows Emerald Administrators to download their usage statistics with regard to their organization’s journal usage. Usage Statistics allow you to review the value of electronic dissemination of your journal subscriptions throughout your organization. They can also help determine the future trends for information within your organization. For further information go to http://www.emeraldinsight.com/stats
Research Register Research Registers are Internet-based databases where you can identify inside information on research activity worldwide. Whether you are seeking information or you wish to provide 98
How to access this journal through Emerald Organizations must first register for online access (instructions provided at http:// www.emeraldinsight.com/register), after which the content is available to everyone within the organization’s domain. To access this journal’s content, simply log on either from the journal homepage or direct through the Emerald Web site. Emerald Customer Support Services For customer service and technical help, contact: E-mail:
[email protected] Telephone: (44) 1274 785278 Fax: (44) 1274 785204
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Editorial Advisory Board Riad Ajami Rochester Institute of Technology, USA Syed Tariq Anwar West Texas A&M University, USA Thomas Apaiwongse Clark Atlanta University, Atlanta, USA Siva Balasubramanian Southern Illinois University at Carbondale, USA Donald Barclay University of Western Ontario, Canada Joseph A. Bellizzi Arizona State University, USA James Boles Georgia State University, USA Dennis J. Cahill Cleveland, USA S. Tamer Cavusgil Monash University, Australia Marjorie J. Cooper Baylor University, USA James M. Daley John Carroll University, USA Phil Dawes Wolverhampton Business School, UK Paul Dion Sigmund Weis School of Business, USA Awad B. El-Haddad Suez Canal University, Egypt Eugene Fram Rochester Institute of Technology, USA David Good Grand Valley State University, USA Andrew C. Gross Cleveland State University, USA Steve Henson University of New Orleans, USA Craig A. Hollingshead Texas A & M University, USA George C. Hozier Jr University of New Mexico, USA Tomas M. Hult Michigan State University, USA Michael D. Hutt Arizona State University, USA Daniel E. Innis Ohio University, USA Peter F. Kaminski Northern Illinois University, USA Jeff Kaumeyer Hammond Farrell, USA
Roger A. Kerin Southern Methodist University, USA Key Suk Kim Oregon State University, USA Raymond W. LaForge University of Louisville, USA Richard C. Leventhal Regis University, USA Jeffrey E. Lewin Western Carolina University, USA J. David Lichtenthal City University of New York, USA Donald Lindgren Lindgren Research Associates, USA Ritu Lohtia Georgia State University, USA Michael H. McBride Southwest Texas State University, USA Paul Matthyssens Limburg University Centre, Belgium Laura Milner University of Alaska Fairbanks, USA Michael S. Minor University of Texas – Pan American, USA Thomas G. Noordewier University of Vermont, USA Ben A. Oumlil University of Dayton, USA Michael K. Rich Southwest State University, Marshall, Minnesota, USA Bruce K. Pilling Georgia State University, USA John Ronchetto University of San Diego, USA Theresa M. Rosania Kean College of New Jersey Union, USA Bob Rothberg Rutgers Graduate School of Management, USA Elaine Sherman Hofstra University, USA Richard Spiller California State University, USA Shirley Stretch California State University, USA Dave Wilemon Syracuse University, USA Elizabeth J. Wilson Louisiana State University, USA Thomas R. Wotruba San Diego State University, USA
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, p. 99, # MCB UP LIMITED, 0885-8624
99
Abstracts and keywords
Customer perceived value: a substitute for satisfaction in business markets? Andreas Eggert and Wolfgang Ulaga Keywords Value, Customer satisfaction, Relationship marketing, Business-to-business marketing In recent years, there has been a resurgence of interest in the value construct among both marketing researchers and practitioners. Despite a growing body of research, it is still not clear how value interacts with related marketing constructs. Researchers have called for an investigation of the interrelationship between customer satisfaction and customer value to reduce the ambiguities surrounding both concepts. Investigates whether customer value and satisfaction represent two theoretically and empirically distinct concepts. Also addresses whether value is a better predictor of behavioral outcomes than satisfaction in a business marketing context. Two alternative models are developed and empirically tested in a cross-sectional survey with purchasing managers in Germany. The first model suggests a direct impact of perceived value on the purchasing managers’ intentions. In the second model, perceived value is mediated by satisfaction. This research suggests that value and satisfaction can be conceptualized and measured as two distinct, yet complementary constructs. Measuring network competence: some international evidence Thomas Ritter, Ian F. Wilkinson and Wesley J. Johnston Keywords Networks, Management, Competences, Market orientation, Performance Argues that the ability of a firm to develop and manage relations with key suppliers, customers and other organisations and to deal effectively with the interactions among these relations is a core competence of a firm – one that has a direct bearing on a firm’s competitive strength and performance. This is referred to as a firm’s network competence. In the first part of the paper work in Germany that has led to the development and calibration of a scale to measure a firm’s network competencies is described. In the second part the results of preliminary studies designed to develop and test the validity of the scale in an Englishspeaking context are reported. The results show that the measurement of network competence is valid and that the same relations between network competence and performance measures found in the German research hold. It is further shown that the measure of network competence is empirically and conceptually distinct to that of the market orientation scale. Supplier Web-page design and organizational buyer preferences Kenneth R. Lord and Alice Ford Collins Keywords Purchasing, Internet, Segmentation Gauges the accessibility of vendors to organizational customers and compares sellers’ approaches to online communication with the preferences expressed by buyers. A survey of organizational buying-center members revealed that responding organizations relied at least partially on Web-based research for a mean of 40 percent of purchases involving supplier/ vendor search. Distinct segments are observed that differ in their desire for suppliers’ Web sites to provide information about purchase facilitators (e.g. online ordering, prices, product and services information), quality/performance assessment (e.g. financial statements, company profiles, certification information), and non-purchase information (e.g. community activities, job opportunities, company news). An analysis of vendor Web sites demonstrates a need for more systematic inclusion of prices, online ordering, literature requests, answers to frequently asked questions, certification information and financial statements. Adoption of electronic commerce tools in business procurement: enhanced buying center structure and processes Talai Osmonbekov, Daniel C. Bello and David I. Gilliland Keywords Internet, Purchasing Modern procurement is being shifted from paper-based, people-intensive buying systems toward electronic-based purchase procedures that rely on Internet communications and Web-enhanced buying tools. Develops a typology of e-commerce tools that have come to 100
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 100-101, # MCB UP LIMITED, 0885-8624
characterize cutting-edge industrial procurement. E-commerce aspects of purchasing are organized into communication and transaction tools that encompass both internal and external buying activities. Further, a model of the impact of e-commerce on the structure and processes of an organization’s buying center is developed. The impact of the changing buying center on procurement outcomes in terms of efficiency and effectiveness is also analyzed. Finally, implications for business-to-business marketers and researchers are discussed. Simulating buying center decision processes: propositions and methodology Regina McNally Keywords Purchasing, Decision making, Rules Organizational purchasing decisions can be thought of as rule-discovery tasks in which members of the buying center develop proposals regarding the best choice of products and vendors. The uncertainty associated with buying center decisions causes the group to search for generalizations that describe the distinguishing characteristics of successful suppliers. Such generalizations identify the ‘‘rules’’ used to categorize future vendors; discovery of the best rules is key to accurate classification. Acknowledging the process of searching for patterns not only focuses attention on the information members use to derive patterns, but also provides a mechanism for investigating how members influence each other’s assessment of the patterns. Research into rule-discovery tasks has the potential to enable monitoring of simulated organizational purchasing decision processes in the controlled environment of an experiment. The purpose of this paper is to suggest a set of propositions and a methodology for examining rule discovery task behavior in buying centers. Stakeholder analysis for multi-sector innovations Michele D. Bunn, Grant T. Savage and Betsy B. Holloway Keywords Business-to-business marketing, Innovation, Stakeholders, Marketing strategy, Public sector Business-to-business technology development firms face a unique set of challenges when participating in the opportunities made possible by emerging multi-sector innovations. The greatest challenge involves the firm’s efforts to influence and shape the market in its favor. This requires strategies for dealing with numerous stakeholders – many with which the firm has had little experience. Because both the risks and pay-offs are great, the firm needs an analytical and systematic process for stakeholder analysis to provide the basis for stakeholder management strategies. The case of one significant multi-sector innovation – wireless technologies for integrated traffic management and emergency response – provides an illustrative context for demonstrating a five-step process for stakeholder analysis. Marketing’s role in the knowledge economy Cynthia J. Bean and Leroy Robinson Jr Keywords Marketing strategy, Value analysis, Business-to-business marketing, Technology, Networks, Knowledge workers A potential weakness of marketing in the strategy dialogue has been a tendency on the part of marketing scholars to stay with outmoded frameworks. As the economy is decreasingly influenced by industrial value creation and increasingly influenced by knowledge creation and dissemination, the role of marketing in value creation and thus in strategy is accentuated. Synthesizing current literature regarding the environmental changes and the underlying foundations for value creation affected by these changes, and contrasting them to traditional, industrial value creation, an argument for the central role of marketing in the knowledge economy is provided and examples support the new value creation-marketing link. Are we losing trust through technology? Michael K. Rich Keywords Value, Trust, Ethics, Technology, Sales, Internet The field of marketing has had a history of individuals and organizations attempting short-term gain through less than ethical means. The advent of the Web and other technological advances has placed powerful resources in the hands of practitioners. Coupled with that power is an acute public awareness of marketing abuses that have adversely hindered subsequent marketing efforts. Marketers need to address basic marketing skills through old-fashioned personal contact and personal relations that probably never will be effectively replaced with modern IT methodology. Additionally, marketing should take a proactive approach to defining marketing responsibilities to the public it serves to overcome the reputation that is established by a few who are unethical in their approach to the craft. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
101
Guest editorial
About the Guest Editor After completing 27 years of steady advancement in industrial sales and marketing positions with such firms as Kennecott Copper, Eastman Kodak, Nordson, and Automated Packaging, Michael K. Rich left his position as vice-president and general manager of North-West Telecommunications to initiate a career in academe. After securing a tenuretrack position at California University of Pennsylvania, he entered the doctoral program at the University of Pittsburgh. During the six-and-a-half years required to complete that objective on a part-time basis, he developed an academic marketing discipline while achieving tenure and promotion to the rank of professor. He subsequently developed a marketing discipline at Southern Polytechnic State University in Marietta, Georgia while achieving tenure. He is now a professor of marketing at Southwest State University, in Marshall, Minnesota while also fulfilling responsibilities as the fieldmarketing advisor for the Agricultural Utilization Research Institute (AURI) that serves the State of Minnesota. He has had several articles published in JBIM and continues to serve on its editorial board. He is also the book review editor for the journal and has previously served as a guest editor. He has effectively completed numerous advising contracts in the fields of salesforce training, marketing research, and organizational development. His extensive practitioner background with salesforce leadership, advertising campaign development, organizational restructuring and business acquisitions has been a valuable background for effective research and teaching. This special issue features seven papers, five of which were presented during the 2000 CBIM Academic Workshop, held in Atlanta, Georgia. The workshop, ‘‘Business marketing in the decade ahead: the key challenges we face,’’ featured papers on a wide range of subjects[1]. The papers selected for this special issue represent a cross-section of those presented and offer some insight into the potential direction of the marketing field during the coming decade. Verification of a trend toward continuing specialization within the discipline seems to be sustained by the variety of subjects covered at the conference. This appears to support evidence that the field continues to mature and assume a life of its own after initially adopting theories and approaches from other disciplines. There seems to be a paradox developing as technology continues to play an ever-increasing role in the business-to-business spectrum – that of pursuing increased relationship building while embracing a greater dependence on the inanimate devices that encompass the technology spectrum currently being pursued in business today. As organizations pursue customer relationship management (CRM), they discover that the integration process, in and of itself, is not enough to retain customers (McKenzie, 2001). Connecting with customers is the bigger challenge and today’s businesses must find ways to incorporate the new technologies and converse on a global scale rather than relying on the old marketing, sales, and communication techniques. Businesses need to move from a monologue to dialogue with 102
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 102-106, # MCB UP LIMITED, 0885-8624
customers and from providing traditional services to engaging in valueadding conversations. CRM integration without a sound approach toward conversation is likely to fall short of producing expected business benefits. Increased bottom-line pressures have caused many organizations to take a very pragmatic approach to improving that number through wholesale downsizing (or rightsizing to be politically correct). The effect on CRM of such overt moves is not fully understood although early attempts to determine the magnitude of its impact have been made (Lewin, 2001). The ability of surviving members of an organization to be as aggressive in meeting customer demands might be tempered with an increased tendency toward risk-aversion behaviors as security and income stability enter the thought process of those remaining employed. Interests of self will begin to be considered with greater emphasis when compared with the interests of the company. Horizons tend to become more short term than had previously been the case. In short, the time-consuming and sometimes more long-term aspects of building relationships with all of the associated benefits run the risk of being somewhat overlooked when confronted with today’s fast-paced and technology-driven methods of pursuing business activities in an everincreasing competitive global marketplace. Andreas Eggert and Wolfgang Ulaga present the results of their survey in the first article to determine the distinction between value and satisfaction as perceived by purchasing managers. They indicate that despite a growing body of research, it is still not clear how value interacts with related marketing constructs. Although value has been considered pivotal in consumer marketing and has been widely researched in that regard, business markets have generally been examined for developing methods of value assessment for physical products. Research on customer value in businessto-business relationships is just now receiving attention and has been conducted at a conceptual level. This paper reports on actual evaluations into whether customer value and satisfaction represent two theoretically and empirically distinct concepts. It further examines whether value is a better predictor of behavioral outcomes than satisfaction in a business-marketing context. Their research suggests that value and satisfaction can be conceptualized and measured as two distinct, yet complementary, constructs. Thomas Ritter, Ian Wilkinson and Wesley Johnston’s contribution to this issue, ‘‘Measuring network competence: some international evidence,’’ addresses the ability of a firm to develop and manage relations with key suppliers, customers, and other organizations and to deal effectively with the interactions among these relations. The authors indicate that a firm’s ability in this area is its network competence, and has a direct bearing on its competitive strength and performance. Firms are not able to decide whether to have relationships or whether to care about them; the only choice is whether to cope with them effectively and efficiently. There has been considerable research focusing on the nature and development of relationships and networks, and many concepts and measures have been used to characterize them including power, conflict, trust, commitment and value. In order to move forward with this concept, there is a need to explore network competence in other settings and validate the findings of earlier studies. The first part of the paper is devoted to work performed in Germany that has led to the development and calibration of a scale to measure a firm’s network competence. In the second part of the paper, the results of preliminary studies designed to develop and test the validity of the scale in an English-speaking context are reported. The results show that the measure JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
103
of network competence is empirically and conceptually distinct to that of the market orientation scale. The role of Web-based sales in the business-to-business market was examined by Kenneth Lord and Alice Collins in their paper, ‘‘Supplier Web page design and organizational buyer preferences’’. Their study gauged the accessibility of vendors to organizational customers and compares sellers’ approaches to online communication with the preferences expressed by buyers. The organizational buyer-seller dyad has a number of characteristics that enable it to benefit disproportionately (in comparison with the consumer market) from the e-commerce environment. The requirement in business markets of conformance with specifications that are sometimes complex corresponds well with the electronic medium’s ability to transmit large amounts of technical information with immediacy and consistency. In addition, business buyers and sellers have long engaged in commerce activities that have not been as geographically bound as the retail trading area that has traditionally characterized consumer buying activity, thus making them more receptive to the concept of having the world of buyers and vendors just a click away. An analysis of vendor Web sites demonstrated a need for more systematic inclusion of prices, on-line ordering, literature requests, answers to frequently asked questions, certification information and financial statements. The fourth paper, by Talai Osmonbekov, Daniel Bello, and David Gilliland entitled, ‘‘Adoption of electronic commerce tools in business procurement: enhanced buying center structure and processes,’’ develops a typology of e-commerce tools that have come to characterize cutting-edge industrial procurement. The explosive growth of the Internet and Web-based software applications has brought about increasing adoption of electronic commerce tools by businesses to achieve efficiencies in production and marketing of products and services. The assortment of business products and services distributed through the World Wide Web ranges from office equipment, heavy industrial products, and computers to more esoteric services such as consulting. Internet-based applications provide the means for industrial buyers to find suppliers in the most efficient way through electronic markets and communities and to potentially pass on the resulting savings to end users. E-commerce aspects of purchasing are organized into communication and transaction tools that encompass both internal and external buying activities. The authors developed a model of the impact of e-commerce on the structure and processes of an organization’s buying center that is fully explored in this paper. The impact of the changing buying center on procurement outcomes in terms of efficiency and effectiveness is also analyzed. Finally, implications for business-to-business marketers and researchers are discussed. The fifth paper, ‘‘Simulating buying center decision processes: propositions and methodology,’’ by Regina McNally examines the rules used by buying center members to classify vendors as to whether they would be worth the effort required to establish and maintain a working relationship. The uncertainty associated with buying center decisions causes the group to search for generalizations that describe the distinguishing characteristics of successful suppliers. Such generalizations identify the rules used to categorize future vendors. Such discovery of the best rules is key to accurate classification. Acknowledging the process of searching for patterns used by buying center members not only focuses attention on the information members use to derive patterns, but also provides a mechanism for investigating how members influence each other’s assessment of the 104
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
patterns. Research into rule-discovery tasks has the potential to enable monitoring of simulated organizational purchasing decision processes in the controlled environment of an experiment. Her paper suggests a set of propositions and a methodology for examining rule discovery task behavior in buying centers. The sixth paper, ‘‘Stakeholder analysis for multi-sector innovations,’’ by Michele Bunn, Grant Savage and Betsy Holloway addresses the unique challenges confronting a firm when participating in the opportunities made possible by emerging multi-sector innovations. The greatest challenge confronting a firm in this position involves the firm’s efforts to influence and shape the market in its favor. This requires strategies for dealing with numerous stakeholders – many with which the principal firm has had little or no direct experience. The only reason a firm would address such a situation is the potential financial rewards that can be addressed as a result of a successful implementation. The firm needs an analytical and systematic process for stakeholder analysis to provide the basis for stakeholder management strategies. This paper reviews one significant multi-sector innovation, that of wireless technologies for integrated traffic management and emergency response. It provides an illustrative context for demonstrating a five-step process for stakeholder analysis. The next article by Cynthia Bean and Leroy Robinson Jr synthesizes current literature on environmental changes and the underlying foundations for value currently being pursued. They develop evidence that supports the challenges currently being faced by firms which attempt to use traditional methods for determining firm valuation and wealth generation. Historically firms have based their value creation on the transformation of goods as they move from manufacturer to end-user, as evidenced by Porter’s value chain concept and its focus on product, logistics and operations. They offer evidence that knowledge acquisition and exploitation becomes the center of differentiation between firms and it can sustain value creation separate and apart from value creation generated within the traditional models. They supply support for the premise that firms that effectively align their organizational efforts in this direction will increase their opportunities to create wealth above and beyond management of traditional physical assets. They cite authorities that indicate marketing’s new strategic role is affected by a variety of changes in the business setting, including the emergence of the knowledge economy. The final paper by Michael Rich, ‘‘Are we losing trust through technology?’’, addresses the potential loss of ethical behavior as companies rely more on technology to track and identify marketing opportunities and less on personal contact. Several examples are offered of obvious unethical behavior that has been experienced in the marketplace in the last few years and then projects newly emerging potential unethical situations directly related to technological advances. The links between ethical behavior and trust are advanced, using new technology scenarios to reveal potential pitfalls in maintaining trust with customers. The author suggests proactive marketing activities to establish more firmly the role of marketing as a protector of ethical behavior within the corporate framework. Reviewers for the special issue Siva Balasubramanian, Southern Illinois University at Carbondale; Joseph A. Bellizi, Arizona State University – West; Paul Dion, Susquehanna University; JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
105
Steve Henson, University of New Orleans; Michael D. Hutt, Arizona State University; Peter F. Kaminski, Northern Illinois University; Roger A. Kerin, Southern Methodist University; Jeffrey E. Lewin, Western Carolina University; Ritu Lohtia, Georgia State University; Michael S. Minor, University of Texas – Pan American. Michael K. Rich Guest Editor Note 1. The selection of the title, ‘‘Business marketing in the decade ahead: the key challenges we face,’’ for the 2000 CBIM Academic Workshop was appropriate to generate a wide spectrum of subjects and areas of interest in this ever-broadening field of business-to-business marketing. Once again, Wes Johnston is to be congratulated for having the insight to select a workshop title that would generate such a wide range of interesting subjects that are included in this issue. Without the dedication of the represented authors to pursue their individual research efforts and the skill and expertise of the reviewers that fine-tuned these submissions, the quality of the included works would not be of the caliber expected in each issue of JBIM. Although somewhat elongated in time required for completion, this issue represents the efforts of many skilled and capable individuals, diverse in background, but with a common desire to deliver a quality product that will have practical application in today’s competitive marketplace. You, the reader, are the ultimate beneficiary of the extensive process required to deliver this final product. References Lewin, J.E. (2001), ‘‘The effects of downsizing on organizational buying behavior: an empirical investigation’’, Academy of Marketing Science Journal, Spring, Vol. 29 No. 2, pp. 151-64. McKenzie, R. (2001), The Relationship-based Enterprise, McGraw-Hill Ryerson, Toronto.
106
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Customer perceived value: a substitute for satisfaction in business markets? Andreas Eggert Assistant Professor of Marketing, Department of Marketing, University of Kaiserslautern, Kaiserslautern, Germany
Wolfgang Ulaga Professor of Marketing, Head of Marketing Department, EDHEC School of Management, Lille, France
Keywords Value, Customer satisfaction, Relationship marketing, Business-to-business marketing Abstract In recent years, there has been a resurgence of interest in the value construct among both marketing researchers and practitioners. Despite a growing body of research, it is still not clear how value interacts with related marketing constructs. Researchers have called for an investigation of the interrelationship between customer satisfaction and customer value to reduce the ambiguities surrounding both concepts. Investigates whether customer value and satisfaction represent two theoretically and empirically distinct concepts. Also addresses whether value is a better predictor of behavioral outcomes than satisfaction in a business marketing context. Two alternative models are developed and empirically tested in a cross-sectional survey with purchasing managers in Germany. The first model suggests a direct impact of perceived value on the purchasing managers’ intentions. In the second model, perceived value is mediated by satisfaction. This research suggests that value and satisfaction can be conceptualized and measured as two distinct, yet complementary constructs.
Introduction During the last decade, there has been growing interest in the value construct among both marketing researchers and practitioners (Sinha and DeSarbo, 1998; Gale, 1994). In 1991, a popular business magazine described customer value as the ‘‘new marketing mania’’ (BusinessWeek, 1991). Six years later, the Marketing Science Institute recognized value and related issues as a research priority. Since then, several international conferences and seminars have given broader attention to this area of research. Value concept and exchange theory of marketing
Customer value, however, is far from being a new concept to the marketing discipline. Though it did not attract much explicit attention until it became a watchword in the 1990s, value has always been ‘‘the fundamental basis for all marketing activity’’ (Holbrook, 1994, p. 22). The value concept is closely linked to the exchange theory of marketing. According to this view, voluntary market exchange is a key constituent of the discipline (Alderson, 1957; Kotler, 1972; Houston, 1987). Because voluntary market exchange only takes places when all parties involved expect to be better off after the exchange, perceived value is at the core of marketing. Despite its pivotal role within the exchange concept of marketing, ‘‘only a few articles have studied perceived value as a focal construct’’ (Sinha and DeSarbo, 1998, p. 237). In business markets, researchers have mainly focused on developing methods of value assessment for physical products (Anderson and Narus, 1999). Research on customer value in business-toThe research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 107-118, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419754
107
business relationships is still at its infancy and has mainly been conducted at a conceptual level (Wilson and Jantrania, 1997). Fundamental concerns
Several issues of fundamental concern remain unresolved in the emerging value literature. Despite the growing body of research in the area, it is still not clear how customer perceived value interacts with related marketing variables, namely customer satisfaction. Researchers have called for an investigation of the relationship between the two constructs: ‘‘Is measuring the satisfaction customers have with a product or service really different from the value they derive from it? If so, what exactly is the distinction? . . . Theoretical and empirical research addressing this question is needed to reduce the apparent operational ambiguities surrounding the two constructs and understand their interrelationship’’ (Parasuraman, 1997, p. 155).
Research questions
The present paper aims at making a contribution to the emerging value literature by investigating the interaction between two fundamental marketing constructs: customer value and customer satisfaction. Three specific research questions are addressed: Q1. What are customer value and customer satisfaction as perceived by purchasing managers in business relationships? Q2. Do customer value and customer satisfaction represent two theoretically and empirically distinct constructs? Q3. Which of both constructs is the better predictor for behavioral outcomes such as repurchase, search for alternatives, and word-of-mouth? In order to answer these questions, the paper is structured as follows. The constructs of customer perceived value and customer satisfaction are first assessed. The theoretical differences between both concepts are identified drawing on a literature review. Two alternative models that link customer perceived value to behavioral outcomes are developed in the second part. This is followed by a description of the empirical study and a discussion of its results. Limitations of the present study and suggestions for future research conclude the paper. Literature review Customer satisfaction Measuring customer satisfaction has become increasingly popular in the last two decades and today represents an important source of revenue for market research firms (Oliver, 1999, p. 33; Perkins, 1993). The satisfaction construct has gained an important role in the marketing literature. It is widely accepted among researchers as a strong predictor for behavioral variables such as repurchase intentions, word-of-mouth, or loyalty (Ravald and Gro¨nroos, 1996; Liljander and Strandvik, 1995).
The disconfirmation paradigm
108
Customer satisfaction research is mainly influenced by the disconfirmation paradigm (Parasuraman et al., 1988). This paradigm states that the customer’s feeling of satisfaction is a result of a comparison process between perceived performance and one or more comparison standard, such as expectations. The customer is satisfied when he/she feels that the product’s performance is equal to what was expected (confirming). If the product’s performance exceeds expectations, the customer is very satisfied (positively disconfirming), if it remains below expectations, the customer will be dissatisfied (negatively disconfirming). JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Although most scholars agree on the disconfirmation paradigm, the nature of satisfaction remains ambiguous. On the one hand, satisfaction clearly arises from a cognitive process comparing perceived performance against some comparison standards. On the other hand, the feeling of satisfaction essentially represents an affective state of mind. Consequently, some satisfaction scales tap the cognitive dimension of satisfaction, while others capture its affective nature. The extent to which a satisfaction scale focuses on the cognitive or the affective dimension, however, should have an impact in terms of both the antecedents that affect satisfaction and the consequences fostered by satisfaction. Satisfaction as an affective state of mind
A clear decision on the fundamental nature of the satisfaction construct is needed. In accordance with the majority of research being done on the satisfaction construct, we opt for the latter view and define a purchasing manager’s satisfaction with a supplier as an affective state of mind resulting from the appraisal of all relevant aspects of the business relationship (Geyskens et al., 1999, p. 223). Customer perceived value The key role of satisfaction within the marketing research domain has recently been questioned (Anderson et al., 1994). Researchers have repeatedly witnessed conflicting survey results of high satisfaction scores correlating with declining market share (Gale, 1994; Jones and Sasser, 1995). Critics have argued that traditional customer satisfaction models rate a company’s performance as perceived by existing customers, but do not integrate potential customers, non-customers, or competition in the set of analysis (Gale, 1994). Moreover, the customer’s perception of price or costs should be specifically taken into account. Hence, customer satisfaction measurement has been criticized as being limited to a tactical level, providing simple product improvement and a correction of defects and errors of existing products and services.
Value construct
Grounded on these arguments, Gross (1997) has called for a replacement of the satisfaction construct by the value construct as a better predictor of outcome variables in business markets. Gross (1997, p. 6) argues that the construct of satisfaction in business markets is a misleading notion imprudently borrowed from consumer markets. As purchasing managers buy for economic rather than emotional reasons, customer perceived value should be the critical dimension in business marketing. While the literature contains a variety of definitions of customer perceived value, three common elements can be identified: (1) the multiple components of value; (2) the subjectivity of value perceptions; and (3) the importance of competition. First, most definitions present customer perceived value as a trade-off between benefits and sacrifices perceived by the customer in a supplier’s offering (Zeithaml, 1988, p. 14; Monroe, 1990, p. 46). Perceived benefits are a combination of physical attributes, service attributes and technical support available in relation to a particular use situation (Monroe, 1990). Perceived sacrifices are sometimes described in monetary terms (Anderson et al., 1993). Other definitions describe sacrifices more broadly. Sacrifices are of prime importance to customers in value perceptions. Monroe (1990) argues
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
109
that customers value a reduction in sacrifices more than an increase in benefits. Second, value is a subjectively perceived construct (Kortge and Okonkwo, 1993). Different customer segments perceive different values within the same product. In addition, the various members in the customer organization involved in the purchasing process can have different perceptions of a supplier’s value delivery (Perkins, 1993). Finally, value is relative to competition. Delivering a better trade-off between benefits and sacrifices in a product or service, i.e. offering better value than competition, will help a company to create sustainable competitive advantage. Multiple benefits and sacrifices
Against the background of the key issues discussed in our literature review, we define customer-perceived value in business markets as the trade-off between the multiple benefits and sacrifices of a supplier’s offering, as perceived by key decision-makers in the customer’s organization, and taking into consideration the available alternative suppliers’ offerings in a specific use situation. Conceptual differences between satisfaction and customer perceived value Our literature review suggests that satisfaction and value are complementary, yet distinct constructs (Woodruff and Gardial, 1996, p. 98). Table I provides an overview of major conceptual differences between both constructs. Value is the result of a cognitive comparison process. The concept has been described as a ‘‘cognitive-based construct which captures any benefitsacrifice discrepancy in much the same way disconfirmation does for variations between expectations and perceived performance’’ (Patterson and Spreng, 1997, p. 421). In contrast to the cognitive-based value construct, satisfaction is conceptualized by most researchers as an affective evaluative response (Oliver, 1996).
Satisfacton as a postpurchase construct
We have seen that most satisfaction models are rooted in the disconfirmation paradigm. Hence, satisfaction must be considered as a post-purchase construct. Customer perceived value, in turn, is independent of the timing of the use of a market offering (Woodruff and Gardial, 1996) and can be considered as a pre- or post-purchase construct. Both constructs aim at different directions. Customer satisfaction measures how well a supplier is doing with his/her present market offering, as perceived by existing customers. Such a tactical orientation provides guidelines of action for improving current products and services. The customer value construct, in turn, points at future directions. Its strategic orientation aims at assessing how value can be created for customers and by which means a supplier’s market offering can best meet customers’ requirements. Satisfaction
Customer perceived value
Affective construct Post-purchase perspective Tactial orientation Present customers Supplier’s offerings
Cognitive construct Pre-/post-purchase perspective Strategic orientation Present and potential customers Suppliers’ and competitors’ offerings
Table I. Conceptual differences between satisfaction and value 110
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
As a consequence, the assessment of customer perceived value is directed toward former, present, and potential clients, whereas satisfaction research is mainly geared toward the supplier’s current customer base. Finally, satisfaction research is predominantly oriented toward the assessment of the supplier’s market offering, but not necessarily integrating information pertaining to competitor’s product offerings. Customer perceived value measurement, on the other hand, explicitly benchmarks the supplier’s offering with competition. Satisfaction vs value
In the literature review, the major constituents of customer perceived value and customer satisfaction have been identified. It has been argued that satisfaction and value are two complementary, yet distinct constructs. In the following section, two conceptual models of how customer perceived value leads to behavioral intentions such as repurchase, search for alternatives and word of mouth will be developed. The methodology used for empirically testing both models will then be described. From customer value to behavioral outcomes Most conceptual and empirical contributions to the emerging value literature posit a direct impact of customer value on behavioral outcomes neglecting the role of satisfaction (Zeithaml, 1988, p. 4; Dodds et al., 1991, p. 308). A rationale for neglecting satisfaction is provided by Gross (1997) who argues that in business markets, purchasing managers’ decision making is mainly guided by cognitive factors and not by affective ones. Therefore, a first model has been developed taking into consideration solely the cognitive input and conative output. In this ‘‘direct impact model’’, customer perceived value is supposed to have a direct impact on the outcome variables.
Mediated impact model
With regard to the theory of reasoned action (Fishbein and Ajzen, 1975) a second model can be developed which is best described as the ‘‘mediated impact model’’. According to Fishbein and Ajzen’s framework, cognitive variables are mediated by affective ones to result in conative outcomes. In the second model, customer perceived value is supposed to have an indirect impact on behavioral outcomes. Customer satisfaction is considered as a mediating variable between customer perceived value and the purchasing managers’ conative intentions. Empirical study Empirical data were gathered in a cross-sectional survey among purchasing managers in Germany. Based on a CD-ROM directory of industrial suppliers, a randomized sample of 960 purchasing managers was contacted in a telephone survey and invited to participate in the study. Respondents received a standardized questionnaire by fax. They were asked to rate their supplier relationships on a number of five-point rating scales (anchor: ‘‘strongly agree’’ vs. ‘‘strongly disagree’’). A total of 342 responses was obtained. Since the key informant methodology was used to collect data, the competency of the respondents was assessed in accordance with Kumar et al. (1993). A total of 41 questionnaires did not meet the screening requirements leading to a net sample size of 301. All relevant constructs were measured on multi-item scales. As recommended by Churchill (1982) and Nunnally (1978), several steps were taken to ensure content validity of the scales. First, a set of possible items was generated based on a literature review. These items were subjected to an item-sort task administered to 19 doctoral students in business
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
111
administration. The students were asked to assign the individual items to what they believed to be the ‘‘correct’’ construct. Two indices proposed by Anderson and Gerbing (1991, p. 734) were computed for each item to find out which items were difficult to assign correctly to the corresponding constructs. The psa index is an indicator of the extent to which an item reflects its intended construct. It simply measures the proportion of respondents who assign an item to its intended construct. The csv index reflects the extent to which respondents assign an item to its posited construct more than to any other construct. Therefore the csv index provides a more accurate estimate of substantive validity than the psa index. Based on these two indices, items for the questionnaire were selected. The questionnaire was then pre-tested with 30 purchasing managers. After some minor adjustments, the resulting items were included in the final survey (see Appendix for items). Data analysis and results Consistent with Gerbing and Anderson (1988), reliability, unidimensionality, convergent validity and discriminant validity of the scales were assessed (for a description of the scale items used, see the Appendix). The items were examined first by item-to-total correlations. Items with low correlation were deleted. The remaining items were subjected to exploratory and confirmatory factor analysis to assess unidimensionality and convergent validity. In the process of purifying the scales, two items measuring customer satisfaction were dropped. The scales measuring customer perceived value, repurchase intention, search for alternatives and word of mouth fulfilled standard requirements immediately. Table II reports item loadings, individual item reliability, Cronbach’s alpha and average variance extracted of the refined measurement models. Discriminant validity
Next, discriminant validity between customer perceived value and customer satisfaction was assessed by means of a chi-square difference test and the Fornell-Larcker criterion (see Figure 1). When the correlation between customer perceived value and customer satisfaction was fixed to 1, the chi-square statistics showed a significant increase ( 2 = 13.16; df = 1). Moreover, the average variance extracted exceeded the squared correlation (0.68) between the two constructs. This indicates discriminant validity of Individual item Cronbach’s reliability alpha
Construct
Item
Item loading
Customer perceived value
1 2 3
0.83 0.85 0.57
Standardized 15.16 9.51
0.70 0.72 0.32
Satisfaction
1 4
0.87 0.92
21.48 Standardized
0.76 0.84
Repurchase
1 2 3
0.86 0.88 0.91
Standardized 19.33 20.36
0.73 0.78 0.83
Search for alternatives
1 2
0.83 0.71
Standardized 10.33
0.70 0.51
Word of mouth
1 2 3
0.79 0.84 0.86
15.60 16.89 Standardized
0.63 0.71 0.74
t-value
Average variance extracted
0.77
0.70
0.89
0.89
0.91
0.85
0.75
0.80
0.87
0.79
Table II. Scale properties 112
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Figure 1. Discriminant validity
customer perceived value and customer satisfaction (Fornell and Larcker, 1981). In addition to the theoretical differences elaborated before, this empirical research shows for the first time that customer perceived value and customer satisfaction can be conceptualized and measured as two distinct constructs. Testing relationships
After having shown that the measurement models are consistent with the empirical data, the substantive relationships between customer-perceived value, customer satisfaction and behavioral outcomes were tested using the statistical package AMOS 3.6. In the mediated impact model (see Figure 2), customer perceived value is estimated to have a strongly positive and highly significant impact on satisfaction. Satisfaction itself has a strongly positive and highly significant impact on repurchase and word-of-mouth intention. Moreover, it reduces the search for alternatives. Overall the mediated impact model has a very good fit ( 2/df = 1.68; GFI = 0.96; AGFI = 0.93; RMSEA = 0.048). Parameter expansion (i.e. adding direct relationships between CPV and behavioral outcomes) did not improve the fit significantly. It can therefore be concluded that – for the data set in the present study – satisfaction is a better predictor for behavioral outcomes than CPV.
Figure 2. Parameter estimates in the mediated impact model JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
113
In the rival model (see Figure 3), customer perceived value is supposed to have a direct impact on the investigated outcomes. Here customer perceived value is estimated to have a strongly positive impact on repurchase and word-of-mouth intention as well as a strongly negative impact on the search for alternatives. Again, all substantive relationships are significant at the 1 percent level. Global fit indices
The direct impact model, however, performs significantly lower than the mediated impact model. Out of four global fit indices ( 2/df = 3.82; GFI = 0.92; AGFI = 0.87; RMSEA = 0.098), only the GFI fulfils the standard minimum requirements. As the Akaike (1974) information criterion also favors the mediated impact model, it clearly is to be preferred over the direct impact model (see Table III for a comparison of global fit indices). Discussion of academic and managerial implications This paper shows that customer perceived value and customer satisfaction can be conceptualized and measured as two distinct yet complementary constructs. Strong interactions between the two concepts do exist. Both theoretical reasoning and empirical research provide evidence, however, that value and satisfaction tap different dimensions. In order to prevent conceptual ambiguities, customer satisfaction should be conceptualized and measured as an affective construct, while customer perceived value is best being conceptualized as a cognitive variable.
Mediated impact model
The results of our comparison of the direct impact model and the mediated impact model argue that researchers should take into account both constructs when assessing outcomes of relationship value. In this sense, our results do not confirm the criticism of certain scholars concerning the predictive power
Figure 3. Parameter estimates in the direct impact model Global fit index
Mediated impact model
Direct impact model
2/df [df] (< 2.5) GFI (> 0.9) AGFI (> 0.9) RMSEA (< 0.05) AIC (min!)
1.69 [df = 50] 0.96 0.93 0.048 141.7
3.83 [df = 32] 0.92 0.87 0.098 168.4
Table III. Global fit indices 114
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
of affective variables such as satisfaction in a business-to-business context. With the advent of customer value research, measuring satisfaction has not become obsolete. Affective variables continue to be of importance in business research, especially within a relationship marketing setting. Overall, the findings of the present study provide evidence for Erevelles (1998, p. 209) who claims: Although it may be true that organizational buying behavior involves a more cognitive approach than individual buying behavior, . . . affective processes frequently occur or sometimes even dominate organizational buying decisions.
Cognitive and affective variables
To truly understand organizational buying decisions, multidimensional models that take into consideration both cognitive and affective variables are needed. Therefore, the concepts of customer perceived value and customer satisfaction do not substitute but complement each other. Organizations increasingly invest in the development of marketing information systems that combine external customer information and internal performance measures (McLeod and Rogers, 1985). In current practice, managers predominantly rely on satisfaction measurement to develop and implement marketing strategies. The present research confirms on the one hand the relative importance of customer satisfaction tools for marketing decision making. On the other hand, the study’s findings are in line with Woodruff (1997) who argues that marketing information systems should integrate not only satisfaction indicators but also include customer value measurements. Managers should take into account both variables when designing marketing information systems. Critical customer information includes on the one hand data about how satisfied customers are with the company’s products and services. On the other hand, the assessment of how value is perceived by customers in market offerings complements the information needed for marketing decision making.
Positive behavioral intentions
As organizational buying behavior ultimately consists of individuals making decisions (Webster and Wind, 1972), marketing professionals must take into account both cognitive and affective inputs. Our research suggests that value must first be created by a supplier for its customer. It must then be experienced in the customer’s organization and translated into satisfaction in order to result in positive behavioral intentions. Limitations and research directions The present research focused on two core constructs, i.e. value and satisfaction in response to the research issues raised in the literature (Parasuraman, 1997, p. 155). Other closely related constructs such as trust and commitment have not been investigated in the present study. Hence, future research should be directed toward investigating the interaction of value with other core marketing constructs. Further, to ensure generalizability of our results, the present research was based on a cross-sectional sample. However, the project was conducted in one single country and should be extended to respondents from different countries to allow for cross-country validation. Finally, the use of structural equation modeling in our research suggests a linearity of the relationships between the variables in our models. This assumption could be considered as a limitation of our study and represents a potential for further research in this area.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
115
Summary This paper raises the question of whether customer perceived value is a substitute for customer satisfaction in business markets. It is motivated by recent criticism that customer satisfaction may not be a suited construct within a business-to-business setting. Customer perceived value
First, a definition of customer perceived value and customer satisfaction in business markets is provided based on a literature review. Then, the paper assesses the theoretical differences between both constructs. Next, customer perceived value is measured as a cognitive variable. Customer satisfaction, in turn, is measured as an affective variable. Discriminant validity between both constructs is confirmed. Following, two models that prescribe how customer perceived value may lead to behavioral intentions are introduced: a direct impact model and a mediated impact model. According to the mediated impact model, customer perceived value leads to satisfaction which, in turn, leads to positive behavioral intentions. This model has a significantly better fit than the rival model which poses a direct relationship between customer perceived value and behavioral outcomes. Based on the data set in this study, it can be concluded that satisfaction remains a strong predictor for behavioral outcomes. Customer perceived value is a complement and not a substitute for customer satisfaction. However, more research is required before a particular view concerning the nomological relationship between customer perceived value, customer satisfaction and behavioral outcomes is to be accepted. References Akaike, H. (1974), ‘‘A new look at the statistical model identification’’, IEEE Transactions on the Automatic Control, Vol. 19, pp. 716-23. Alderson, W. (1957), Marketing Behavior and Executive Action, Irwin, Homewood, IL. Anderson, E., Fornell, C. and Lehman, D. (1994), ‘‘Customer satisfaction, market share and profitability: findings from Sweden’’, Journal of Marketing, Vol. 58, pp. 53-66. Anderson, J.C. and Gerbing, D.W. (1991), ‘‘Predicting the performance of measures in a confirmatory factor analysis with a pretest assessment of their substantive validities’’, Journal of Applied Psychology, Vol. 76, pp. 732-40. Anderson, J.C. and Narus, J.A. (1999), Business Market Management: Understanding, Creating, and Delivering Value, Prentice-Hall, Englewood Cliffs, NJ. Anderson, J.C., Jain, C. and Chintagunta, P.K. (1993), ‘‘Customer value assessment in business markets’’, Journal of Business-to-Business Marketing, Vol. 1 No. 1, pp. 3-29. Business Week (1991), ‘‘Value-marketing’’, Business Week, November 11, pp. 54-60. Churchill, G.A. (1982), ‘‘A paradigm for developing better measures of marketing constructs’’, Journal of Marketing Research, Vol. 16, pp. 64-73. Dodds, W., Monroe, K.B. and Grewal, D. (1991), ‘‘Effects of price, brand, and store information on buyers’ product evaluation’’, Journal of Marketing Research, Vol. 28, pp. 307-19. Erevelles, S. (1998), ‘‘The role of affect in marketing’’, Journal of Business Research, Vol. 42, pp. 199-215. Fishbein, M. and Ajzen, I. (1975), Belief, Attitude, Intention and Behavior: An Introduction to Theory and Research, Reading, MA. Fornell, C. and Larcker, D. (1981), ‘‘Evaluating structural equation models with unobservable variables and measurement error’’, Journal of Marketing Research, Vol. 18, pp. 39-50. Gale, B. (1994), Managing Customer Value: Quality and Service that Customers Can See, The Free Press, New York, NY. Gerbing, D. and Anderson, J. (1988), ‘‘An updated paradigm for scale development incorporating unidimensionality and its assessment’’, Journal of Marketing Research, Vol. 25, pp. 186-92.
116
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Geyskens, I., Steenkamp, J.-B., Kumar, N. (1999), ‘‘A meta-analysis of satisfaction in marketing channel relationships’’, Journal of Marketing Research, Vol. 36, pp. 223-38. Gross, I. (1997), ‘‘Evolution in customer value: the gross perspective’’, in Donath, B. (Ed.), Customer Value: Moving Forward – Back to Basics, ISBM Report No. 13. Holbrook, M.B. (1994), ‘‘The nature of customer value’’, in Rust, R.T. and Oliver, R.L., Service Quality: New Directions in Theory and Practice, Sage Publications. Thousand Oaks, CA. Houston, F.S. (1987), ‘‘Marketing and exchange’’, Journal of Marketing, Vol. 51, October, pp. 3-18. Jones, T.O. and Sasser, W.E. (1995), ‘‘Why satisfied customers defect’’, Harvard Business Review, Vol. 73, November-December, pp. 88-99. Kortge, G.D. and Okonkwo, P.A. (1993), ‘‘Perceived value approach to pricing’’, Industrial Marketing Management, Vol. 22, pp. 133-40. Kotler, P. (1972), ‘‘A generic concept of marketing’’, Journal of Marketing, Vol. 36, April, pp. 46-54. Kumar, N., Stern, L.W. and Anderson, J.C. (1993), ‘‘Conducting interorganizational research using key informants’’, Academy of Management Journal, December, pp. 1633-51. Liljander, V. and Strandvik, T. (1995), ‘‘The relation between service quality, satisfaction and intentions’’, in Kunst, D. and Lemmink, J. (Eds), Managing Service Quality, Paul Chapman, London, Vught, pp. 45-63. McLeod, R. and Rogers, J. (1985), ‘‘Marketing information systems: their current status in Fortune 1000 companies’’, Journal of Management Information Systems, Vol. 1, Spring, pp. 57-75. Monroe, K.B. (1990), Pricing – Making Profitable Decisions, McGraw-Hill, New York, NY. Nunnally, J. (1978), Psychometric Theory, 2nd ed., New York, NY. Oliver, R. (1996), Satisfaction: A Behavioral Perspective on the Customer, McGraw-Hill, New York, NY. Oliver, R. (1999), ‘‘Whence consumer loyalty?’’, Journal of Marketing, Vol. 63 (special issue), pp. 33-44. Parasuraman, A. (1997), ‘‘Reflections on gaining competitive advantage through customer value’’, Journal of the Academy of Marketing Science, Vol. 25 No. 2, pp. 154-61. Parasuraman, A., Zeithaml, V.A. and Berry, L. (1988), ‘‘SERVQUAL: a multiple-item scale for measuring consumer perceptions of service quality’’, Journal of Retailing, Vol. 64, Spring, pp. 12-40. Patterson, P. and Spreng, R. (1997), ‘‘Modelling the relationship between perceived value, satisfaction and repurchase intentions in a business-to-business service context: an empirical examination’’, International Journal of Service Industry Management, Vol. 8 No. 5, pp. 414-34. Perkins, W.S. (1993), ‘‘Measuring customer satisfaction’’, Industrial Marketing Management, Vol. 22, pp. 247-54. Ravald, A. and Gro¨nroos, C. (1996), ‘‘The value concept and relationship marketing’’, European Journal of Marketing, Vol. 30 No. 2, pp. 19-30. Sinha, I. and DeSarbo, W.S. (1998), ‘‘An integrated approach toward the spatial modeling of perceived customer value’’, Journal of Marketing Research, Vol. 35, May, pp. 236-49. Webster, F.E. and Wind, Y. (1972), ‘‘A general model for understanding organizational buying behavior’’, Journal of Marketing, Vol. 36, April, pp. 12-19. Wilson, D.T. and Jantrania, S. (1997), ‘‘Understanding the value of a relationship’’, reprinted in Ford, D. (Ed.), Understanding Business Markets, The Dryden Press, pp. 288-304. Woodruff, R.B. (1997), ‘‘Customer value: the next source for competitive advantage’’, Journal of the Academy of Marketing Science, Vol. 25 No. 2, pp. 139-53. Woodruff, R.B. and Gardial, S.F. (1996), Know Your Customer: New Approaches to Understanding Customer Value and Satisfaction, Blackwell, Cambridge, MA. Zeithaml, V.A. (1988), ‘‘Consumer perceptions of price, quality, and value: a means-end model and synthesis of evidence’’, Journal of Marketing, Vol. 52, July, pp. 2-22. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
117
Appendix. Scale items Customer perceived value (1) Compared to the price we pay, we get reasonable quality. (2) Compared to the quality we get, we pay a reasonable price. (3) The purchasing relationship delivers us superior net-value. Satisfaction (1) It is a pleasure to have a purchasing relationship with the supplier. (2) To some extent we have not found the ideal supplier yet (reversed scale). (This item was dropped, based on confirmatory factor analysis.) (3) The supplier always tries his best (this item was dropped, based on confirmatory factor analysis). (4) We are very satisfied with our supplier. Repurchase intention (1) Next time we will buy again from our current supplier. (2) In the foreseeable future we will consider our current supplier as part of our evoked set. (3) We intend to continue the purchasing relationship with our supplier. Search for alternatives (1) Recently we have spent some effort to search for alternative suppliers. (2) We are continuously looking for alternatives to replace our current supplier. Word of mouth (1) Our current supplier can use us as a reference customer. (2) We would be glad to serve as a reference customer to our current supplier. (3) We will recommend our current supplier to other purchasing managers.
&
118
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Measuring network competence: some international evidence Thomas Ritter Department of International Economics and Management, Copenhagen Business School, Frederiksberg, Denmark
Ian F. Wilkinson School of Marketing, International Business and Asian Studies, University of Western Sydney, Kingswood, Australia
Wesley J. Johnston Center for Business and Industrial Marketing, Georgia State University, Atlanta, Georgia, USA
Keywords Networks, Management, Competences, Market orientation, Performance Abstract Argues that the ability of a firm to develop and manage relations with key suppliers, customers and other organizations and to deal effectively with the interactions among these relations is a core competence of a firm – one that has a direct bearing on a firm’s competitive strength and performance. This is referred to as a firm’s network competence. In the first part of the paper work in Germany that has led to the development and calibration of a scale to measure a firm’s network competencies is described. In the second part the results of preliminary studies designed to develop and test the validity of the scale in an English-speaking context are reported. The results show that the measurement of network competence is valid and that the same relations between network competence and performance measures found in the German research hold. It is further shown that the measure of network competence is empirically and conceptually distinct to that of the market orientation scale.
Introduction In recent years increased attention has been focused on the role and importance of inter-organizational relations and networks on a firm’s competitive strength and performance (e.g. Achrol, 1997; Anderson et al., 1994; Ha˚kansson and Snehota, 1995). As Ford (1997, p. xiv) has observed, relationships and networks are an inescapable part of a firm’s environment and ‘‘a company’s relationships with others effectively define its existence and without them it has no meaning’’. Firms are not able to decide whether to have relationships or not or whether to care about them; the only choice is whether to cope with them effectively and efficiently or not. Four levels of management
There has been considerable research focusing on the nature and development of relationships and networks and many concepts and measures have been used to characterize them including power, conflict, trust, commitment, adaptation, satisfaction, communication and value (see Wilkinson (2000) for a review). In addition to research focusing understanding on the nature and determinants of relationships and networks, attention has focused also on the management implications arising (e.g. Achrol and Kotler, 1999; Mo¨ller and Halinen, 1999; Wilkinson and Young, 2002). Mo¨ller and Halinen (1999, p. 417) have identified four levels of management arising from a relationship and network perspective. The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 119-138, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419763
119
(1) Industries as networks – network visioning. (2) Firms in networks – net management. (3) Relationship portfolios – portfolio management. (4) Exchange relationships – relationship management. Network competence
For levels 3 and 4, many suggestions for management have been made. On the relationship level, boundary spanning roles have been developed (e.g. Walter, 1999; Walter and Gemu¨nden, 2000) and teams managing customer relationships have been analyzed (Anderson and Narus, 1990; Helfert and Vith, 1999). On the portfolio level various models have been promoted (e.g. Shapiro et al., 1987; Krapfel et al., 1991; Turnbull and Zolkiewski, 1997). However, there is a lack of studies which deal with the management issues on the firm’s level. This is surprising because the ability of firms to survive in their networks becomes a core competence given the importance of relationships and networks. This ability will ultimately determine a firm’s performance. An exemption is the work on network competence which particularly aims at understanding the role of network management for innovation success. The concept of network competence has been developed and tested in Germany with promising results (Ritter, 1999; Ritter and Gemu¨nden, forthcoming).
English measurement tool
In order to move forward with this concept, there is a need to explore network competence in other settings and, thus, validate the findings of the first study. This paper reports on a study which tested the validity of the measurement of network competence in non-German settings. The research objectives are two-fold. First, we want to develop an English measurement tool for network competence by translating the German tool and test its usability. Second, we want to replicate the study to validate some of the German findings. Replication is an important part in theory development and it is surprising that not many studies deal with replications. Based on Brown and Gaulden (1984), Pitt et al. (1996) point out that: ‘‘. . . it is not absolutely essential that replications of studies be clones of those [original] studies’’ as variation may add new insights and add to the development of theory. The paper is organized as follows. In the next section we will briefly introduce the construct network competence. Then, we introduce our research questions for this study. Further, we report on our study and present our empirical results. A discussion of the results and further research questions are provided in the concluding part of the paper. The concept of network competence In their conceptual paper Gemu¨nden and Ritter (1997) introduced the notion of network competence as a firm-specific characteristic. Formally stated, a ‘‘company’s degree of network competence is defined as the degree of network management task execution and the degree of network management qualification possessed by the people handling a company’s relationships’’ (Ritter, 1999, p. 471; Ritter and Gemu¨nden, forthcoming). As such, network competence is a two-dimensional construct. Dimension 1 is task execution which can be further subdivided in relationship-specific tasks (i.e. tasks to maintain a single relationship – initiation, exchange, and coordination) and cross-relational tasks (i.e. tasks to maintain the network of connected relationships as a whole – planning, organizing, staffing, and controlling). Dimension 2 concerns the qualifications whereby specialist and
120
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
social qualifications are distinguished. Figure 1 provides an overview of the conceptualization of network competence. Standardized questionnaire
Network competence has already been measured empirically in Germany using a standardized questionnaire (Ritter, 1998). The empirical data have shown that network competence can be measured and that the proposed conceptualization fit to the data. We will refer to this tool in short as NetComp in the reminder of the paper. Hypotheses Following the approach by Pitt et al. (1996) in their replication of market orientation, we can translate our research objectives into the following hypotheses: H1. NetComp is a reliable instrument for the measurement of network competence in countries and cultures other than Germany (in its translated version). H2. NetComp possesses convergent validity for the measurement of network competence, i.e. is a good predictor of overall network competence. H3. A firm’s network competence (i.e. the scores obtained on the NetComp scale) is related positively to a higher degree of interweavement with other organizations and to better innovation success. H4. A higher level of performance obtained by network-competent firms applies, irrespective of cultural context, level of economic development, or survey method. Methodology The original questionnaire was translated into English by the first two authors. The resulting questionnaire was then discussed with another marketing academic to detect wording problems, which resulted in minor changes. Finally, the questionnaire was backtranslated by a non-academic. The backtranslation revealed no major problems and indicated that the English version is a good representation of the original questionnaire. The questionnaire was distributed to two types of MBA students, 69 students from predominantly Western backgrounds and 61 Malaysian MBA students. The Malaysian student sample was included in order to provide some indication as to whether the translated scale was capable of being used in non-Western contexts. All students were asked to base their answers on the firms they were currently working for. The order of the items in the questionnaire was altered from that of the original German version in order to avoid halo effects.
Figure 1. The components of network competence JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
121
Respondents had the opportunity to indicate if an item was difficult. There were only a few items which were not answered by all respondents. This revealed no consistent problems with any items and therefore we can assume that the items were overall easy to understand for the respondents and that the quality of the translation is good. Results Network competence task implementation We asked respondents to indicate how thoroughly people in their firm undertake the described activities and tasks using a seven-point Likert-type scale varying from 1 = we never do this, to 7 = we do it very thoroughly/ intensively. In Tables I-VII the item-to-total correlations and Cronbach’s alphas are shown for each item for the original German study (GER) as well as for four test samples. The sample size for each item-to-total correlation varies from that shown in each column due to item non-response but, as noted above, there were no systematic problems of item non-response. Correlations
Table VIII shows the correlations between each of the sub-scales described in Tables I-VII and the Cronbach’s alphas for the cross-relational and relationship-specific dimensions of the task implementation scale. It also shows the correlations between these two dimensions and the overall task implementation scale as well as the Cronbach’s alphas. Network competence qualifications We asked respondents to indicate how strongly they agreed or disagreed with statements describing various attributes of the people in their firm who are involved in dealing with their firm’s technical partners. Once again a seven-point Likert-type scale, varying from 1 = strongly disagree to 7 = strongly agree, was used. Table IX shows the item-to-total correlations and Cronbach’s alphas for each component of the scale. Overall network competence Finally, we combine the measures of task implementation and qualification into our overall network competence scale. Table X shows the item-to-total correlation and Cronbach’s alphas for the major components of the scale. Discussion and hypothesis tests The results from the UK samples support the German results. Given that the threshold for item-to-total correlation is usually set at 0.30 (Kumar et al., 1993, p.12), there are only a few cases where items fall short. However, no single item violates the threshold in more than one study. In addition, all Cronbach’s alpha values are well above the threshold of 0.70 (McAllister, 1995, p. 36; Nunnally, 1978) except for the MA study which slightly undercuts this threshold. Overall, the data do not suggest any problems with the operationalization of the construct. From these results we may conclude that H1 is supported. NetComp is a reliable instrument for the measurement of network competence in countries and cultures other than the original German in its translated form.
Seven-point Likert scale
122
In order to test H2, that NetComp is a good predictor of overall network competence, we asked respondents in one section of the UK sample and in the Malaysian sample to rate their organization in terms of the following statement: ‘‘Overall, my firm is competent in dealing with interorganizational relationships and networks’’, using the same seven-point Likert scale used for other items in the NetComp scale. The correlations between the NetComp scale and the overall rating are significant, being 0.56 JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
123
Table I. Planning task implementation sub-scale
Planning We evaluate the quality of our technical knowledge We evaluate the effectiveness of our R&D We try to identify gaps in our firm’s technical knowledge We assess the kinds of technical knowledge we need to source outside the firm We integrate the various demands for external technical knowledge within the firm We evaluate the way our relationship with each technical partner depends on our relations with other technical partners We evaluate the way our relationship with each technical partner interferes with our relations with other technical partners We evaluate the way our relationship with each technical partner helps our relations with other technical partners We evaluate the way each of our technical partners contributes to successful innovation by our firm We evaluate the way the results of collaboration with each of our technical partners fit together We evaluate the way our collaboration with our technical partners contributes to achieving our firm’s strategic objectives We compare our technical partners in terms of their technical knowledge We compare our technical partners in terms of their R&D productivity We compare our technical partners in terms of their production knowledge We evaluate developments taking place in relevant areas of technology We evaluate the innovation activities of our competitors We identify the technical partners of our competitors Cronbach’s alpha
0.44 0.53 0.45 0.52 0.56 0.48 0.55 0.61 0.57 0.49 0.49 0.55 0.55 0.42 0.50 0.47 0.37 0.87
GER 308
0.23 0.46 0.41 0.66 0.60 0.56 0.61 0.67 0.79 0.77 0.78 0.61 0.53 0.48 0.54 0.48 0.53 0.90
0.72 0.89 0.87 0.86 0.45 0.66 0.49 0.52 0.71 0.77 0.77 0.75 0.83 0.30 0.82 0.49 0.66 0.94
0.65 0.69 0.70 0.77 0.63 0.60 0.65 0.35 0.71 0.41 0.70 0.60 0.63 0.63 0.47 0.76 0.59 0.92
Number of cases UK1 UK2 DK 27 13 14
0.82 0.64 0.69 0.68 0.67 0.78 0.68 0.67 0.73 0.75 0.73 0.68 0.63 0.67 0.73 0.61 0.43 0.94
MA 36
124
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Table II. Organizing task implementation sub-scale
Organizing We allocate available financial resources to each relationship with our technical partners (e.g. travel budgets) We decide how much we will adapt to the requirements of each technical partner We establish objectives for relationships with each technical partner We organize regular meetings among those in our firm involved in relationships with our technical partners We initiate meetings and discussions among those in our firm involved in relationships with our technical partners We initiate meetings and discussions between those in our firm involved in relationships with out technical partners and our R&D people Those in our firm involved in relationships with our technical partners discuss the requirements of each of our technical partners Those in our firm involved in relationships with our technical partners discuss the objectives for the relationship with each of our technical partners Cronbach’s alpha
0.45 0.54 0.68 0.49 0.63 0.55 0.60 0.59 0.83
GER 308
0.69 0.67 0.66 0.74 0.79 0.67 0.57 0.81 0.91
0.60 0.57 0.90 0.89 0.90 0.91 0.83 0.80 0.94
0.60 0.72 0.43 0.68 0.78 0.76 0.65 0.65 0.88
Number of cases UK1 UK2 DK 32 15 15
0.58 0.57 0.83 0.73 0.65 0.66 0.79 0.76 0.90
MA 41
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
125
Table III. Staffing task implementation sub-scale
Staffing We assign people to each relationship with our technical partners We assign responsibility to people for each relationship with our technical partners We coordinate the activities involved in different relationships with our technical partners We coordinate the people involved in different relationships with our technical partners We solve the problems around resource allocation among relationships We work out compromises between the people responsible for individual relationships with technical partners We settle conflicts between the people responsible for individual relationships with technical partners We try to avoid conflicts between the people responsible for individual relationships with technical partners Cronbach’s alpha
0.57 0.51 0.61 0.68 0.58 0.61 0.61 0.59 0.85
GER 308
0.44 0.49 0.75 0.81 0.56 0.70 0.69 0.44 0.86
UK1 33
0.79 0.78 0.65 0.66 0.72 0.79 0.60 0.36 0.89
Number of cases UK2 14
0.68 0.73 0.80 0.82 0.61 0.62 0.79 0.72 0.91
DK 14
0.73 0.70 0.75 0.84 0.50 0.76 0.81 0.70 0.92
MA 44
126
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Table IV. Controlling task implementation sub-scale
Controlling We assess the extent to which people involved in relationships with different technical partners communicate with each other We assess how much effort our people put into relationships with technical partners We monitor the extent to which relationships with our technical partners work to our advantage We evaluate the performance of the people involved in relationships with our technical partners We monitor differences between expected and actual performance in relationships with our technical partners We monitor the extent to which our technical partners carry out the tasks they agreed to We evaluate the extent to which the outcomes from different relationships are compatible Cronbach’s alpha
0.56 0.66 0.71 0.63 0.64 0.58 0.50 0.85
GER 308
0.62 0.75 0.58 0.62 0.77 0.45 0.60 0.86
0.25 0.73 0.59 0.41 0.62 0.61 0.48 0.80
Number of cases UK1 UK2 33 15
0.85 0.78 0.90 0.84 0.88 0.85 0.79 0.95
DK 15
0.81 0.77 0.68 0.82 0.91 0.75 0.82 0.94
MA 43
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
127
Table V. Initiating task implementation sub-scale
Initiation We visit potential technical partners in order to get to know them We inform potential technical partners about our technical knowledge We maintain contact with potential technical partners We use existing technical partners as a source of information about potential technical partners We use organizations, apart from our existing technical partners, to identify potential technical partners (e.g. chambers of commerce, consultants, industry associations, government organizations) We visit industrial fairs and exhibitions to identify potential technical partners We look at company advertisements in specialized technical journals to identify potential technical partners We search for research reports to identify potential technical partners Cronbach’s alpha
0.61 0.45 0.74 0.50 0.49 0.68 0.72 0.66 0.86
0.44 0.52 0.40 0.51 0.82
0.25 0.73 0.11 0.15 0.80
0.71 0.63 0.81 0.67
Number of cases UK1 UK2 36 12 0.61 0.56 0.67 0.66
GER 308
0.81 0.71 0.73 0.81 0.89
0.71 0.53 0.54 0.61
DK 16
0.64 0.80 0.81 0.57 0.91
0.67 0.75 0.78 0.66
MA 45
128
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Table VI. Exchange behavior and task implementation sub-scale
Exchange We exchange general technical information with our technical partners We exchange confidential technical information with our technical partners Our people discuss social and personal matters with people from our technical partners There are people in our firm who act as first points of contact when our technical partners have questions There are people in our firm who act as first points of contact when others in our firm have questions about our technical partners We inform others in our firm about the requirements of our technical partners We try to make contacts with people working for our technical partners We try to keep communication going with people working for our technical partners We discuss ways of collaborating with people from our technical partners Cronbach’s alpha
0.57 0.50 0.48 0.60 0.66 0.57 0.70 0.73 0.63 0.87
GER 308
0.42 0.25 0.46 0.69 0.54 0.63 0.62 0.52 0.45 0.81
0.61 0.69 0.52 0.63 0.68 0.71 0.80 0.81 0.76 0.91
0.74 0.70 0.55 0.63 0.59 0.73 0.75 0.76 0.76 0.91
Number of cases UK1 UK2 DK 34 14 15
0.77 0.17 0.40 0.74 0.71 0.71 0.78 0.81 0.71 0.89
MA 45
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
129
Table VII. Coordinating task implementation
Coordination We put people from our technical partners in contact with key people in our firm We put people in our firms in contact with key people from our technical partners We initiate personal contacts between people in our firm and our technical partners We guide the activities in individual relationships with our technical partners We coordinate the activities in each relationship with our technical partners We work out compromises between our firm and our technical partners We solve conflicts between our firm and our technical partners We organize meetings between our firm and our technical partners to solve conflicts of interest In internal discussions, people in our firm argue strongly on behalf of the interests of our technical partners People from our firm argue strongly for our interests in discussion with our technical partners Cronbach’s alpha
0.63 0.56 0.53 0.58 0.57 0.66 0.71 0.64 0.53 0.56 0.87
GER 308
0.76 0.82 0.70 0.63 0.62 0.77 0.80 0.63 0.72 0.56 0.92
UK1 34
0.75 0.85 0.70 0.72 0.86 0.83 0.95 0.74 0.91 0.69 0.95
Number of cases UK2 14
0.83 0.86 0.86 0.75 0.73 0.83 0.85 0.91 0.49 0.80 0.95
DK 14
0.76 0.70 0.86 0.65 0.69 0.78 0.78 0.74 0.64 0.67 0.93
MA 46
GER 308
Number of cases UK1 UK2 DK 39 16 17
MA 49
Cross-relational task implementation Planning Organizing Staffing Controlling Cronbach’s alpha
0.59 0.75 0.69 0.74 0.84
0.78 0.74 0.77 0.77 0.89
0.78 0.82 0.82 0.81 0.91
0.91 0.93 0.89 0.87 0.96
0.77 0.88 0.84 0.81 0.92
Relationship-specific task implementaton Initiation Exchange Coordination Cronbach’s alpha
0.61 0.63 0.70 0.80
0.70 0.85 0.81 0.89
0.90 0.93 0.96 0.97
0.72 0.83 0.89 0.90
0.78 0.85 0.81 0.91
Task implementation scale Cross-relational task implementation Relationship-specific task implementation Cronbach’s alpha
0.72 0.72 0.84
0.73 0.73 0.84
0.86 0.86 0.93
0.87 0.87 0.92
0.83 0.83 0.91
Table VIII. Item-to-total correlations and Cronbach’s alphas for task implementation component scales
in the small (n = 10) UK sample and 0.56 in the Malaysian sample (n = 44). These results support H2, that NetComp has convergence, i.e. it is a good predictor of overall network competence. Network competence, technological behavior and performance In the German study, it was shown that network competence had a significant positive impact on both the degree of a firm’s technological interweavement and its innovation success. The term technological interweavement is used to ‘‘describe the totality of a firm’s technologyoriented relationships aimed at acquiring, jointly developing or diffusing of technological know-how and resources’’ (Gemu¨nden et al., 1992, 1996, p. 451). Using a seven-point Likert scale (‘‘not at all’’ to ‘‘very intensive’’), this construct was measured by asking respondents to rate the extent to which their firm collaborates with the four other types of organizations in order to improve and innovate products, services, or production facilities, i.e. customers, suppliers, competitors, universities/research institutions, and consultants. The ratings for four types of organizations were combined into one scale. The resulting alpha is greater than 0.50, which is acceptable given the variety of actors and their different contributions. Innovation success
Innovation success was measured for both product and process innovation. Each of these respondents were asked to rate their firm’s performance in relation to competitors and the ‘‘state of the art’’. Again, a seven-point Likert scale was used ranging from ‘‘totally disagree’’ to ‘‘totally agree’’. The resulting alphas are all greater than 0.80 and the items were combined into product and process innovation success scales. In addition the two scales were combined into an overall innovation success scale and all alphas were greater than 0.70. A positive link between technological interweavement and a firm’s innovation success has been found in a number of studies, e.g. Biemans (1992), Deeds and Hill (1996), Gemu¨nden et al. (1996), Hagedoorn and Schakenraad (1994), Ha˚kansson (1987, 1989), Powell et al. (1996),
130
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
131
0.89
0.77 0.49 0.60 0.61
Social qualifications They work well together They easily understand the needs of other people They easily communicate their needs to others
Table IX. Network competence qualifications scales
0.46
0.38
0.59 0.69 0.73
0.31 0.70 0.55 0.65 0.47 0.76 0.72 0.67 0.82 0.84 0.43
0.48 0.42 0.33 0.36 0.34 0.43 0.40 0.56 0.53 0.50 0.31
UK1 35
Specialist qualifications They have technical expertise They have business expertise They have legal expertise They can talk to our technical partners in the partner’s own language They have good relations with each other They have good relations with important people in our firm They have good relations with people in other firms They have good knowledge about the way our firm works They have good knowledge abut the way our technical partner firms work They are experienced in dealing with technical partners We as a firm already have encountered everything that can happen in relationships with technical partners We as a firm know all the good and bad things that can happen in technical collaboration with other firms Cronbach’s alpha
GER 308
0.72 0.91 0.80
0.80
0.68
0.20 0.39 0.22 0.06 0.26 0.62 0.46 0.41 0.77 0.70 0.63
Number of cases UK2 15
0.90 0.95 0.90
0.90
0.43
0.65 0.64 0.41 0.61 0.82 0.70 0.78 0.77 0.83 0.81 0.36
DK 17
0.75 0.76 0.78 (Continued)
0.88
0.38
0.61 0.59 0.47 0.59 0.74 0.74 0.71 0.63 0.64 0.65 0.41
MA 45
132
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
0.58 0.58 0.74
Qualifications sub-scale Specialist qualification Social qualification Cronbach’s alpha
Table IX.
0.63 0.63 0.64 0.61 0.60 0.61 0.56 0.46 0.44 0.66 0.52 0.89
They confidently handle negotiations with others They mix well with other people They easily sense potential conflict They can work out constructive solutions when there is conflict They can easily put themselves in another person’s position They can easily understand other people’s behavior They are reliable They are friendly when dealing with other people They easily adapt their behavior to the person they are dealing with They have a healthy degree of self-criticism They have a good sense of the give and take in relations with others Cronbach’s alpha
GER 308
0.86 0.86 0.92
0.73 0.77 0.86 0.81 0.89 0.86 0.61 0.81 0.80 0.87 0.87 0.96
UK1 35
0.61 0.61 0.73
0.75 0.73 0.85 0.87 0.75 0.86 0.68 0.80 0.84 0.80 0.85 0.96
Number of cases UK2 15
0.82 0.82 0.89
0.64 0.92 0.88 0.88 0.93 0.96 0.64 0.75 0.83 0.90 0.89 0.98
DK 17
0.75 0.75 0.86
0.67 0.76 0.67 0.80 0.83 0.75 0.74 0.72 0.78 0.62 0.71 0.95
MA 45
Overall network competence Task implementation Qualifications Cronbach’s alpha
GER 308
Number of cases UK1 UK2 DK 38 16 17
MA 51
0.59 0.59 0.72
0.73 0.73 0.84
0.52 0.52 0.67
0.66 0.66 0.78
0.76 0.76 0.86
Table X. Measurement of network competence
Shan et al. (1994), von Hippel (1986, 1988). Table XI shows the results of correlation analysis between the three constructs. Interweavement
All correlations are significant, thus lending support to H3. A firm’s network competence is related positively to a higher degree of interweavement with other organizations and to better innovation success. The table also lends support to H4, in that it shows that the results do not vary according to cultural context or level of economic development, at least in terms of the samples used. Network competence and market orientation Over the last decade or so a number of scales have been developed to measure a firm’s market orientation (Deshpande, 1999). While there has been some debate as to the components of the scale and the reliability and validity of self-perceived measures, a number of studies have reported strong correlations between market orientation and firm performance (Wilkinson, 2000). The question arises as to the relation between network competence and market orientation. Network competence is a more general concept as it measures a firm’s general competence to develop and manage relations and networks with all types of business counterparts not just customers. Another difference is that it focuses more on the cooperative aspects of interorganization relations and networks, including potential cooperation with competitors, rather than the way a firm defends itself and differentiates itself from competitors. Measures of market orientation include items related to this.
Comparison of test samples scale
The network competence scale was compared to the a measure of a firm’s market orientation, using the 20-item scale developed by Kohli et al. (1993). We used the 20-item which had been tested in non-US firms with very good results by Pitt et al. (1996). For the purposes of this analysis we combined the Malaysian and Western test samples, as they showed no systematic differences. The alpha for the market orientation scale was 0.88 and all items showed acceptable item-total correlations. GER Network competence ? technological interweavement Network competence ? innovation success Technological interweavement ? innovation success Notes: *p < 0.10,
**
p < 0.05,
***
***
0.52 (308) 0.42*** (308) 0.43*** (308)
UK1 ***
0.58 (38) 0.56*** (33) 0.39** (33)
UK2 **
0.54 (16) 0.51* (14) n.s.
DK ***
0.64 (18) 0.67*** (17) 0.47* (17)
MA 0.47*** (52) 0.59*** (52) 0.43*** (53)
p < 0.01, number of cases in brackets
Table XI. Correlation between network competence, technological interweavement and innovation success JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
133
The correlations between the market orientation scale and other constructs are shown in Table XII. As we can see, market orientation and network competence are highly correlated. That can be for two possible reasons. First, market oriented firms have realized the need for network competence in order to survive in today’s business reality, and therefore market orientation and network competence are not in conflict. Second, one could argue that both constructs are measuring the same thing. However, given the differences in their operationalization the face validity of this argument is hard to support. Market orientation construct
In addition, network competence has higher correlations with other constructs. As such we can argue that network competence might be a better predictor of the degree of technological interweavement and innovation success. Of course, it is too early to draw final conclusions but our initial results offer a first step towards an understanding of the market orientation construct in the network economy. Network competence scale refinement In order to identify the best performing items in the scale we analyzed the task performance and qualification scales separately. We first correlated each task performance item with the respondents’ overall judgement of network competence. We selected for further analysis only those items that had a significant correlation to this overall measure (i.e. p < 0.001). This reduced the 67 task performance items to 29. We then performed an exploratory factor analysis in order to check for the two suggested factors of task execution: cross-relational and relationship-specific. We deleted all items with had a factor loading below 0.70, which eliminated a further 18 items. An exploratory factor analysis of the remaining 11 task performance items suggested three underlying factors: planning, cross-relational, and relationship-specific items. However, a two-factor solution conforms to the proposed component structure of the scale.
Explanatory factor of analysis
The same procedure was used for the qualification items. We chose all items which correlated significantly with the overall rating at the 0.05 level, which left 11. An exploratory factor analysis suggested a two-factor solution: special and social qualifications. Table XIII shows the 22 selected items comprising the resulting NetCompTest scale. Conclusions and research implications The aim of this study was to develop an English version of the NetComp scale and test its reliability and validity in non-German contexts. The results show that the translated version produces similar results to the German one. Statistical tests confirm the reliability and validity of the measure. Furthermore, network competence has been found to be significantly associated with a firm’s degree of technological interweavement and its Market orientation Network competence Technological interweavement Innovation success Notes: *p < 0.10,
**
Network competence
**
p < 0.05,
***
0.61 (112) 0.44*** (113) 0.49*** (108)
0.54** (124) 0.57*** (116)
p < 0.01, number of cases in brackets
Table XII. Correlations between market orientation, network competence and technological performance 134
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Cross-relational We evaluate the way our relationship with each technical partner depends on our relations with other technical partners We evaluate the way our relationship with each technical partner interferes with our relations with other technical partners We organize regular meetings among those in our firm involved in relationships with our technical partners We assign people to each relationship with our technical partners We assign responsibility to people for each relationship with our technical partners Relationship-specific We use organizations, apart from our existing technical partners, to identify potential technical partners (e.g. chambers of commerce, consultants, industry associations, government organizations) We visit industrial fairs and exhibitions to identify potential technical partners We look at company advertisements in specialized technical journals to identify potential technical partners We discuss ways of collaborating with people from our technical partners We put people from our technical partners in contact with key people in the firm We put people in our firm in contact with key people from our technical partners Special They They They They
have good relations with important people in our firm have good knowledge about the way our firm works have good knowledge about the way our technical partner firms work are experienced in dealing with technical partners
Social They They They They They They They
easily communicate their needs to others confidently handle negotiations with others mix well with other people easily sense potential conflict can work out constructive solutions when there is conflict can easily put themselves in another person’s position can easily understand other people’s behavior
Table XIII. NetCompTest scale items
innovation success. The results confirm the German results and give support to the role of network competence for a firm’s success. Overlapping constructs
Furthermore, we presented some initial results to the relationship between network competence and market orientation as well as an attempt to shorten the rather lengthy original questionnaire. Finally, a significant association between network competence and market orientation was made. While the two constructs appear to overlap to some extent, the network competence measure is broader and appears to be more strongly linked to the technological behaviour and performance measures used in the study. This study represents only one further step in the development of both a theory of network competence and its empirical investigation. From a theoretical perspective, future work has to examine the organizational, personal and environmental antecedents and consequences of network competence, including market orientation, and how it may be developed within a firm. From an empirical perspective, the new results provide the basis for various types of further refinement of the scale that are currently underway. These include: .
A study to validate and extend the scale in various corporate and industry contexts. The scale needs to be validated using a substantial industry
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
135
sample, particularly in a US context, in order to give confidence in its applicability and relevance. In addition, the existing scale was developed in the context of technological innovation and adaptation in relations and networks. Extensions and generalizations of the scale are required for different industry and network contexts, including areas such as internationalization of the firm, distribution and supply chain management and value delivery systems. Respondent fatigue
Validation
.
Research is required to develop and validate a shorter form of the scale that is more amenable for use as part of research studies focusing on other issues as well as for use by firms in assessing and diagnosing their own levels of network competence. The current set of items is comprehensive but time consuming to administer, resulting in respondent fatigue and limiting the scope for additional questions. A shorter version of the scale has been developed based on the test samples and this needs to be validated in an industry sample.
.
The scale needs validating and examining in other cultural contexts. The existing study has gone some way to achieving this by developing and English version of the scale and testing it on samples drawn from Western and Asian cultures. Versions of the questionnaire need to be developed in other languages and tested in different cultural contexts. It will be interesting to determine if there are any national or cultural as well as industry difference in this core competence of firms.
.
There is a need to validate the construct using additional mechanisms. We have used a direct measure of network competence to validate our scale. However, all the studies conducted so far have relied on one respondent from each organization to assess a firm. This limitation can be overcome in two ways. First, we can use multiple respondents in each firm, including people drawn from different areas (such as marketing, purchasing, research and development) and different management levels (e.g. top, middle and lower management). This will give us a better picture from inside a firm. Second, network studies in which partners judge the network competence of their counterparts can contribute to our understanding of the perceived network competence of a firm by other actors. As has been shown in studies of market orientation, the correlations between self-perceptions and others’ perceptions can be problematic.
References Achrol, R.S. (1997), ‘‘Changes in the theory of interorganizational relations in marketing: towards a network paradigm’’, Journal of the Academy of Marketing Science, Vol. 25 No. 1, pp. 56-71. Achrol, R.S. and Kotler, P. (1999), ‘‘Marketing in the network economy’’, Journal of Marketing, Vol. 63 (special issue), pp. 146-63. Anderson, J.C. and Narus, J.A. (1990), ‘‘A model of distributor firm and manufacturing firm working relationships’’, Journal of Marketing, Vol. 54 No. 1, pp. 42-58. Anderson, J.C., Ha˚kansson, H. and Johanson, L. (1994), ‘‘Dyadic business relationships within a business network context’’, Journal of Marketing, Vol. 58 No. 4, pp. 1-15. Biemans, W.G. (1992), Managing Innovation within Networks, Routledge, London and New York, NY. Brown, S.W. and Gaulden, C.F. Jr (1984), ‘‘Replication and theory development’’, in Brown, S.W. and Fisk, R.P. (Eds), Distinguished Essays in Marketing Theory, John Wiley & Sons, New York, NY. 136
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Deeds, D.L. and Hill, C.W.L. (1996), ‘‘Strategic alliances and the rate of new product development: an empirical study of entrepreneurial biotechnology firms’’, Journal of Business Venturing, Vol. 11 No. 1, pp. 41-55. Despande, R. (Ed.) (1999), Developing a Market Orientation, Sage Publications, Thousand Oaks, CA. Ford, D. (Ed.) (1997), Understanding Business Markets, 2nd ed., The Dryden Press, London. Gemu¨nden, H.G. and Ritter, T. (1997), ‘‘Managing technological networks: the concept of network competence’’, in Gemu¨nden, H.G., Ritter, T. and Walter, A. (Eds), Relationships and Networks in International Markets, Pergamon/Elsevier, Oxford. Gemu¨nden, H.G., Heydebreck, P. and Herden, R. (1992), ‘‘Technological interweavement – a means of achieving innovation success’’, R&D Management, Vol. 22 No. 4, pp. 359-76. Gemu¨nden, H.G., Ritter, T. and Heydebreck, P. (1996), ‘‘Network configuration and innovation success: an empirical analysis in German high-tech industries’’, International Journal of Research in Marketing, Vol. 13 No. 5, pp. 449-62. Hagedoorn, J. and Schakenraad, J. (1994), ‘‘The effect of strategic technology alliances on company performance’’, Strategic Management Journal, Vol. 15 No. 4, pp. 291-310. Ha˚kansson, H. (1987), Industrial Technological Development: A Network Approach, Croom Helm, London. Ha˚kansson, H. (1989), Corporate Technological Development: Cooperation and Networks, Routledge, London. Ha˚kansson, H. and Snehota, I. (1995), Developing Relationships in Business Networks, International Thomson Press, Boston, MA. Helfert, G. and Vith, K. (1999), ‘‘Relationship marketing teams: improving the utilization of customer relationship potentials through a high team design quality’’, Industrial Marketing Management, Vol. 28 No. 5, pp. 553-64. Kohli, A.K., Jaworski, B. and Kumar, A. (1993), ‘‘MARKOR: a measure of market orientation’’, Journal of Marketing Research, Vol. 30, November, pp. 467-77. Krapfel, R.E. Jr, Salmond, D. and Speakman, R. (1991), ‘‘A strategic approach to managing buyer-seller relationship’’, European Journal of Marketing, Vol. 25 No. 9, pp. 22-37. Kumar, N., Scheer, L. and Steenkamp, J.-B.E.M. (1993), ‘‘Powerful suppliers, vulnerable resellers, and the effects of supplier fairness: a cross-national study’’, ISBM Report, Smeal College of Business Administration, Institute for the Study of Business Markets, Pennsylvania State University, University Park, PA. McAllister, D.J. (1995), ‘‘Affect and cognition-based trust as foundation for interpersonal cooperation in organizations’’, Academy of Management Journal, Vol. 38 No. 1, pp. 24-59. Mo¨ller, K. and Halinen, A. (1999), ‘‘Business relationships and networks: managerial challenges of network era’’, Industrial Marketing Management, Vol. 28 No. 5, pp. 413-27. Nunnally, J.C. (1978), Psyochomatric Theory, 2nd ed., McGraw-Hill, New York, NY. Pitt, L., Cruana, A. and Berthon, P.R. (1996), ‘‘Market orientation and business performance: some European evidence’’, International Marketing Review, Vol. 13 No. 1, pp. 5-18. Powell, W.W., Koput, K.W. and Smith-Doerr, L. (1996), ‘‘Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology’’, Administrative Science Quarterly, Vol. 41, pp. 116-45. Ritter, T. (1998), Innovationserfolg durch Netzwerk-Kompetenz: Effektives Management von Unternehmensnetzwerken, Gabler, Wiesbaden. Ritter, T. (1999), ‘‘The networking company: antecedents for coping with relationships and networks effectively’’, Industrial Marketing Management, Vol. 28 No. 5, pp. 467-79. Ritter, T. and Gemu¨nden, H.G. (forthcoming), ‘‘Network competence: its impact on innovation success and its antecedents’’, Journal of Business Research. Shan, W., Walker, G. and Kogut, B. (1994), ‘‘Interfirm cooperation and startup innovation in the biotechnology industry’’, Strategic Management Journal, Vol. 15, pp. 387-94. Shapiro, B.P., Rangan, V.K., Moriarty, R.T. and Ross, E.B. (1987), ‘‘Manage customers for profits (not just sales)’’, Harvard Business Review, Vol. 65 No. 5, pp. 101-8. Turnbull, P.W. and Zolkiewski, J.M. (1997), ‘‘Profibility in customer portfolio planning’’, in Ford, D., Understanding Business Markets, The Dryden Press, London. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
137
von Hippel, E. (1986), ‘‘Lead users: a source of novel product concepts’’, Management Science, Vol. 32 No. 7, pp. 791-805. von Hippel, E. (1988), The Sources of Innovation, Oxford University Press, New York, NY. Walter, A. (1999), ‘‘Relationship promoters: driving forces for successful customer relationships’’, Industrial Marketing Management, Vol. 28 No. 5, pp. 537-51. Walter, A. and Gemu¨nden, H.G. (2000), ‘‘Bridging the gap between suppliers and customers through relationship promoters: a theoretical and empirical analysis’’, Journal of Business & Industrial Marketing, Vol. 15, pp. 86-105. Wilkinson, I.F. (2000), ‘‘A history of channels and network thinking in marketing in the twentieth century’’, Working Paper, School of Marketing, International Business and Asian Studies, University of Western Sydney, Sydney. Wilkinson, I.F. and Young, L. (2002), ‘‘On cooperating: firms, relations and networks’’, Journal of Business Research, Vol. 55 No. ER2, pp. 123-32
&
138
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Supplier Web-page design and organizational buyer preferences Kenneth R. Lord Associate Professor of Marketing, Stetson School of Business and Economics, Mercer University, Atlanta, Georgia, USA
Alice Ford Collins Associate Professor of Marketing, Stetson School of Business and Economics, Mercer University, Atlanta, Georgia, USA
Keywords Purchasing, Internet, Segmentation Abstract Gauges the accessibility of vendors to organizational customers and compares sellers’ approaches to online communication with the preferences expressed by buyers. A survey of organizational buying-center members revealed that responding organizations relied at least partially on Web-based research for a mean of 40 percent of purchases involving supplier/vendor search. Distinct segments are observed that differ in their desire for suppliers’ Web sites to provide information about purchase facilitators (e.g. online ordering, prices, product and services information), quality/performance assessment (e.g. financial statements, company profiles, certification information), and non-purchase information (e.g. community activities, job opportunities, company news). An analysis of vendor Web sites demonstrates a need for more systematic inclusion of prices, online ordering, literature requests, answers to frequently asked questions, certification information and financial statements.
Introduction The organizational buyer-seller dyad has a number of characteristics that enable it to benefit disproportionately (in comparison with the consumer market) from the e-commerce environment. The requirement in business markets of conformance with specifications that are sometimes complex corresponds well with the electronic medium’s ability to transmit large amounts of technical information with immediacy and consistency. Similarly, the efficiencies that result from established relationships, probably a greater need in organizational than in consumer markets, are facilitated by the ease of electronic interactions – before, during and after the sale. In addition, business buyers and sellers have long engaged in commerce activities that have not been as geographically bound as the ‘‘retail trading area’’ that has traditionally characterized consumer buying activity. This makes them particularly receptive to the concept of having the world of buyers and vendors ‘‘a click away.’’ Online buying and selling
In view of these characteristics, it is hardly surprising that the early years of e-commerce have seen a level of penetration in organizational markets that far exceeds that observed for consumer transactions. Preliminary figures for the year 2000 indicated that organizational purchases in that year accounted for $336 billion (CyberAtlas, 2000a). By 2004, projections set that figure at anywhere from $2.4 trillion to $7 trillion (Irwin, 2000), and multiple industries are expected to conduct more than half of their business-to-business buying and selling online (e.g. utilities 91 percent, computing and electronics 74 percent, shipping and The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 139-150, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419772 139
warehousing 66 percent, motor vehicles 51 percent (Forrester Research, 2000). Preferences expressed by buyers
The objective of this study is to gauge the accessibility of vendors to their prospective organizational customers and to compare sellers’ approaches to on-line communication with the preferences expressed by buyers. It is based on a survey of organizational buying-center members recruited from a wide variety of industries in a major southeastern metropolitan area and the analysis of randomly selected Web sites of US companies that serve business markets. Prior research Despite the enormous and growing significance of the Web for business-tobusiness marketing, most research has focused on consumer markets. Certainly some of the theory and findings dealing with motivations, usage and benefits applies in a similar way to household consumers and organizational buyers.
Relevant information
One fundamental characteristic of the Internet of potential value to consumers and organizational buyers alike is its ability to provide efficient access to vast quantities of potentially relevant information. According to Ehrlich and Fisher (1982), the ‘‘full price’’ of a product, as perceived by a buyer, includes the cost of information acquisition. Bakos (1991) argued that the primary benefit of electronic forms of purchasing is to lower this cost of information search. Alba et al. (1997) noted that e-commerce enables buyers ‘‘to access merchandise unavailable in their local markets, gather veridical information about merchandise at a low cost, efficiently screen the offerings of a broad cross-section of suppliers by avoiding unwanted alternatives and unimportant features, and easily locate the lowest prices at which a specific item is offered.’’ A Web site can convey more attribute information about each stock-keeping unit than the most knowledgeable sales representative, any or all of which can be self-selected by the prospective buyer. Even with the benefit of reduced search costs, however, a buyer’s motivation to examine the many alternatives available on the Web hinges on his/her perception that sufficient differences exist between alternatives to justify a search. Buyers perceiving such qualitative differences many enhance the efficiency of their decision process by using an e-screening process to derive a consideration set comprised exclusively of alternatives known to possess a predetermined, desired set of attributes. The growth of e-commerce, as viewed by Alba et al. (1997), was thus dependent on its ability to offer vast selection, efficient screening, reliable prediction of purchase benefits, and tailored product comparisons. The development of competitive advantage in this arena would require distribution efficiency, assortments of complementary merchandise, collection and utilization of customer information, presentation of information through electronic formats, and unique merchandise. Without such benefits, Alba et al. predicted e-commerce would ‘‘not develop beyond the relatively unattractive collection of electronic catalogs representing the present Internet offering.’’
The Internet as an information source
140
Ratchford (1999) applied a framework drawn from the economics of information and human capital theory to develop a model of the choice of the Internet as an information source. Information sources, he reasoned, are combined in a way that maximizes the net benefit of search. Benefits arise from information about a product’s functional attributes, experiential attributes, and price. The demand for a given information source is a function JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
of the buyer’s time cost and the time required to utilize the source, the relative importance of the various types of attributes and the source’s ability to deliver attribute information, the buyer’s prior possession of relevant information, and his/her skill at using the source. The Internet, while a potentially valuable source of information about functional attributes and price, is probably not yet as effective in delivering expressive-attribute information (presumably a worse disadvantage in consumer than in organizational markets). Ratchford noted that the Internet need not serve exclusively as a substitute for other information sources, but may enhance the efficiency of the use of other sources. He also alluded to its advantage for geographically dispersed markets. The study described below examines the extent to which buyers have come to expect, and Web-based vendors have come to deliver, the types of benefits described by Alba et al. (1997) and Ratchford (1999).
Exploratory analysis
Method The dearth of published literature addressing business-buyer preferences with respect to vendor Web site features suggested the need for some exploratory analysis before developing a formal quantitative instrument. At issue was the operational form in which buyers expected to find the types of attributes and benefits identified by the studies cited earlier, and the means by which sellers communicate such details. Accordingly, the first stage of the research involved: (1) informal discussions with a convenience sample of 25 buying-center participants (ranging in roles from gatekeepers and influencers to buyers and users) employed at multiple organizations who were enrolled in a part-time MBA program; and (2) an examination of the Web sites of 25 organizations known to target business buyers.
Web site features
From these two tasks, a list of 15 Web site features emerged that were of sufficient perceived value among buyers and sellers to have been included at least twice in interviews with buying-center participants and/or examined Web sites. The features are: .
Certification. Independent confirmation of product and/or process quality or compliance with established external standards.
.
Community activities. Evidence of an organization’s commitment to the wellbeing of the communities it serves through activities or contributions benefiting underprivileged or handicapped populations, charitable organizations, community development or the environment.
.
Company news. Information about current developments of interest or relevance to the various publics served by the organization.
.
Company profile. A summary statement describing the organization and its positioning to its targeted audience.
.
Distributors or purchase location(s). Identification of distributors from whom the organization’s products or services can be acquired or, in the absence of distributors, appropriate purchase locations.
.
E-mail. An e-mail link by which interested site visitors can contact the company.
.
Financial statements. Documentation of the organization’s financial performance.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
141
Data collection
.
Answers to frequently asked questions (FAQs). A set of answers to questions of relevance to common buyer concerns.
.
Job opportunities. Information on open employment positions at the firm.
.
Links to related sites. Direct links to other Web sites allowing site visitors access to related information from other sources.
.
Literature request. Identification of sources of information going beyond that included in the organization’s Web site that can be explicitly requested by interested site visitors.
.
On-line ordering. Direct online order-processing capability.
.
Prices. Exact prices of products or services offered by the organization.
.
Products/services. A detailed listing and description of products and/or services offered for sale by the organization.
.
Scientific or technical reports. Direct access to the text of scientific or technical documents providing more detailed information than that contained in the general descriptions of products/services.
The 15 Web site features became the core of an instrument completed by a convenience sample of 100 buying-center participants (yielding 96 usable responses). Employed business students collected the data from individuals in their organizations who were screened to ensure that they were active participants in the buying process. As in the earlier stage of the research, respondents held a wide array of buying-center roles. Industries represented in the sample are depicted in Appendix 1. While the broad mix of buyingcenter roles and industries allows a look at buying practices that goes well beyond a single function or industry, the use of a convenience sample precludes absolute generalizability of the findings to the broader population of organizational buying centers. The first item on the instrument asked respondents to indicate the percentage of purchases for which buying-center participants visit Web sites to obtain information ‘‘when considering suppliers/vendors from whom to buy the materials, services, parts, products or services required by your company.’’ The single-item measure employed an 11-point scale (0 percent, 10 percent, 20 percent, . . ., 100 percent). Respondents then evaluated the importance of the 15 potential Web site components identified earlier in such a search process, using a seven-point scale (very unimportant/very important), with an open-ended ‘‘other’’ option. The final item asked respondents to identify their industry by name and/or SIC code.
Online accessibility
142
To gauge the online accessibility of vendors to their prospective customers, 200 firms serving organizational markets were randomly selected from the directory of a national marketing association. An organization was categorized as accessible if a Web site could be accessed by typing a URL in the form of ‘‘company name.com’’ or if entering the firm’s name in a search engine would lead a browser to its Web site. Of the 200 firms randomly selected for a Web site search, 149 (74.5 percent) had developed sites that were sufficiently accessible to be located in the manner described above. Others may have had sites with less obvious names and that were not registered with the search engine at the time of data collection; it has been estimated that only 16 percent of the 800 million Web pages are covered by the best search engines (Industry Standard, 1999). The industries represented by 149 Web sites are depicted in Appendix 2. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Independent judges
The Web sites located in this fashion were then examined by two independent judges to determine which of the components addressed in the survey of buying-center participants they included. Across the 15 components, inter-judge agreement ranged from 83.6 percent (literature request) to 96.88 percent (products/services), indicating a high level of coding reliability. Disagreements were resolved by a third judge. These data were then compared with the survey results to assess the extent to which companies engaging in e-commerce are providing the information that buyers consider important. Results Survey results reveal that responding organizations relied at least partially on Web-based research for a mean of 40 percent of purchases involving supplier/vendor search. For each potential Web site component addressed in the survey, Table I depicts the perceived importance to buyers (mean importance score) and the percentage of accessed Web sites possessing it. (The components were listed alphabetically in the instrument, but appear in order of perceived importance in the table.)
Comparison of components
A comparison of Web site components viewed as more/less important to buyers with those that were observed with greater/less frequency suggests areas of opportunity for improving Web-page performance. This comparison is shown in Table II.
Component
Importance to buyers (mean)
Frequency of Web site inclusion (%)
6.47 6.03 5.42 5.38 5.48 5.14 5.11 5.10 4.45 4.35 4.26 4.11 3.95 3.09 3.02
91.3 38.9 86.6 75.2 38.9 47.0 34.2 91.3 25.5 57.7 47.7 71.1 35.6 27.5 62.4
Products/services Prices E-mail Distributors On-line ordering Literature request Answers to frequently asked questions Company profile Certification Links to related sites Financial statements Company news Scientific/technical reports Community activities Job opportunities
Table I. Web site components Importance
< 50 percent
> 50 percent
>4
Prices Online ordering Literature requests Answers to FAQs Certification Financial statements Scientific/technical reports Community activities
Products/services E-mail Distributors Company profile Links to related sites Company news Job opportunities
< 4
Table II. Comparison of importance and inclusion JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
143
Most online companies fared well in providing customers and Web-browsing prospects with six valued components: information on available products and services; convenient e-mail access via the Web site, lists of distributors or purchase locations; a company profile; links to related sites; and company news. Similarly, two components that seem to be of relatively little importance to buyers (scientific/technical reports and community activities) appear in only a minority of the accessed sites. On average, site developers seem to have a good grasp of the relative importance of these components across the broad population of site-visiting prospects, although segment differences may exist that are not evident in this aggregate-level analysis. Omission of six components
Where vendors may be deficient is in the frequent omission of six components deemed important by buyers. Indeed, of the six components most highly rated by the respondents, three that would appear to be of consequence in facilitating purchase (as opposed to merely transmitting information) were missing from most sites: prices; online ordering; and literature requests. Other valued components that were underrepresented relative to their perceived importance were answers to FAQs, certification information, and financial statements. Job opportunities appear to be overrepresented relative their importance to buyers, but their inclusion is presumably intended for the different but still important audience of prospective employees. Components that were not perceived as important to a majority of the sample may still be important for an organization to include if they are deemed relevant to a smaller but attractive segment. To explore this possibility, and to seek further insight through and understanding of the dimensionality of Web site components and segment structure, the survey data were subject to factor and cluster analysis.
Oblique oration method
Maximum-likelihood factor analysis yielded a three-factor solution (three eigenvalues greater than one; 2 = 101.65, df = 63, p < 0.005) that explained 59.8 percent of the variance in the 15 scale items. Anticipating the possibility of interfactor correlations, an oblique rotation method was deemed appropriate (promax with Kaiser normalization). Rotated factor loadings are depicted in Table III. The first factor relates to ‘‘purchase facilitators’’; i.e. features with high loadings on this factor relate directly to a buyer’s ability to Factor 1 Purchase facilitators
Component Online ordering Links to related sites Prices Products/services E-mail Literature requests Answers to FAQs Financial statements Company profile Distributors/purchase locations Certification Community activities Job opportunities Company news Scientific/technical reports
Factor 2 Factor 3 Quality/performance Non-purchase
0.911 0.598 0.587 0.581 0.468 0.451 0.341 –0.239 0.147
–0.146 –0.033 0.163 0.229 –0.147 0.216 0.299 0.924 0.744
–0.052 0.239 –0.107 –0.161 0.191 0.044 0.111 0.105 0.016
0.107 0.086 –0.134 0.077 0.081 0.243
0.696 0.527 0.064 –0.134 0.174 0.199
–0.176 0.154 0.908 0.754 0.487 0.287
Table III. Rotated factor loadings 144
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
make a final decision and place the order online (e.g. online ordering capability, prices, product/service information). Factor 2 captures company and product performance assessment, referred to in Table III as the ‘‘quality/ performance’’ dimension; it highlights information about the organization, its financial performance and product quality (e.g. financial statements, company profile, certification). The third factor derives primarily from nonpurchase-relevant components (e.g. community activities, job opportunities, company news). Interfactor correlations are 0.64 (factors 1 and 2), 0.43 (factors 1 and 3), and 0.60 (factors 2 and 3). Cluster analysis
A cluster analysis of the factor scores (K-means cluster analysis) revealed the existence of three distinct segments in the sample. Cluster sizes and final cluster centers (mean factor scores) are depicted in Table IV. The segments thus identified are distinguishable by the level of importance they attach to the three component factors. Respondents in cluster 2 (‘‘high importance’’ – 51 percent of the sample) fall above the sample mean on all three component dimensions, while those in clusters 3 (‘‘medium importance’’ – 39.6 percent) and 1 (‘‘low importance’’ – 9.4 percent) are slightly and well below the mean, respectively, on the three factors. In a statistical comparison of the cluster centers, significant differences were found for all three factors (all F-values > 60, p < 0.001). Other than an insignificant difference between the low- and medium-importance clusters on the non-purchase factor, all contrasts were significant ( p < 0.05). This exploration of the extent to which distinct segments exist reveals that while the groups of buying-center participants differ in the importance they attach to the studied Web site features collectively, there is no evidence of the existence of benefit segments. In other words, the three segments differ in viewing the total set of features as being of high, medium or low importance, but there are no distinct features that can be labeled as being important to one segment but not to another. The observation that about half of the sample attached higher than average importance even to the non-purchase features that the aggregate analysis viewed as less important (Table II) qualifies that earlier result and suggests the need for buyers to be alert to segment differences.
Product and serviceoriented firms
A final analytical consideration was whether differences existed between product- and service-oriented firms in either the importance attached to the various Web site components or in their tendency to include such features in their Web sites. t-tests showed no significant differences in perceived importance between buyers in the two types of firms in the survey sample for either factor or individual-component scores ( p > 0.10) for all t-values). Only two of the measured features differed significantly between the two types of firms in their likelihood of inclusion in selling organizations’ Web sites. Community activities were included in 36.3 percent of productoriented firms and only 17.4 percent of service-oriented organizations ( 2 = 6.61, Cluster 1 Cluster 2 Low importance High importance (n = 9, 9.4%) (n = 49, 51.0%)
Factor Purchase facilitators Quality/performance Non–purchase Note:
*
–2.10 –1.87 –0.91
0.52 0.63 0.68
Cluster 3 Medium importance (n = 38, 39.6%)
F
–0.17 –0.37 –0.66
89.67* 91.25* 60.33*
p < 0.001
Table IV. Cluster sizes and centers JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
145
df = 1, p < 0.05). Direct e-mail access, on the other hand, was significantly more prevalent in the Web sites of service-oriented (92.8 percent) than of product-oriented (81.3 percent) companies ( 2 = 4.22, df = 1, p < 0.05). Discussion and implications Alba et al. (1997) wrote that successful Internet vendors would need to offer buyers such advantages as a large selection of unique and complementary merchandise, distribution efficiency, and electronic information presented in a way that facilitates tailored product comparisons. More recently, Ratchford (1999) noted that buyer demand for Web-based information is a function of the importance buyers attach to functional, experential and price attributes and the ability of company sites to deliver such attribute information. Importance of functional attributes
The results of the buyer survey reported earlier confirm that organizational buyers have in large measure come to expect some of the advantages addressed by Alba et al. (1997). They want suppliers’ Web sites to provide information about products and services and the companies themselves, and they want easy access to information beyond that reported on Web sites (through e-mail and efficient literature requests). Interest in such features as certification information and links to related sites implies a concern for quality assurance and ease of product comparison. These results suggest a strong perception of the importance of functional attributes among organizational buyers, and the high score for price directly reveals the perceived importance of that attribute. Finally, buyers clearly want distribution efficiency, as evidenced by the perceived importance of the inclusion of distributor information and online ordering. The analysis of vendor Web sites demonstrates mixed results in sellers’ understanding of and compliance with buyer expectations. While most provide electronically accessible company and product information and distributor or location identification, and facilitate e-mail contact to allow follow-up interaction, the information provided is, on average, substantially less than buyers would like. More frequent inclusion of answers to FAQs, literature requests and certification information would provide buyers with wanted information about company and product attributes and quality, and facilitate tailored product comparisons. It would also enable the company to have more control over the way in which such information is accessed, presented and processed, leading potentially to a more favorable outcome than is possible if the buyer has to leave the site and seek elsewhere for the desired information.
Distribution efficiency
146
Failure to include prices and online ordering capabilities not only fails to provide buyers with the distribution-efficiency benefits they desire; it is often tantamount to defaulting to competitors which offer such features on their sites. Offsetting considerations may explain the absence of price information on some business-to-business Web sites. The common practice of providing different discounts to customers based on purchase volume, past history as a customer, credit worthiness or other considerations complicates the pricing issue in business markets. As noted by a reviewer, it would be in neither the seller’s nor the buyer’s interest to have a fixed discount structure for all customers or to make available to the ‘‘casual visitor’’ each customer’s discount structure. Still, in view of the perceived importance of the inclusion of price information to buyers, it would seem that they want more than silence on the pricing issue when visiting the site of a prospective supplier. Experienced buyers probably do not expect the posting of all possible discount options, but the ability to view a non-discounted price JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
schedule may be a determinant of whether a company enters the buyer’s consideration set. Buyers discriminate between Web site components
Results of the factor and cluster analyses provide preliminary empirical evidence of the dimensions of Web site features from a buyer’s perspective and the existence of distinct segments of prospects differing in the importance they attach to the various components. Buyers discriminate between Web site components that facilitate purchase (e.g. online ordering, prices, product/service information), those that allow the assessment of product, service or company performance (e.g. company profile, financial statements, certification information), and those that provide non-purchase information that relates in other ways to their evaluation of or relationship with the company (e.g. community activities, job opportunities, company news). While some components are clearly more important than others, the fact that the largest cluster (about half of the sample) had above-average scores on all three factors suggests the need for selling organizations to address even the less-valued features on their Web sites. The future of e-commerce envisioned by Alba et al. (1997) included a scenario in which a shopper could specify the type of merchandise sought and then screen the located alternatives based on his/her unique criteria. That ‘‘future’’ is upon us. For example, BuyerZone.com, essentially an online wholesaler which bills itself as a ‘‘Consumer Reports for small business purchasing,’’ offers extensive decision support and claims to cover 70 percent of a typical company’s annual purchases, on its way to 90 percent (Heichler, 1999). Another alternative for small to medium-sized businesses is BizBuyer.com, an on-line broker with access to 16,000 suppliers that takes ‘‘quote requests’’ from companies visiting its site and sends them to participating vendors for immediate response (Malik, 1999). Other industryspanning technology alliances have emerged still more recently to power business-to-business exchanges – e.g. Commerce One with General Electric Global Exchange Services and the Ariba-I2-IBM alliance (Young, 2000). The Gartner Group coined the term ‘‘e-market maker’’ to describe ‘‘an enterprise that brings together buyers and sellers within a particular industry, geographic region, or affinity group for the purpose of commerce.’’ Such electronic intermediaries combine such previously disparate entities as software, portals, distributors, ASPs and business-service providers to offer context, value-added services and transaction capabilities (CyberAtlas, 2000b).
Competitive e-commerce environment
An initial preference for a particular company may make that firm’s Web site the first Internet stop for a prospective buyer. If, however, the site does not contain the desired information, or simply does not allow the immediate online purchase desired by the buyer, what is the likelihood that buyers finding their way to more informative and user-friendly competitors, Internet wholesalers or brokers will return and buy from the first company visited? In an increasingly competitive e-commerce environment, successful businesses will need to understand and provide the features desired by prospective buyers if they are to achieve and maintain competitive advantage. Limitations and future research Several limitations exist in the design and execution of this study. The buyer survey was conducted with a convenience sample that, while comprised of buying-center participants from a reasonably diverse set of industries, offers no assurance of generalizability across the larger population of organizational buyers (although the comparison of
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
147
product- and service-oriented firms implies the results are robust to deviation from proportionate representation of those two types of firms in the samples). Organizational-buying preferences
The two samples (buyers and company Web sites), while both reflecting existing organizational-buying preferences and vendor practices, are not directly linked; i.e. there was no attempt to match the Web site analysis with companies offering products or services specifically sought by the buying sample. Web site analysis was purely descriptive, assessing only whether desired features existed on company Web sites, not how well they performed relative to buyer expectations. The features addressed by the survey and examined in company Web sites are relevant to, but not isomorphically or comprehensively representative of, the constructs addressed by Alba et al. (1997) and Ratchford (1999). It is also possible that differences exist, both in preferences across buyer segments and in practices across different types of Internet vendors, that went undetected because of the size and composition of the samples and the simplicity of the analytical approach. It falls to subsequent research to address a more comprehensive array of e-commerce benefits needed to achieve and maintain competitive advantage in the targeting of organizational buyers, across broader and more representative samples of buyers and Web sites, and to confirm, dispute or refine the component dimensions and buyer segments identified in this study. References Alba, J., Lynch, J., Weitz, B. and Janiszewski, C. (1997), ‘‘Interactive home shopping: consumer, retailer, and manufacturer incentives to participate in electronic marketplaces’’, Journal of Marketing, Vol. 61, July, pp. 38-53. Bakos, J.Y. (1991), ‘‘A strategic analysis of electronic marketplaces’’, MIS Quarterly, Vol. 15, September, pp. 295-310. CyberAtlas (2000a), ‘‘To b2b or to not b2b? That is the question’’, online at cyberatlas.internet.com/markets/b2b, October 3. CyberAtlas (2000b), ‘‘B2b marketplaces predicted to thin out’’, online at cyberatlas.internet.com/markets/b2b, September 5. Ehrlich, I. and Fisher, L. (1982), ‘‘The derived demand for advertising: a theoretical and empirical investigation’’, American Economic Review, Vol. 72, June, pp. 366-88. Forrester Research (2000), ‘‘Half of business-to-business traded in 2004 via e marketplaces’’, in Metrics Report, online newsletter, TheStandard.com, October 3. Heichler, E. (1999), ‘‘Online procurement: killer app for small businesses’’, Industry Standard, December 13. Industry Standard (1999), ‘‘Tracking the Internet economy: 100 numbers you need to know’’, September 20. Irwin, N. (2000), ‘‘Surviving the b2b shakeout’’, Washington Post, October 2. Malik, O. (1999), ‘‘Betting big on small business’’, Industry Standard, December 8. Ratchford, B.T. (1999), ‘‘A model of consumer choice of the Internet as an information source’’, presented at Association for Consumer Research Conference, Columbus, OH, October. Young, E. (2000), ‘‘Commerce One, GE unit start b-to-b venture’’, The Standard, July 24.
148
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Appendix 1
Products
Services
Automotive engines Bricks Chemicals Doors/building components Food/beverages Furniture Heating/air conditioning Industrial controls Industrial supplies Packaging Photographic equipment Picture frames Software Tobacco Utilities
Communication Construction Consulting Credit card processing Development Distribution Education Elder care Engineering Entertainment Financial Government Health care Hospitality Legal Moving Printing Real estate Resort Restaurant Security Technical services Telecommunications Transportation
Table AI. Industries represented in sample of organizational buyers
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
149
Appendix 2
Products
Services
Aerospace Equipment Aircraft Aluminum Bedding Card personalization systems Cars/trucks Chemicals Communication systems Computers Construction equipment Feminine hygiene products Fiber optics Fiberglass Food/beverages Fuel cells Furniture Health care supplies Heating/air conditioning Industrial automation systems Industrial vehicles Laser cutting machines Maintenance products Medical/diagnostic equipment Mining equipment Office supplies Paper Pharmaceuticals Plastic Promotional products Publications Sewing equipment Software Sporting goods Steel Tobacco Tools Utilities Vitamins/nutritional supplements Wine
Accounting Administrative Communication Consulting Corporate relocation Data storage Design Distribution Education Employment Engineering Entertainment Financial Health care Industry association Insurance Internet applications Internet marketing Internet service provider Marketing research Package delivery Payroll processing Printing Real estate Transportation Video production Waste management Welding
Table AII. Industries represented by accessed Web sites
&
150
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Adoption of electronic commerce tools in business procurement: enhanced buying center structure and processes Talai Osmonbekov Doctoral candidate, Department of Marketing, Georgia State University, Atlanta, Georgia, USA
Daniel C. Bello Professor, Department of Marketing, Georgia State University, Atlanta, Georgia, USA
David I. Gilliland Assistant Professor, Department of Marketing, Colorado State University, Fort Collins, Colorado, USA
Keywords Internet, Purchasing Abstract Modern procurement is being shifted from paper-based, people-intensive buying systems toward electronic-based purchase procedures that rely on Internet communications and Web-enhanced buying tools. Develops a typology of e-commerce tools that have come to characterize cutting-edge industrial procurement. E-commerce aspects of purchasing are organized into communication and transaction tools that encompass both internal and external buying activities. Further, a model of the impact of e-commerce on the structure and processes of an organization’s buying center is developed. The impact of the changing buying center on procurement outcomes in terms of efficiency and effectiveness is also analyzed. Finally, implications for business-tobusiness marketers and researchers are discussed.
Cost of distribution
Introduction The explosive growth of the Internet and Web-based software applications has brought about increasing adoption of electronic commerce tools by businesses to achieve efficiencies in production and marketing of products and services. Electronic commerce has been defined as ‘‘. . . more than simply buying and selling goods electronically; involves using network communications technology to engage in a wide range of activities up and down the value-added chain both within and outside the organization’’ (Applegate et al., 1996, p. 32). The assortment of business products and services distributed through the World Wide Web ranges from office equipment, heavy industrial products, and computers to more esoteric services such as consulting on modified atmosphere packaging. Internetbased applications provide the means for industrial buyers to find suppliers in the most efficient way through electronic markets and communities such as CommerceOne and VerticalNet and to potentially pass on the resulting savings to end users. In fact, in some categories such as information services and digital products, providers can potentially decrease the financial cost of distribution to zero (Jones, 1995; Hoffman et al., 1995). The authors would like to thank Wesley Johnston, Cristian Chelariu, Edmund Hershberger and two anonymous reviewers for their insightful comments. The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 151-166, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419781
151
Business to consumer transactions
Most of the recent research dealing with the Internet and e-commerce focuses on business to consumer transactions; that is, how to employ electronic commerce strategies to market products or services to individual consumers. However, the vast majority of e-based transactions are in the business-to-business sphere rather than directly involving consumer end-users (Kalakota and Robinson, 1999). While estimates vary, analysts suggest that business purchases account for upwards of 90 percent of Internet transactions. Further, over 90 percent of medium/large firms have Internet connections, and, by the year 2003, nearly $3 trillion or fully 25 percent of business purchasing will involve e-commerce (eMarketer.com, 2000). Unfortunately, there has not been much research done on how the adoption and use of e-commerce tools impacts the structure and various processes of organizational buying. This paper is an attempt to fill this gap in the business-to-business marketing literature. The paper employs organizational buyer behavior theory and the e-commerce literature to develop a model illustrating how adoption of electronic commerce tools by industrial purchasers impacts the structure and processes of the purchase decision-making unit. As will be shown, adoption of electronic commerce tools alters the structure of the buying center in terms of its size, its hierarchical and functional make-up, and the degree to which individuals actively participate in purchase decisions. Processes within the buying center are affected as well, particularly in terms of the influence of technical personnel and the levels of conflict and coordination among members. Essentially, the adoption of e-commerce tools substantively affects the efficiency and effectiveness of procurement by changing the structure and processes of the decision-making unit.
The role of electronic commerce tools
The paper begins by reviewing the role of electronic commerce tools in the contemporary business world and their relevance to industrial buying. A typology of electronic commerce tools that is relevant to business-tobusiness marketing is presented in the same section. The typology is an attempt to classify and delineate various electronic commerce tools available to enable better understanding of their impact on business procurement. Next, a formal model of how e-commerce affects the buying center is developed. Research propositions are advanced and implications for researchers and practitioners are discussed. Electronic commerce tools and business procurement Research suggests that the organizational procurement process involves a complex series of events that allows a firm to move from the basic recognition of a need, through technical specification and potential supplier evaluation, to reaching and evaluating a final purchase decision (Robinson et al., 1967; Vyas and Woodside, 1984). Although a general pattern exists, execution of the procurement events varies greatly from decision to decision to account for the many differences in purchasing products as diverse as raw materials, accessory equipment, component parts, and capital equipment. Because this article examines the impact of e-commerce tools on procurement, we are most interested in how members of the buying center gather, exchange, and evaluate information and reach decisions throughout the various procurement stages. More specifically, our emphasis is on how technology-based, electronic commerce tools have enhanced the two fundamental aspects of the procurement process:
152
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
(1) communication aspects (the accessing, sharing, and archiving of procurement-relevant information and data); and (2) transaction aspects (the buying-selling activities directly involved in supporting and consummating particular purchases). Industrial procurement
Kalakota and Whinston (1997, p. 3) discuss electronic commerce as ‘‘the use of computer networks to search and retrieve information in support of human and corporate decision making . . . a modern methodology that addresses the needs of organizations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery’’. This broad definition encompasses a wide array of business and consumer situations. In the industrial procurement realm, electronic commerce involves the use of computer networks to improve communication among both internal buying center members and with external vendors, and to enhance transaction-oriented behaviors across the buying and selling organizations. Because the main goal of industrial buyers and sellers is to exchange goods and services based on ‘‘budget, cost and profit considerations’’ (Webster and Wind, 1972, p. 12), we define electronic commerce as the use of computer networks and software to enhance the communication and transaction aspects of exchanging products and services with greater efficiency and effectiveness.
Higher degree of transparency
Such enhancements and cost savings occur by means of using electronic commerce tools such as Internet electronic data interchange (EDI), enterprise-wide solutions (e.g. different modules of SAP and mySAP.com enterprise software packages) or less costly extranets and intranets (Kalakota and Whinston, 1996), Web store fronts, Web-based products, or service information. These tools enable enterprises to achieve a higher degree of transparency, as both buyers and sellers to the exchange are able to stay apprised of inventories, orders, and shipments. This occurs because the electronic tools are linked to the Internet, allowing all participants in the transaction to access the supply-chain network system around the clock from any ‘‘wired’’ terminal. This eliminates the need to install and maintain expensive proprietary networks (such as old EDI networks) and leads to substantial cost savings which can be passed on to the end user (Strader and Shaw, 1997). Linking through the Internet is revolutionizing interfirm communications (Boyle and Alwitt, 1999), warehousing (Peters and Hogenson, 1999) and customer service response (Aggarval et al., 1998) by making these marketing functions more transparent and thus more efficient and effective.
Efficiency and effectiveness
The business press often reports numerous e-commerce tools that companies use to improve the efficiency and effectiveness of industrial buyer activities (Strader and Shaw, 1997). Unfortunately, the constant stream of new acronyms, software modules, start-up firms and new electronic marketplaces leads to more confusion than clarity regarding the state of software automation in industrial procurement. To support researchers’ understanding of these important tools we propose the following typology of e-commerce tools that are actively used by business-to-business marketers (Table I).Electronic commerce tools can be utilized in both internal (intraorganizational) and external (interorganizational) settings (as indicated by the columns in the Table I). External e-commerce tools are geared primarily toward interactions between industrial buyers and sellers, whereas internal e-commerce tools are geared toward interactions within a firm. Many e-commerce tools have recently been developed thanks to the emergence of intranets and extranets. An intranet is a combination of one
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
153
External
Internal
Communication oriented Extranet (Lotus Domino Workflow tool) Extranet-based e-mail Web-based information (premier Page product information content, brochureware) Vendor-managed inventory (VMI) usage information Internet telephony Transaction oriented Internet EDI Web store front (Premiere Page purchasing capabilities) SAP B2B Procurement module Oracle’s I-payment module
Intranet applications (Lotus Notes, Java, XML tools) Intranet-based e-mail Intranet-based videoconferencing Planning, forecasting, replenishment (PFR) module
Travel management module Treasury management module Online transactions database Oracle’s bill presentation and payment
Note: Detailed explanations of the function, scope, and limitations of each e-commerce software package or module can be obtained at the Web site of each program developer: www.sap.com, www.mysap.com, www.oracle.com, www.lotus.com, www.sun.com
Table I. Typology of e-commerce tools
organization’s computers linked together that is not accessible to people outside the organization. An extranet is a network of intranets that links different organizations and limits the access of people outside of the specific organizations involved. Consequently, various intranet applications are accessible to the employee of that particular firm, whereas extranet applications can be accessible throughout the network of firms. E-commerce orientations
154
We identify two main orientations that distinguish different e-commerce tools: communication oriented and transaction oriented. Communication oriented e-commerce tools such as extranet applications, extranet based e-mail, Web-based information, vendor managed inventory (VMI) modules of enterprise-wide solutions, and Internet telephony enable industrial buyers and sellers to facilitate communication within the buyer-seller dyad. This increased communication is thought to strengthen relationships between buyers and sellers (Boyle and Alwitt, 1999) and to enhance the communication aspects of the procurement process. Extranet applications, created by using such applications as Domino Workflow, provide a less costly, more customizable information sharing environment for firms involved in the procurement process (Network World, 1999). Notice that e-mail can be used as both an external and internal communication tool depending on its platform. Dell Computer creates special Web pages called Premiere Pages for its business customers where they provide customer specific product information (Rangan and Bell, 1998) that speeds up the customer’s procurement process. VMI modules, developed by companies such as SAP AG, enable vendors to manage buyers’ inventories by granting access to inventory and stocking information of the buyer. NECX, one the largest distributors of semiconductors, network components and computer products uses Internet telephony to discuss business procurement issues with its buyers and suppliers (Maddox, 1998). Internally, many organizations use Lotus Notes or Java and Extensive Markup Language (XML) tools for highly customizable intranet applications (Computerworld, 1998), intranet-based videoconferencing for better communication, and SAP’s planning, JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
forecasting and replenishment modules to gain access to information and streamline tasks. Transaction oriented e-commerce tools
Transaction oriented e-commerce tools, on the other hand, are designed to facilitate interorganizational exchange by electronically enhancing order entry, payment transfer, and inventory management (Peters and Hogenson, 1999). Internet EDI, a marriage of new open network architecture and old legacy systems, provides speedy transactions, especially for routine purchases. Premiere Page’s purchasing capabilities constitute a Web storefront for procurement managers, enabling them to choose, pay for and track a purchase. SAP’s B2B Procurement software module dramatically enhances procurement tasks of a firm from requisition to order status tracking. Oracle’s I-payment software module is designed to virtually automate the payment tasks as well as receipts handling, which results in acceleration of cash flow for the firm. Popular Oracle modules such as travel and treasury management support internal transactions. Both are geared for internal transaction automation: the travel management module streamlines booking and reimbursement procedures, whereas the treasury management module keeps track of company finances. The Online Transactions Database enables buying center personnel to access the detailed history of previous internal transactions, and Oracle’s bill presentation and payment module keeps track of internal bills and payments.
Efficiencies gained from e-commerce tools
Because industrial purchasers typically have so many available sources to purchase from (i.e. individual part manufacturers, component part manufacturers and the many distributors, representatives, and wholesalers of each) it is important that they consider the efficiencies that can be gained by the various electronic commerce tools (Hoffman et al., 1995). How these tools affect buying center structure and process is discussed in the next section. Impact on buying center structure Webster and Wind (1972, p. 17) define the buying center as ‘‘a subset of the organizational actors . . . consisting of five roles: users, influencers, deciders, buyers, and gatekeepers’’. In other words, the team of players that initiates, considers, and makes a purchase decision in an organizational setting. The structure and processes employed by the buying center to reach decisions has long been an active research topic (Moriarty, 1983). For instance, Spekman and Stern (1979) find that an increase in environmental uncertainty triggers a greater need for information and the sharing of this information within the buying center. Also, as mentioned above, buying center behavior varies across the type of product purchased, the decision phase, and certain characteristics of the buying firm (Lilien and Wong, 1984). Further, Johnston and Bonoma (1981) find that organizational structure and the type of buying situation are critical in determining buying center characteristics. Taken as a whole, the extant research on industrial procurement suggests that the key structural aspects of buying centers include: .
size (number of individual participants);
.
hierarchical level (managerial authority levels);
.
functional level (specialization by work area); and
.
participation (involvement in procurement stages by members).
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
155
Buying center size Research finds that the size of the buying center increases as buying center roles become more formalized (Dawes et al., 1998) and as the complexity of the purchase process increases (Johnston and Bonoma, 1981). We suggest that the usage of e-commerce tools by the buying center decreases both the formalization of buying center roles and the complexity of the purchase decision which, in turn, reduces the size of the buying center. Effective communication
First, formalization, which is described as the extent to which activities in a buying group are rigidly prescribed by rules, policies, and procedures (Johnston and Bonoma, 1981), is reduced as effective communication supplants the need to tightly manage the flow of information and paperwork. In fact, Kalakota and Robinson (1999, p. 243) suggest that ‘‘the biggest benefit of e-procurement (applications) is that they eliminate the rules, paperwork, hidden procedures, and other obstacles’’ of formalization. Further, business relations between buying center members have been characterized as more informal due to the increased level of communication that transpires among members (McKenna, 1987). In addition to traditional modes of communication (i.e. phone, fax, memos, face-to-face) electronic mail, chat, and Web-based videoconferencing allow participants additional opportunities to easily exchange documents, opinions, and both commercial and technical information. These new modes of information exchange are noted as improving overall communication between buyers and sellers in industrial settings (Boyle and Alwitt, 1999). Regarding the complexity of the purchase decision, e-commerce tools, such as comprehensive online databases of purchase history, enable buying center members to access pertinent product information quickly and efficiently (Morley, 1985), which increases the accuracy of information and decreases the time spent searching for information. For example, Dell Computer maintains a complete purchase history for its organizational customers. Dell makes this database available to members of its customers’ buying centers through customized Premier Web Pages, constructed and posted on the Internet by Dell. These password-protected pages are updated regularly to reduce the complexity of every purchase by displaying detailed specifications of the customer’s previous transactions (Rangan and Bell, 1998). Such readily accessible transaction information streamlines the procurement process, increasing the ease and speed of the purchase.
Reduce buying center size
Hence, less formalization in the buying center and less overall complexity in the purchasing process are expected to result from the adoption of e-commerce tools. Consequently, as information is easier to access and transfer among buying center members, fewer members are required to reach decisions. Thus, the adoption of e-commerce tools is expected to reduce the size of the buying center. Hierarchical level Researchers report that an individual’s formal rank in an organization is strongly associated with the acquisition and utilization of procurement information (Ronchetto et al., 1989). Anderson and Chambers (1985) attribute purchase-related differences among individuals to the way rewards and performance measures vary across organizational roles, inducing occupants to concern themselves with only certain types of procurement information and certain aspects of the procurement process. Relatedly, Choffray and Lilien (1978) report individuals at different hierarchical levels
156
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
– senior managers, plant managers, production technicians, and others – differ in the number of decision stages in which each participates. Flatter structure
As organizations adopt e-commerce tools, the structure of buying centers tends to flatten as software automation results in fewer levels of management actively engaging in each particular procurement episode. The communication and transaction simplifications to such business processes as vendor evaluation, proposal analysis, pricing approvals, and others can have a leveling effect on the bureaucratic levels and process formality associated with industrial procurement (Kalakota and Robinson, 1999). For instance, intranet applications can automate the approval process of senior managers by pre-authorizing operating personnel with key procurement authority – approved multi-vendor catalogs, product types, and expenditure levels. Consequently, when a low-ranking user logs on to an inhouse procurement program, the employee’s profile contains the pre-authorizations necessary for the individual to move swiftly through vendor selection and product purchase without involving senior managers. Functional areas Areas of primary work specialization have been shown to impact the nature of involvement in the procurement process (Bello and Lohtia, 1993). Employees that identify professionally with such functional specialties as accounting, marketing, production management, and others tend to utilize information sources and process communications in a way that uniquely reflects the organizational demands on their job function. Anderson and Chambers (1985) note that organizational attitudes and behaviors, such as those relevant to procurement, vary across job roles, reflecting the way rewards and performance metrics differ across functional areas.
Archive key facets of raw material
The automation of procurement tasks that e-commerce tools and intranet buying applications provide tends to streamline the buying center by reducing the number and type of job functions that are actively involved in the stages of the procurement process. That is, organizations can use intranet purchasing applications to archive technical details, performance metrics, regulatory requirements, and other key facets of raw material, component parts, and equipment that are frequently subject to procurement problems and opportunities. Users, influencers, and other buying center members can query such on-line databases directly, without involving technical personnel from product planning, engineering, and production. Hence, e-commerce tools empower buying center members to access product and vendor data directly, lowering procurement cycle times and reducing the functional range of employees directly involved in procurement episodes. Participation McQuiston (1989, p. 68) defines participation in the buying center as the ‘‘amount of written or verbal communication offered to others in the decision making unit (DMU) during the course of the purchase decision . . .’’. The degree that each buying center member participates in the decision is important to study because it is suggested to antecede the level of influence projected on other members (McQuiston, 1989). Among the factors that have been found to increase participation include the personal consequences that an individual buying center member has at stake as a result of the decision to be made (McQuiston and Dickson, 1991; Patchen, 1974). Thus, the more a member has at stake, the more likely he/she is to communicate to others in the center.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
157
Increased participation
We suggest that e-commerce enhanced procurement increases the individual degree of participation of each buying center member for two primary reasons. First, as discussed earlier, these tools suggest an overall decrease in the size of the buying center, which is expected to increase the relative weight of each individual buying member’s responsibility for the purchasing decision. This, in turn, will increase the probability of bearing personal consequences for the decision. Second, e-commerce allows much more information to be accessed and exchanged among members. For example, Marshall Industries implemented XML connections with its suppliers that enables buying center members to not only browse suppliers’ online catalogs but to view live on-line product presentations (Wilson, 1998). Additionally, the members of the buying center can participate in on-line discussions without leaving their offices, encouraging communication episodes that are both more frequent and of longer duration (Kosiur, 1997). Thus, participants will increase their level of participation in the buying center because there is much more information to evaluate and exchange. To summarize the previous discussion, we advance the following proposition: P1. Adoption of e-commerce tools for business procurement alters the structure of buying centers in the following ways: (a) decreases the size of the buying center; (b) decreases the number of hierarchical levels; (c) decreases the number of functional areas; and (d) increases the individual participation of buying center members.
Change in processes
Impact on buying center processes Besides structural considerations, research finds that buying center processes (the attitudinal and behavioral facets of member interactions) are also subject to change (Moriarty, 1983; Dawes et al., 1998). In particular, we suggest technology-based innovations in procurement are likely to impact buying center processes in terms of the influence of technical personnel, and the conflict and coordination within the decision-making unit. Influence of technical personnel Influence is defined as ‘‘the extent to which the communication offered by an individual for consideration is perceived to affect the actions of other participants in the decision making unit’’ (McQuiston, 1989 p. 69), which may be thought of as changes caused in a member’s evaluation of a product or service (Thomas, 1982). Further, those with the ability to influence are perceived to have both expertise and authority (Thomas, 1982; Kohli, 1989) and to participate actively in important purchase decisions (McQuiston, 1989; Jackson et al., 1984). Previous studies also point out that the flow of communication within the buying center, departmental membership, formal rank and the network centrality of an actor are key determinants of influence (Ronchetto et al., 1989; McQuiston, 1989). As pointed out earlier, buying centers often include technical personnel such as engineers, technicians, and systems experts. The influence of technical personnel has been found to be significantly more substantial in buying centers responsible for major capital purchases, materials and component parts (Jackson et al., 1984). Technical personnel exert considerable influence on these decisions due to their high degree of technical knowledge and expert power (Chakrabarti et al., 1982). Further, research suggests that industrial buyers are likely to use e-commerce tools to
158
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
obtain highly technical information about products, which is likely to be understood and desired by the technical members of the buying center (Boyle and Alwitt, 1999). By obtaining and wielding the information, technical personnel are likely to increase their information bases of power (Venkatesh et al., 1995), thereby increasing their influence over the purchase decision. Additionally, technical personnel are more likely to be Web-savvy and more comfortable employing e-commerce tools to gather information than other buying center members.
Mistrust, misunderanding and anxiety
Increased communication
Conflict Conflict in the organizational buyer behavior literature has been discussed from an interdepartmental perspective (Barclay, 1991), a specific decision perspective (Ryan and Holbrook, 1982), and an individual perspective (Sheth, 1973). The interdepartmental perspective is specifically relevant to this analysis because buying center members are usually pooled from different departments of an organization. Conflicts often arise in buying centers due to divergent objectives, task interdependence and incompatible management styles and approaches (Ding, 1997). Conflict was found to be detrimental to performance and is often accompanied by feelings of mistrust, misunderstanding and anxiety (Ding, 1997). Additionally, interdepartmental conflict was found to lower product quality in a cross-functional team setting (Menon et al., 1997). Barclay (1991) finds that the main contributor to conflict is communication barriers between departments. Different departments have varying goals in mind during the process of organizational buying: for instance, the main goal for engineering may be to get the most advanced machinery available but for accounting personnel it may be cost. Electronic commerce tools increase the level of interdepartmental communication (Boyle and Alwitt, 1999), through corporate enterprise resource planning (ERP) systems as well as through extranet-enabled e-mail, teleconferencing and chat applications. Conflict is lowered because the increased communication and access to additional information educates buying center members on the various facets of the purchase. The transparency of information allows similar understandings of goals, wider access to documents, and fewer opportunities to suspect hidden agendas and information batching by individual buying center members. The use of e-commerce tools broadens each member’s buying criteria, harmonizes perceptions, and builds understanding across the various departmental perspectives. Coordination Coordination has been defined as ‘‘managing dependencies between activities’’ (Malone and Crowston, 1994, p. 90). Interaction patterns and activities within the buying center are complex and their interdependencies are embedded in the overall organizational network of communications (Johnston and Bonoma, 1981). For instance, when purchasing a piece of complex machinery an engineering member may be in charge of checking technical specifications, an accounting member may be responsible for calculating costs and depreciation schedules, etc. These tasks, which are often performed separately and then communicated to other members of the buying center, do not occur simultaneously. Rather, relevant information is typically processed through communication dyads of only two members, making coordination among all members difficult (Johnston and Bonoma, 1981).
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
159
Many-to-many communication
Increasing the transparency of the dyadic communication process enhances coordination within the buying center. Adoption of e-commerce tools enables members to more-easily communicate to others involved with the buying center. This is the advantage of having a many-to-many communication interface that is inherent to communication oriented e-commerce tools. These tools allow all members of the buying center to easily post, view, and track the inputs of others on the company’s Web site, allowing less confusion and a higher degree of clarity regarding scheduling and evaluation. For instance, an accountant can readily check order changes made by an engineer in real time and update cost projections accordingly. To summarize the previous discussion we suggest: P2. Adoption of e-commerce tools for business procurement alters the purchase processes within buying centers in the following ways: (a) increases the influence of technical personnel (b) decreases conflict among buying center members; and (c) increases coordination among buying center members. The impact on procurement outcomes The changes in buying center structure and processes that occur due to reliance on electronic commerce tools are likely to increase the efficiency and effectiveness of the buying task. In particular, Kalakota and Robinson (1999, p. 234) note that the benefits of technology-based automation of procurement activities can be organized into two broad categories of outcomes: Efficiency includes lower procurement costs, faster cycle times, reduced maverick or unauthorized buying, more highly organized information, and tighter integration of the procurement function with key back-office systems. Effectiveness includes increased control over the supply chain, proactive management of key procurement data, and higher-quality purchasing decisions within organizations.
Efficiency and lower costs
In contrast to effectiveness, efficiency is more evident and has been reported as the number one reason for utilizing e-business tools (Harrington, 1999; Kalakota and Whinston, 1996). Efficiency is realized through lower costs (including the opportunity cost of time) in performing various facets of the purchasing task. E-commerce tools reduce transaction costs between organizations by facilitating communications and enabling tasks to be completed more rapidly. The conversion of paper documents for ordering, invoicing, and tracking into electronic documents lowers expenses associated with accounting, record keeping, and the various archival tasks associated with procurement (Ramusson, 1999). Other cost savings include economies gained from reduced order cycle time and greater timeliness in ordering and delivery (Peters and Hogenson, 1999). Order cycle cost reductions occur when Internet-based buying lowers managerial involvement in purchase activities and in the number of separate buying tasks and procedures that must be carried out (Kalakota and Robinson, 1999). E-commerce tools offer the opportunity to group tasks such as vendor identification, specification transfer, and pricing into a seamless communication stream, lowering time and cost investments (Solomon, 1999). Further, e-commerce will likely enhance the effectiveness of various procurement tasks. Improved tasks such as better product selection, improved inventory management, and faster decision making are a few of the new benefits enabled by e-commerce. Streamlining of the buying center (reduced size, hierarchical, and functional levels) along with more informed
160
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
participation implies faster, more efficient decision making. Further, highly knowledgeable technical personnel, reduced conflict and better coordination imply better product selection and inventory management. Importantly, e-commerce tools not only lower the cost of search but also make the search aspects of the buying process more effective (Kosiur, 1997). Purchasers are able to utilize Internet search engines and other Web-based product and vendor directories to widen the scope of their search. Effectiveness outcomes of increased search capabilities include lower, and generally more competitive, pricing as well as a wider array of quality choices. Thus: P3. The changes to the structure and processes of the buying center induced by e-commerce will have the following effects on procurement outcomes: (a) the cost efficiency of procurement will be increased; and (b) the task effectiveness of procurement will be increased. The changes in buying center structure and process brought about by the introduction of e-commerce tools suggest important implications for practitioners and researchers alike. We discuss each in turn.
Employer selection
Implications for managers Changes in buying center size, participation, and influence also imply that firms should carefully select those employees that are included on the buying center. Clearly, all members should now have, or be able to quickly acquire, e-commerce skills. Those that do not will be unable to take advantage of these tools, detracting from the overall effectiveness and efficiency of the center. Further, as individual participation increases, each member’s role becomes more important to the decision process. Firms should consider the implications of fewer employees from fewer hierarchical and functional areas making important decisions. It now becomes more important than ever that all buying center members are able to negotiate, communicate, evaluate, and, in general, handle the challenges of procurement. Firms should also consider the effects of buying centers supported by e-commerce tools on other aspects of their organizations. Not only can decisions be reached more quickly and more efficiently, but buying centers will be able to make more informed decisions as well. This may affect production schedules, product and service design and development, vendor and customer relations, and organizational cost structures. In fact, Kalakota and Robinson (1999) suggest that e-commerce benefits are not truly realized unless the whole organization is able to adapt to the new e-commerce environment. Clearly, a firm that adapts e-commerce tools for procurement should consider how these tools could be best integrated into its overall information architecture.
Targeting a smaller set of decision makers
We also address implications for firms that market to organizations that have integrated e-commerce tools into their buying centers. First, because the size of the customer’s buying center will decrease, the seller can implement more focused marketing communications strategies to target a smaller set of decision makers. Buying center participants may now be more easily recognized and their needs more readily addressed. Second, because any particular buying center member’s participation level will increase, the seller may wish to consider providing more information about its products and company targeted to the member’s particular concerns. This may also include more technical information since technical personnel are likely to gain in importance. For instance, sellers may consider reducing the amount of puffery in lieu of more factual information, which may be more easily
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
161
understood and appreciated by technical personnel. Third, access to additional information also implies that buying center members will have access to electronic information that is not directly controlled by the seller. These non-commercial forms of information may include the experiences of previous customers, information provided by industry-specific informational clearing houses, and objective third-party ratings services. The seller should be aware of the existence and importance of these sources and carefully consider how these sources attain, verify, and summarize information about their firm. Realizing the advantages
Regarding organizational buyers, the advantages to buying center efficiency and effectiveness appear to be clear. To realize these advantages, however, firms should carefully consider the e-commerce potential of their prospective business partners. Choosing to transact with marketers not savvy in e-commerce may prevent the buying firm from realizing potential gains in information access and transfer. Further, if buyers anticipate having access to seller databases, Internet EDI, software, and communication enhancement tools, their re-organized internal buying structure and processes may be particularly ill-equipped to handle a non-e-commerce seller. Further, as e-commerce continues to infiltrate everyday business, it is more important to align with firms savvy in the ways of e-commerce. In fact, Kalakota and Robinson (1999) suggest that network alignments will soon be more important than individual firms as customers continue to value integrated solutions and speed of delivery and service more than they value the benefits delivered by individual products and brands. To this end, it is important to also consider the dependence-related effects of partnering with a firm, or with a few firms, that rely on e-commerce as a backbone for transacting business. As firms re-structure buying centers to transact with select e-commerce partners they risk raising their switching costs of adopting alternatives (Jackson, 1985).
Security issues
Finally, the adoption of e-commerce tools is not without substantive security risks for both sellers and buyers alike as sensitive information is exchanged electronically (Kosiur, 1997). Limiting access to proprietary data and controlling the scope of information retrieval are major issues that result from applying information technology on an across-organization basis. Unfortunately, Web-based selling and purchase tools have yet to fully address security concerns. Managers contemplating replacing paper documents with electronic documentation should be aware that they might be permitting open links to proprietary data. Beyond these concerns, the likely changes in the buying center structure and processes may alter purchase procedures in unanticipated ways. Current checks and balances within an organization’s buying system may be circumvented as fewer people and different functional areas come to characterize e-based procurement. Also, purchase controls may be weakened as paper documents, which have traditionally been used to govern a firm’s procurement activities, are replaced with electronic documents, which, in most people’s perception, still may lack the permanency and legal legitimacy of paper. Implications for researchers Because this is one of the first academic attempts to organize electronic effects on procurement, it will hopefully stimulate thought and activity along a variety of research areas. To support this effort, we list a few topics that may be of immediate concern for the research agenda.
162
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
First, researchers may wish to modify and update Table I as additional communication and transaction tools are introduced and various ways of thinking about procurement are considered. More specifically, a stream of literature in business advertising and communications has addressed the effects of both commercial and non-commercial sources of information on buying center activities in regards to requests for information, changes in brand attitudes, and influence attempted and resisted within the decisionmaking process (i.e. Gilliland and Johnston, 1997; Hanssens and Weitz, 1980; Moriarty and Spekman, 1984; Zinkhan, 1986). Not only should new electronic tools be tested for these effects, but also the newer tools may substantively change how the more traditional tools are perceived. Are existing tools such as trade advertising and publicity less credible in light of electronic advantages, or do they have the same cache´ as before? Further, researchers may wish to use information processing-based models to support the investigation of various communications mix strategies. Main effects model
Second, the basic model suggested in Figure 1 is a main effects model that does not consider the many contingencies faced by buying centers. For instance, different types of buying decisions are often encountered that require highly complicated decision processes. Unfortunately, most research to date (e.g. Kalakota and Robinson, 1999) has generally considered electronic procurement as it relates to non-extensive purchasing situations. Although the Figure 1 model appears robust, buying centers that face high degrees of novelty, complexity, and importance in the decision process may be differently affected by electronic commerce (see McQuiston, 1989). In problems that require very extensive problem solving (see, for instance, Bunn, 1994), where buying center members find it difficult even to identify the problem to be solved, electronic commerce may not prove quite as useful. In these cases, although intrafirm and interfirm communications may still be enhanced, electronic buying networks such as MS Market may, in fact, prevent the exploration of more unique solutions.
Figure 1. Model of e-commerce effects on the buying center and buying outcomes JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
163
Communication and the decision process
Third, research is also required to explore how e-commerce tools affect the political aspects of interpersonal influence within the buying center. For instance, although we suggest that, regarding process, conflict will be reduced, the political nature of personal interaction should be considered. More specifically, as a result of each buying center member having more at stake in the final decision, there may be more political wrangling as various factions of the buying center consolidate power sources and form coalitions of influence (Patchen, 1974). In fact, this may be likely given the more focused make-up of the center. Further, even though information becomes more available, heavy reliance on electronic sources of communication may replace more personal forms such as face-to-face communications and informal conversations, potentially detracting from effective decisionmaking. Thus, research should examine not only the level of communication within the buying center, but the extent that communication supports or hinders the decision process. Fourth, future research should address the trend of large companies taking advantage of efficient marketplaces such as Ariba or CommerceOne in their procurement efforts. These e-marketplaces may offer additional cost savings to firms by making suppliers bid for contracts, thus exerting downward pressure on materials and components prices. One of these e-marketplaces, Coviscint.com, has received much media attention recently. The FTC received complaints from automobile parts suppliers that Coviscint will hurt them and the final consumers because it gives too much bargaining power to the automobile manufacturers. However, Coviscint, sponsored by GM, Ford and DaimlerChrysler, was cleared by the FTC and continues to operate (B to B, 2000). Importantly, the implications for supplier competitiveness as well as the regulatory constraints on such arrangements are unclear and may warrant further exploration by future research.
Continuing evolution
To conclude, current trends in technologies such as computer, telecommunications, video, and others, suggest that business-to-business procurement practices are likely to continue to evolve at a rapid rate. Cutting-edge practitioners will likely continue to employ technical innovations in ways that revolutionize the efficiency and effectiveness of business operations. Hence, researchers will be continually challenged to understand underlying processes and to offer robust models that capture the impact the technological juggernaut has on business-to-business exchange. References Aggarval, R., Rezaee, Z. and Soni, R. (1998), ‘‘Internal control considerations for global electronic data interchange’’, International Journal of Commerce and Management, Vol. 8 No. 3/4, pp. 71-84. Anderson, P. and Chambers, T. (1985), ‘‘A reward measurement of organizational buying behavior’’, Journal of Marketing, Vol. 49, Spring, pp. 7-23. Applegate, M.L., Mcfarlan, W.F. and McKenney, J.L. (1996), Corporate Information Systems Management: The Issues Facing Senior Executives, 4th ed., Irwin, Chicago, IL. Barclay, D.W. (1991), ‘‘Interdepartmental conflict in organizational buying: the impact of the organizational context’’, Journal of Marketing Research, Vol. 28 May, pp. 145-59. Bello, D.C. and Lohtia, R. (1993), ‘‘Improving trade show effectiveness by analyzing attendees’’, Industrial Marketing Management, Vol. 22, pp. 311-18. Boyle, B.A. and Alwitt, L.F. (1999), ‘‘Internet use within the US plastics industry’’, Industrial Marketing Management, Vol. 28, pp. 327-41. B to B (2000), ‘‘Covisint receives FTC approval’’, B to B, September 25, p. 3. Bunn, M.D. (1993), ‘‘Taxonomy of buying decision approaches’’, Journal of Marketing, Vol. 57 January, pp. 38-56.
164
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Chakrabarti, A.K., Feinman, S. and Fuentevilla, W. (1982), Industrial Marketing Management, Vol. 11 No. 3, July, pp. 195-203. Choffray, J.-M. and Lilien, G.L. (1978), ‘‘Assessing response to industrial marketing strategy’’, Journal of Marketing, Vol. 42 No. 2, pp. 20-35. Computerworld (1998), ‘‘Notes app helps bank boost service by phone’’, October 12, pp. 43-4. Dawes, P., Lee, D.Y. and Dowling, G.R. (1998), ‘‘Information control and influence in emergent buying centers’’, Journal of Marketing, Vol. 62, July, pp. 55-68. Ding, D.Z. (1997), ‘‘Control, conflict, and performance: a study of US-Chinese joint ventures’’, Journal of International Marketing, Vol. 5 No. 3, pp. 31-45. eMarketer.com (2000), ‘‘eStats and eReports’’, www.eMarketer.com, February 23. Gilliland, D.I. and Johnston, W.J. (1997), ‘‘Toward a model of business-to-business marketing communications effects’’, Industrial Marketing Management, Vol. 26, pp. 15-29. Hanssens, D.M. and Weitz, B.A. (1980), ‘‘The effectiveness of industrial print advertisements across product categories’’, Journal of Marketing Research, Vol. 17, pp. 294-306. Harrington, L. (1999), ‘‘Using the Net to stay competitive’’, Transportation and Distribution, Vol. 40 No. 5, pp. 23-6. Hoffman, D.L., Novak, T.P. and Chatterjee, P. (1995), ‘‘Commercial scenarios for the Web: opportunities and challenges’’, Journal of Computer-Mediated Communication, special issue on electronic commerce, Vol. 1 No. 3. Jackson, B.B. (1985), ‘‘Build customer relationships that last’’, Harvard Business Review, Vol. 63, November-December, pp. 120-8. Jackson, D.W., Kieth J.E. and Burdick, R.K. (1984), ‘‘Purchasing agents’ perceptions of industrial buying center influence: a situational approach’’, Journal of Marketing, Fall, pp. 75-85. Johnston, W.J. and Bonoma, T.V. (1981), ‘‘The buying center: structure and interaction patterns’’, Journal of Marketing, Summer, pp. 141-56. Jones, R. (1995), ‘‘Digital’s World Wide Web server: a case study’’, Computer Networks & ISDN Systems, Vol. 27 No. 2, November, pp. 297-306. Kalakota, R. and Robinson, M. (1999), e-Business: Roadmap for Success, Addison-Wesley, Reading, MA. Kalakota, R. and Whinston, A. (1996), ‘‘Intranets: the SAP-killer?’’, Computerworld, March 11, p. 37. Kalakota, R. and Whinston, A. (1997), Readings in Electronic commerce, Addison-Wesley, Reading, MA. Kohli, A. (1989), ‘‘Determinants of influence in organizational buying: a contingency approach’’, Journal of Marketing, Vol. 53, July, pp. 50-65. Lilien, G. and Wong, M.A. (1984), ‘‘An exploratory investigation of the structure of the buying center in the metalworking industry’’, Journal of Marketing Research, February, pp. 1-11. Kosiur, D. (1997), Understanding Electronic Commerce, Microsoft Press, Redmond, WA. McKenna, W.J. (1987), ‘‘ScanAmerica BuyerGraphic ratings: a high potential decision support system for the television industry’’, European Research, Vol. 15 No. 1, pp. 28-33. McQuiston, D.H. (1989), ‘‘Novelty, complexity, and importance as causal determinants of industrial buyer behavior’’, Journal of Marketing, April, pp. 55-79. McQuiston, D.H. and Dickson, P.R. (1991), ‘‘The effect of perceived personal consequences on participation and influence in organizational buying’’, Journal of Business Research, Vol. 23 No. 2, pp. 159-77. Maddox, K. (1998), Web Commerce: Building a Digital Business, John Wiley & Sons, New York, NY. Malone, T. and Crowston, K. (1994), ‘‘The interdisciplinary study of coordination’’, Computing Surveys, Vol. 26 No. 1, pp. 87-119. Menon, A., Jaworski, B.J. and Kohli, A.K. (1997), ‘‘Product quality: impact of interdepartmental interactions’’, Journal of the Academy of Marketing Science, Vol. 25 No. 3, pp. 187-200. Moriarty, R. (1983), Industrial Buying Behavior, Lexington Books, Lexington, MA. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
165
Moriarty, R.T. Jr and Spekman, R.E. (1984), ‘‘An empirical investigation of the information sources used during the industrial buying process’’, Journal of Marketing Research, Vol. 21, May, pp. 137-47. Morley, A.L. (1985), ‘‘Ample growth seen for mini DBMS market’’, Computerworld, special report, pp. 3-15. Network World (1999), ‘‘Lotus sweetens the pot for Domino developers’’, Network World, January 28, p. 9. Patchen, M. (1974), ‘‘The locus and basis of influence in organizational decisions’’, Organizational Behavior and Human Performance, Vol. 11, pp. 195-211. Peters, E.J. and Hogenson, A.J. (1999), ‘‘New directions for the warehouse’’, Supply Chain Management Review Global Supplement, Spring, pp. 2-15. Rangan, K.V. and Bell, M. (1998), ‘‘Case study: Dell Online’’, Journal of Interactive Marketing, Vol. 12 No. 4, pp. 63-87. Rasmusson, E. (1999), ‘‘Setting your sights on videoconferencing’’, Sales & Marketing Management, Vol. 149 No. 10, p. 106. Robinson, P.J., Faris, C.W. and Wind, Y. (1967), Industrial Buying and Creative Marketing, Allyn & Bacon, Boston, MA. Ronchetto, J.R. Jr, Hutt, M.D. and Reingen, P.H. (1989), ‘‘Embedded influence patterns in organization buying systems’’, Journal of Marketing, October, pp. 51-62. Ryan, M.J. and Holbrook, M.B. (1982), ‘‘Decision-specific conflict in organizational buyer behavior’’, Journal of Marketing, Vol. 46 No. 3, Summer, pp. 62-8. Sheth, J.N. (1973), ‘‘A model of industrial buyer behavior’’, Journal of Marketing, Vol. 37, October, pp. 50-6. Solomon, H. (1999), ‘‘Giga says companies saving fortune from e-business’’, Computing Canada, Vol. 25 No. 34, September 10, pp. 11-14. Spekman, R. and Stern, L. (1979), ‘‘Environmental uncertainty and buying group structure: an empirical investigation’’, Journal of Marketing, Spring, pp. 54-64. Strader, T.J. and Shaw, M.J. (1997), ‘‘Characteristics of electronic markets’’, Decision Support Systems, Vol. 21, pp. 185-98. Thomas, R.J. (1982), ‘‘Correlates of interpersonal purchase influence in organizations’’, Journal of Consumer Research, September, pp. 171-82. Venkatesh, R., Kohli A.K. and Zaltman, G. (1995), ‘‘Influence strategies in buying centers’’, Journal of Marketing, Vol. 59, October, pp. 71-82. Vyas, N. and Woodside, A.G. (1984), ‘‘An inductive model of industrial supplier choice processes’’, Journal of Marketing, Vol. 48, Winter, pp. 30-45. Webster, F.E. Jr and Wind, Y. (1972), ‘‘A general model for understanding organizational buying behavior’’, Journal of Marketing, April, pp. 12-19. Wilson, T. (1998), ‘‘Wholesale shifts to the Web’’, Internet Week, CMP-net (cited online, July 21). Zinkhan, G.M. (1986), ‘‘Copy testing industrial advertising: methods and measures’’, Advances in Business Marketing, Vol. 1, JAI Press, Greenwich, CT, pp. 259-80.
&
166
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Simulating buying center decision processes: propositions and methodology Regina McNally Doctoral Student in Marketing, Department of Business Administration, University of Illinois at Urbana-Champaign, Champaign, Illinois, USA
Keywords Purchasing, Decision making, Rules Abstract Organizational purchasing decisions can be thought of as rule-discovery tasks in which members of the buying center develop proposals regarding the best choice of products and vendors. The uncertainty associated with buying center decisions causes the group to search for generalizations that describe the distinguishing characteristics of successful suppliers. Such generalizations identify the ‘‘rules’’ used to categorize future vendors; discovery of the best rules is key to accurate classification. Acknowledging the process of searching for patterns not only focuses attention on the information members use to derive patterns, but also provides a mechanism for investigating how members influence each other’s assessment of the patterns. Research into rule-discovery tasks has the potential to enable monitoring of simulated organizational purchasing decision processes in the controlled environment of an experiment. The purpose of this paper is to suggest a set of propositions and a methodology for examining rule discovery task behavior in buying centers.
Multiple decision participants
The ‘‘buying center’’ concept suggests that organizational purchase decisions often involve more than one person, particularly in modified rebuy and new task purchases where some or all aspects of the purchasing situation are new to the organization (Robinson et al., 1967). Multiple decision participants are included in the purchase decision process to ensure that all product parameters are evaluated during the assessment of the product’s ability to meet an organization’s needs (Sheth, 1973). For instance, the buying center at a firm designing and manufacturing personal computers could potentially be composed of personnel from the design, purchasing, manufacturing, and customer service departments. These representatives of various departments use their specialized knowledge, as well as their knowledge of organizational objectives, to choose vendors to supply component parts for assembly into the final product. For any given component choice, the group examines the evidence regarding component design characteristics and the vendor’s supply capabilities to determine which set of choices best meets the organization’s requirements.
Phenomena of interest
These organizational purchasing decisions can be regarded as a rulediscovery process. Rule-discovery tasks involve a search process in which a group of people work together to develop generalizations about patterns in phenomena of interest (Klayman and Ha, 1987). The phenomenon of interest to buying centers is that of determining the set of vendors that will best meet the organization’s requirements for a purchased product. Buying centers choose the best set of vendors under conditions of incomplete information. The uncertainty associated with incomplete information requires the group to
The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 167-180, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419790 167
search for similarities among vendors that have successfully provided products to the organization in the past while also considering the current and future organizational requirements. These generalizations developed by the buying center regarding similarities among successful vendors are used to separate future vendors into two categories: those that will best meet the organization’s needs and those that will not perform adequately. Identifying buying center decisions as rule-discovery tasks is important because it sheds light on the processes involved in such decisions. Acknowledging the process of searching for patterns not only focuses attention on the information members use to derive patterns, but also provides a mechanism for investigating how members influence each other’s assessment of the patterns. Conflict resolution
Buying center members are likely to differ in their vendor preferences; the conflict associated with such differences of opinion is resolved rationally via persuasion or problem solving (Sheth, 1973). Such rational buying center conflict resolution processes involve both informational and normative social influence. Informational social influence is influence to accept information obtained from another person as evidence of reality, while normative social influence is influence to conform with the expectations of others (Deutsch and Gerard, 1955). Social influence has received considerable attention in consumer behavior to explain consumers’ purchase intentions. For example, Fishbein and Azjen’s (1975) theory of reasoned action identifies informational and normative influence as the two components that determine behavioral intentions, and has been used to investigate the purchase intentions of individual consumers (e.g. Ryan, 1982; Netemeyer and Bearden, 1992). Yet, social influence in organizational buyer behavior has received less attention (see Thomas (1982); Chandrashekaran et al. (1996) for examples of exceptions). One reason which may account for the paucity of research addressing this issue is the difficulty in collecting real world data from organizational buying groups. Further research into the use and effect of social influence in group purchasing decisions can enhance our understanding of the process.
Group decision processes
While observation of a large sample of actual organizational purchase decision processes can prove to be quite difficult (Anderson et al., 1987), simulation of such processes through an experimental methodology is not. This paper offers an alternative framework and methodology for investigating the process of buying center decision making. The proposed methodology is adapted from the social psychology literature on group decision processes, where it has been used to examine rule-based decision processes. Research into rule-discovery tasks has the potential to enable monitoring of simulated organizational purchasing decision processes in a controlled environment. The purpose of this paper is to suggest a set of propositions and a methodology for examining rule-discovery task behavior in the buying center. This paper is organized as follows. First, a description of rule-discovery tasks is provided and the application of rule-discovery tasks to organizational purchasing decisions is illustrated through a set of propositions. The format of rule-discovery tasks is enhanced to improve its applicability to standard buying center situations where the members operate under separate reward structures. The enhancement builds in the competition that arises among buying center members as they strive for promotions, raises, and bonuses. Next, a brief review of research on the use and effects of social influence in organizational buying behavior is presented. Propositions regarding the use
168
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
and effectiveness of social influence in buying centers are offered. Finally, a method is described for testing hypotheses derived from the propositions offered in this manuscript, and conclusions are offered about the ability of this new experimental methodology to enhance our understanding of organizational purchasing decisions.
Underlying principles
Choice algorithm
Rule-discovery tasks Discovering the underlying principles that drive various phenomena is a central concern in many facets of life, including organizational decisionmaking groups. A buying center is an example of an organizational decision-making group in which the group members attempt to identify the best set of vendors to provide purchased parts. For example, consider the case of a buying center in an organization that designs and manufactures personal computers. Let us suppose that this buying center is part of a team introducing a new, smaller, and more powerful version of an existing PC to the marketplace. This team can be thought of as a ‘‘launch team’’ because they are ‘‘launching’’ a new product into the market. While some of the components from the current PC can be reused in the design of the new model, the specifications for others require that new components be procured. Let us further suppose that the power supply is one of the components falling into this latter category. In this scenario, the task of procuring the power supply is considered that of a modified rebuy. While the launch team has considerable experience with power supplies based on the previous model of a personal computer, the specification changes require a modest search effort to choose the appropriate component. In this example, the buying center is likely to be comprised of members from multiple departments (e.g. design, manufacturing, customer service, and purchasing). Here the design engineer is likely to assess the power supplies’ back-up time, while the manufacturing representative will likely consider the ease with which the power supplies can be assembled into the personal computer. Similarly, the customer service representative will deliberate over the longterm reliability of the part, and the purchasing agent will evaluate the power supplies’ pricing. Since it is unreasonable to expect that any one member of the buying center will know the information required to assess the power supplies on all the evaluative criteria, the launch team will decide as a group the appropriateness of each power supply. This decision can be modeled as a choice algorithm in the form of a sum of the attribute ratings multiplied by the preference weights for each attribute: Vendor choice ¼ w BT þ x EA þ y ETF þ z UP; where the capital letters refer to the ratings for the component attributes (i.e. BT: back-up time, EA: ease of assembly, ETF: expected time to failure, and UP: unit price), and the small italicized letters (i.e. w, x, y, z) refer to the weights associated with each attribute. In a launch team, responsibility for the attributes lies with different functional departments where the representatives of the functional departments are expected to be experts regarding their respective attributes. Therefore, the attribute ratings assigned to the components are less likely to be questioned by the members of the buying center. However, the weights associated with each attribute will be a matter for discussion: while each department will want to maximize the importance (and hence the weight) of the attribute for which they are responsible, the decision that is best for the organization as a whole will lead to a set of weights that maximizes the attributes that match the organization’s strategy for the product. For instance, if the personal computer into which the
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
169
power supply will be assembled is intended to be a highly reliable computer designed for use by businesses, then the back-up time attribute should be more important than the unit price attribute and should carry a heavier weight. Vendor effectiveness
There are many factors that determine which vendors will most effectively meet the organization’s requirements – the buying center has information regarding some, but not all, of these factors. Promised delivery lead time is an example of available information; however, the buying center does not know the reliability of the component vendor’s material supplies. Thus, the buying center must choose the best set of vendors despite having incomplete information. The group does so by searching for similarities among successful vendors to separate the vendors that will best meet the organization’s needs from the vendors that will not perform adequately. This idea of ‘‘group discovery of underlying principles’’ has been referred to as rule discovery (Crott et al., 1998), hypothesis testing (Klayman and Ha, 1987, 1989), and collective induction (Laughlin and Hollingshead, 1995). Rule-discovery refers to ‘‘the cooperative search for descriptive generalizations’’ (Crott et al., 1998, p. 938). Klayman and Ha (1987, p. 212) describe rule-discovery tasks in the following way: There is a class of objects with which you are concerned; some of the objects have a particular property of interest and others do not. The task of rule discovery is to determine the set of characteristics that differentiate those with this target property from those without it.
Hypothesis testing
Klayman and Ha (1989) refer to the process by which such rules are discovered as hypothesis testing. In other words, people form hypotheses about the ‘‘rules’’ or underlying principles that describe the patterns in phenomena of interest, and then examine evidence provided by the environment to either accept the hypothesis as true or to modify the hypothesis according to the evidence. This process of hypothesis testing can be applied to instances of causation, categorization, prediction, and diagnosis (Klayman and Ha, 1987), and is applied across many different situations, from scientists performing research to people in general learning about how their world works (Klayman and Ha, 1989). Laughlin and Hollingshead (1995, p. 94) define collective induction as ‘‘the cooperative search for descriptive, predictive, and explanatory generalizations, rules, and principles’’. They propose that, in a research setting, the process begins with researchers observing a phenomenon of interest to notice patterns, regularities, or relationships between items. When a pattern is noticed, the researchers describe the patterns in the form of a hypothesis and then either conduct experiments or continue to observe the phenomenon in order to evaluate their hypotheses. If needed, the hypotheses are revised and further experiments or observations are made. This iterative process continues until the research group is satisfied that the final hypothesis chosen adequately describes the pattern in the observed phenomenon.
Correct, plausible and false hypotheses
170
Crott et al. (1998) note that these hypotheses can fall into one of three categories: correct; plausible; and false. Correct hypotheses are those that are identical to the actual rule or principle governing the phenomenon. Plausible hypotheses are those that are not identical to the actual rule but fit the evidence used to generate the hypothesis. False hypotheses are those that are neither identical to the underlying rule nor consistent with the evidence. The assumed advantage of using groups in rule-discovery tasks is that groups JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
have access to wider knowledge areas and so can identify and eliminate more false hypotheses than can individuals. Discover the rule
Organizational purchasing decisions can be identified as rule-discovery tasks. As described above, the launch team attempts to discover the ‘‘rule’’ underlying the phenomenon of interest: choose the best set of power supply vendors. That is, they attempt to induce the appropriate weights in the choice algorithm and agree on the likelihood that each vendor will perform according to their attribute ratings. To do so, the buying center implements the rule-discovery process described earlier. First, the buying center observes the phenomenon by evaluating all the vendors that produce products with the potential to meet the organization’s requirements. Some evaluative criteria are known with certainty. For instance, if we assume that the power supplies being evaluated are already in production, then the sizes of the power supplies are known with certainty. Other outcomes, such as the vendor’s future delivery reliability, will not be known with certainty. Even if the purchasing organization knows the vendor’s historical capabilities for other products, future events like strikes or severe weather could limit the ability of the vendor to meet the shipping schedules in the supply contract.
Matching the organization’s requirements
After evaluating each vendor’s capabilities for the power supply attributes, the launch team members discuss and agree on hypotheses regarding which set of vendors will best match the organization’s requirements. The hypotheses take the form of choices for inclusion in the qualified vendors list (QVL). The use of the launch team to develop the hypotheses, as opposed to a single purchasing agent, presumes that the team will only choose plausible hypotheses. Since together the team is able to evalute adequately the vendors on each of the important attributes, false hypotheses should be eliminated through group discussion. Determination of correct hypotheses can only occur through continued observation of the vendors’ compliance with the purchase agreement over time. Thus, the launch team will be able to eliminate the false hypotheses, but only the performance over time of the chosen vendors will demonstrate if the launch team chose the true hypothesis. This discussion can be summarized as the following proposition: P1. Organizational group purchasing decisions are rule-discovery tasks.
Search for patterns
Identifying buying center decisions as rule-discovery tasks enables investigation of the processes these groups employ when making purchasing decisions. The ways in which buying center members search for patterns in vendor information is an under-explored area in buying center research. However, the format of the rule-discovery task is limited in its applicability, particularly because it assumes the decision-making process to be rational (Laughlin and Hollingshead, 1995). Buying centers do not always use rational problem-solving decision processes; sometimes persuasion or irrational methods like bargaining and politicking are used to resolve conflict (Sheth, 1973). A modification to the rule-discovery task is necessary to account for the buying center decisions that do not use rational problem-solving methods. The required modification is discussed next. Cooperative vs mixed-motive groups The groups used in rule-discovery tasks, hypothesis testing, and collective induction consist of members of equal status who all share equally in the outcome. In social psychology, such groups are known as cooperative groups. Social psychology also considers another type of group: mixed-motive groups. In mixed-motive groups, members do not share equally in the outcome of the decision. Mixed-motive refers to a situation
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
171
where group members are faced with a conflict between the motives to cooperate and to compete with each other (Komorita and Parks, 1995). In such situations, rewards to group members are determined by the joint choices of those involved. Validity of the buygrid model
Buying centers do not fit the prototype of cooperative groups for several reasons. First, often the members of buying centers are not of equal status. In their evaluation of the validity of the buygrid model, Bellizzi and McVey (1983) identified six separate functional groups of varying status (presidents, vice-presidents, and owners; company engineers; architects and consulting engineers; purchasing agents; construction site superintendents; and shop foremen and other building trade workers). The authors found that multiple functional groups were involved in the four types of purchases considered, supporting the contention that buying center members are not always of equal status. Second, buying center members do not generally share equally in the decision outcome. The mechanism by which buying center members share in the decision outcome operates through the rewards system, which defines the pay-offs to the individual decision makers (Webster and Wind, 1972). Anderson and Chambers (1985) succinctly explain the participation-pay-off link by identifying buying center participation as work behavior. That is, buying center members are evaluated, in part or in total, on their participation in the purchase decision, and their formal rewards are based on the result of the evaluation. Since buying center members typically belong to various functional departments, most buying center members will be evaluated by different managers using different goals and objectives. Also, buying center members can potentially receive intrinsic rewards from participation in the buying center decision or from the outcome of the decision (Anderson and Chambers, 1985). Intrinsic rewards are individual differences that are likely to vary among buying center members. Therefore, buying center members do not share equally in the extrinsic and intrinsic rewards resulting from participation in the purchasing decision.
Cooperation vs. competition
Finally, buying center members must choose between cooperation and competition. Competition is fostered through individual reward structures focusing on fulfilment of departmental goals, while cooperation is fostered through incentives to operate in the best interest of the organization as a whole. Therefore, the paradigm of mixed-motive groups is more representative of buying centers than the paradigm of cooperative groups. This notion that mixed-motive groups are more representative of the mode of interaction among buying center members can be combined with the previous proposition, as follows: P2. Organizational group purchasing decisions are mixed-motive rule-discovery tasks. Social influence Deutsch and Gerard (1955, p. 629, italics in original) define ‘‘normative social influence as an influence to conform with the positive expectations (expectations whose fulfilment by another leads to or reinforces positive rather than negative feelings) of another. Informational social influence may be defined as an influence to accept information obtained from another as evidence about reality’’. Normative and informational influence are distinguished by the element of approval: normative influence involves approval or disapproval while informational influence does not (O’Reilly and Caldwell, 1985). Normative influence, then, contains either an explicit
172
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
or implicit reference to what group ‘‘members should do, ought to do, or are expected to do’’ (O’Reilly and Caldwell, 1985, p. 195). Social comparison theory proposes that group members will change their preferences toward the group norm in order to be seen in a favorable light (Isenberg, 1986). Thus, an implicit form of normative influence is mere exposure to the preferences of other group members. Informational influence can come in the form of attribute-value information, which refers to statements of specific information about particular attributes or features of a product (Rosen and Olshavsky, 1987). Additionally, informational influence can take the form of a persuasive argument, or an explanation of preference that focuses on factual aspects of the choice rather than normative aspects of the group (Isenberg, 1986)[1]. Group polarization
Social influence research in social psychology has been driven by research into the phenomenon of group polarization. Group polarization is the tendency of individual group members to shift their preferences in the same direction following group discussion, resulting in less variance among final than initial preferences of group members (Isenberg, 1986; Rao and Steckel, 1991). Isenberg’s (1986) literature review of the social psychology research investigates the ability of social influence to cause group polarization. He compared the abilities of social comparison theory (SCT), a theoretical explanation for normative influence, and persuasive arguments theory (PAT), a theoretical explanation for informational influence, to induce preference changes. Briefly, SCT reasons that people want to present themselves in a favorable light, so people compare themselves with how others present themselves and adjust their self-presentation to match or slightly exceed the group norm. Thus, preference changes are seen as a manifestation of adjustments in self-presentation. PAT suggests that preference changes result from exposure to information that was not considered during the initial preference formation. For the information to induce a preference change, the information must be seen as both valid (i.e. true, logical, fit with existing views) and novel (e.g. new ideas, new organization of existing ideas, access to additional information stored in memory). This research suggests that both types of influence (informational and normative) cause group members’ preferences to shift, but informational influence induces a larger preference shift than normative influence (Isenberg, 1986; Kaplan, 1987). However, neither influence method can be used as the sole predictor of group discussion processes and outcomes; a unified model incorporating both influence methods is likely to be more robust (Kaplan, 1987).
Intellective and judgmental tastes
Decision task type and the group interactive goal affect the use of social influence. Group decision tasks can be separated into two types: intellective and judgmental (Laughlin and Earley, 1982). Intellective tasks are problems or decisions that have a correct answer, such as a mathematical problem. Judgmental tasks, on the other hand, do not have a correct answer because these tasks involve evaluative, behavioral, or aesthetic judgments. Kaplan and Miller (1987) report that informational influence is more prevalent in intellective tasks while normative influence is used more frequently in judgmental tasks. Social influence also varies with the group interactive goal. Groups that are focused on task performance tend to use more informational influence, while groups focused on the socio-emotional interaction between members tend to use more normative influence (Rugs and Kaplan, 1993).
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
173
Organizational buyer behavior research also considers the effect of influence in group decisions, paying particular attention to organizational purchasing decisions. Webster and Wind (1972) acknowledge that preferences of individuals in the buying center are determined by such factors as interpersonal influences. Sheth (1973) identifies the importance of the group decision-making process, postulating that the methods of conflict resolution used by the group impact the quality of the final decision. He proposes two rational methods to resolve conflict regarding vendor preferences: problem solving and persuasion. The problem-solving method requires an iterative process that alternates between searching for additional information and evaluating both the known and new information. The persuasion method is true to its name in that buying center members try to persuade each other towards a particular choice through, for instance, discussion of the ability of the alternatives to meet organization objectives. The influence methods of Deutsch and Gerard (1955) are implicit in Sheth’s (1973) discussion of conflict resolution. Anderson and Chambers (1985) identify the use of both information and rewards and punishments (a form of normative influence) as mechanisms to influence the preferences of buying center members.
174
Organizational and social influence
In empirical research of group purchasing decisions, Thomas (1982) investigates the effects of influence from two separate bases – organizational (formal and informal) and social (normative and informational) – to determine the ability of four influence sources to change the preferences of other buying center members. The specific influence sources considered were: authority (formal, normative); preference (formal, informational); stature (informal, normative), and expertise (informal, informational). For the entire sample, Thomas (1982) found that none of the four sources acting alone was able to cause preference changes. However, the interaction of both the expertise and authority influence sources resulted in a significant effect, as did the interaction of all four sources of influence, supporting Kaplan’s (1987) contention that the most robust models will incorporate both types of social influence. McQuiston (1989) considers the impact of several attributes (novelty, complexity, and importance) of the purchase situation on the participation and influence of buying center members, but his model only considers the effects of informational influence. Chandrashekaran et al. (1996) model the impact of several factors (initial preferences, positive and negative beliefs after group discussion, informational influence, and normative influence) on group member choices in a group purchasing decision. The effects of both informational and normative influence are found to moderate the preferences of individual group members after a period of group interaction, although normative influence is found to be much more significant than informational influence. Given that the decision was a judgmental task, where sorority members were asked to choose the type of free party they would like to receive, the result that normative influence is more significant than informational influence is consistent with the Kaplan and Miller (1987) result.
Power and influence of members
Other research has investigated influence within the buying center without considering the effects of social influence. For instance, Silk and Kalwani (1982) investigate the influence various members of the buying center (managers and users) have at specific stages of the buying process (initiate change, evaluate alternatives, and final decision), but they do not consider influence types. Ronchetto et al. (1989) examine the ability of structural aspects of the buying center (i.e. management level, departmental membership, centrality in the decision making network, access to influential decision makers, and distance from the organization boundary) to affect the JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
power and influence of individual buying center members. Finally, Kohli (1989) explains the effect of various power bases individuals hold, such as expert power and reinforcement power, to influence other members of the buying center.
Persuasive arguments theory
Competitive group processes
Prevalent influence type As stated in the previous section, informational influence causes more preference changes than normative influence (Isenberg, 1986; Kaplan, 1987). The rationale offered by Isenberg (1986) for the ability of informational influence to cause more changes is based on persuasive arguments theory (PAT). PAT states that the persuasiveness of an argument (i.e. the explanation for a preference) depends on the validity and novelty of the argument. Group members form initial preferences based on the valid arguments they develop on their own, and discussion exposes group members to novel arguments (arguments they had not previously considered). Exposure to novel arguments causes the member’s preferences to change such that the variance among member preferences is less after discussion than before discussion, resulting in polarization. Similar to the research on rule-discovery tasks, the conclusion that informational influence is more persuasive also results from research conducted on cooperative groups. However, buying centers are mixedmotive groups, choosing between cooperation with other buying center members to achieve organizational goals and competition with the other members to achieve the departmental goals. Competitive group processes cause members to focus more on differences than similarities (Deutsch, 1969). Since participation in the buying center is typically only a small portion of each member’s responsibilities, the members are likely to feel stronger affiliations with their functional departments than with the buying center (Anderson and Chambers, 1985). Given that the primary affiliation of buying center members is with their functional departments, the individuals will view the other buying center members as the out-group rather than the in-group. Arguments from out-group members are seen as invalid (Isenberg, 1986; Jehn, 1995), so informational influence will not as readily cause preference changes among buying center members as it does among members of cooperative groups. Yet, the buying center task requires that some members change their preferences. Since informational influence is less effective in eliciting the required preference changes, normative influence will be used. Thus, decision-making groups in which the members are competitive rather than cooperative (such as buying centers) will use more normative influence than informational influence. P3. Buying center members use more normative influence than members of cooperative groups. Effectiveness of normative influence Hackman (1976) identifies several mechanisms used by groups to induce preference changes among members. One mechanism is first to change the behavior of members through manipulation of group-controlled rewards: eventually members’ attitudes and preferences will change to align with their behavior. However, this mechanism is only effective when the coercion attempts are subtle. Strong or overt attempts at coercion are typically met with resistance. P3 indicates that buying center members are expected to use more normative influence to induce preference changes in other buying center members. This normative influence will take the form of preference statements and ‘‘should’’ or ‘‘ought to’’ statements. Preference statements
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
175
can be thought of as weak normative influence, because the pressure to comply is implicit or subtle. On the other hand, ‘‘should’’ or ‘‘ought to’’ statements are direct, explicit attempts to convince another to change his or her preference. Since only weak attempts are expected to result in preference changes, statements of preference are expected to cause more preference changes than statements telling another what they ‘‘should’’ or ‘‘ought to’’ do. P4. Weak normative influence (preference statements) will cause more preference changes than strong normative influence (telling another buying center member to change preferences). Real purchase decisions
It is clear that while extensive research has been conducted into the effect of influence in buying center decisions, little research has considered the usage and effects of both informational and normative influence at the same time. The lack of research in this area is due to the difficulty associated with gaining access to actual buying centers as they progress through real purchase decisions. One way to overcome this difficulty is to simulate the purchasing decision in an experiment. The key to the success of this approach is identifying features of the buying center decision process that lend themselves to experimental exploration. As previously described, two such features are rule-discovery tasks and mixed-motive groups. Therefore, in addition to suggesting conceptual frameworks for the task and interaction mode of buying centers, social psychology also offers a methodological framework in which to test hypotheses derived from these propositions. This methodology is presented next. Method Research on rule-discovery tasks, hypothesis testing, and collective induction offers the potential benefits associated with an experimental methodology. As demonstrated by Laughlin and Hollingshead (1995), collective induction lends itself to experimental design. The laboratory experiment that will be used to test the propositions extends the experimental design used by Laughlin and Hollingshead (1995) and offers another avenue for evaluation of the factors affecting organizational purchasing decisions. The experiment will consist of a rule-discovery task similar to that used in Laughlin and Hollingshead (1995), in which groups developed hypotheses about correct series of playing cards. In the Laughlin and Hollingshead (1995) experiment, the experiment administrator designates a specific series of playing cards (from a standard deck of 52 playing cards) as the rule or correct hypothesis. The experimenter then provides a single card to serve as an exemplar of the rule. Next, the members of the group develop hypotheses about the rule, choose among the alternative hypotheses, and then request a specific card from the deck. If the card fits the experimental rule, it is laid to the right of the exemplar; if it does not fit the rule, the card is positioned below the exemplar. The groups are given ten opportunities to develop hypotheses and receive feedback in this manner. Figure 1 provides an example configuration of the results after ten iterations.
The QVL card game
176
This paper proposes an extension to the Laughlin and Hollingshead (1995) collective induction task by developing the ‘‘QVL card game’’. Rather than using a deck of standard playing cards, the QVL card game uses a set of cards that contain multiple attributes of a hypothetical power supply from a hypothetical vendor for assembly into a personal computer. The attributes on the cards will be based on the attributes used in the field study conducted by Wilson et al. (1991). Two of the four attributes will be similar to the JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Figure 1. Sample configuration of card game after ten iterations
Wilson et al. (1991) research (unit price and failure rate), while the other two attributes to be used are the power rating for the power supply and the ease of assembly. Each vendor’s power supply will receive an in-house rating for each attribute. The attribute ratings are specified as one of five levels (from 1 to 5 with 5 being the highest). See Figure 2 for a sample QVL playing card. Demonstrating the rule
The Laughlin and Hollingshead (1995) study demonstrates the rule by requiring the experiment administrator to ‘‘play’’ an initial card. In the current study the experiment administrator will demonstrate the rule through a memorandum stating the positioning strategy used by the buying center’s firm to market the personal computer being produced. Two different decision tasks will be used, each requiring a different marketing strategy. The first decision task involves a personal computer that is a low cost learning ‘‘toy’’ designed for use exclusively by children, which will be marketed as a child’s first PC and targeted at the parents of young children. Implicit in the task is the idea that cost considerations should carry more weight in the vendor choice than other considerations. Implicit in the second decision task, on the other hand, will be the idea that reliability considerations should carry more weight. This manipulation will be implemented by positioning the PC as a high-powered, highly-reliable PC designed for use at businesses. These two scenarios will be used to provide multiple tasks for the experimental groups to solve. The decision task will involve allocating business to three out of the eight available vendors. While many organizations now use sole-sourcing as their strategy for parts procurement, Puto et al. (1985) provide evidence that a strategy of splitting the business among several vendors is practiced regularly. The allocation task will require prioritizing the vendors into tiers
Figure 2. Sample card for QVL card game JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
177
(first, second, and third tier) so that percentage volumes of the annual contract can be assigned. The first tier supplier will receive 60 percent of the annual contract, the second tier supplier will receive 30 percent of the contract, and the third tier supplier will receive the remaining 10 percent of the contract. The subjects will be told that their task is to reach a decision regarding the prioritization of the top three vendors. The group discussion will be videotaped so that the decision-making processes can be further analyzed. In particular, videotaping will enable the coding of participant statements into the categories of informational and normative influence. Operationalizing mixed motive manipulation
Subjects will play the role of members of the hypothetical buying center composed of personnel from the design, purchasing, manufacturing, and customer service departments. Each subject will be given information regarding the power supply requirements that are pertinent to his or her function. The representative from the design department will have information regarding the back-up time, while the representative from purchasing will have information regarding the unit price. The representative from manufacturing will have information regarding the ease of assembly of the unit based on an in-house rating. The representative from customer service will have information regarding the expected in-service failure rate of the power supply. In addition, each subject will be given information regarding his or her goals for the decision, and the effect of the decision outcome on the individual’s annual evaluation. This reward information is used to operationalize the mixed motive manipulation. Conclusion This manuscript proposes a new way to examine organizational purchasing decisions. Organizational purchasing decisions can be thought of as rule-discovery tasks in which members of the buying center develop proposals regarding the best choice of products and vendors. The uncertainty associated with buying center decisions causes the group to search for generalizations that describe the distinguishing characteristics of successful suppliers. Such generalizations describe the ‘‘rules’’ used to categorize future vendors; discovery of the best rules is key to accurate classification. Investigation of this under-researched area is important to researchers who wish to explore the information buying center members’ use to derive patterns, and relevant for practitioners concerned with enhancing their organization’s ability to assess potential vendors. Identifying buying center decisions as rule-discovery tasks further enables this investigation.
Importance of social influence
One area of particular interest in rule-discovery tasks is that of social influence, a topic of importance in buying center decision processes. The experimental method proposed herein can be used to investigate the prevalence of influence types, as well as their effectiveness in causing changes in member preferences after group discussion. The method also lends itself to investigation of other group decision processes, such as the timing of the use of influence types throughout the process. Changes in the dominant influence type may be observed resulting from approaching deadlines, or from the effects of positive and negative feedback. Propositions such as these can now be investigated in a controlled environment using the QVL card game experimental design. This research seeks to move beyond mere application of rule-discovery to buying center decision processes; it also seeks to extend the rule-discovery paradigm to make it applicable to a wider class of groups. Rule-discovery tasks have traditionally been associated with cooperative groups, but buying
178
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
centers are better modeled as mixed-motive groups. Therefore, this research not only demonstrates a way to explicate the influence processes in buying centers in particular, but it also extends the research of group decision making in general by modeling competition among members of rulediscovery tasks. Such insight can improve the predictability of buying center decision outcomes, and enable researchers and practitioners to develop better decision processes to enhance organization outcomes. Note 1. These descriptions of social influence forms indicate that normative and informational influence are statements that attempt to cause preference changes; these attempts are not always successful. References Anderson, E., Chu, W. and Weitz, B. (1987), ‘‘Industrial purchasing: an empirical exploration of the buyclass framework’’, Journal of Marketing, Vol. 51, July, pp. 71-86. Anderson, P.F. and Chambers, T.M. (1985), ‘‘A reward/measurement model of organizational buying behavior’’, Journal of Marketing, Vol. 49, Spring, pp. 7-23. Bellizzi, J.A. and McVey, P. (1983), ‘‘How valid is the buy-grid model?’’, Industrial Marketing Management, Vol. 12, pp. 57-62. Chandrashekaran, M., Walker, B.A., Ward, J.C. and Reingen, P.H. (1996), ‘‘Modeling individual preference evolution and choice in a dynamic group setting’’, Journal of Marketing Research, Vol. 33, May, pp. 211-23. Crott, H.W., Giesel, M. and Hoffmann, C. (1998), ‘‘The process of inductive inference in groups: the use of positive and negative hypothesis and target testing in sequential rule-discovery tasks’’, Journal of Personality and Social Psychology, Vol. 75 No. 4, pp. 938-52. Deutsch, M. (1969), ‘‘Conflicts: productive and destructive’’, Journal of Social Issues, Vol. 25 No. 1, pp. 7-41. Deutsch, M. and Gerard, H.B. (1955), ‘‘A study of normative and informational social influences upon individual judgment’’, Journal of Abnormal and Social Psychology, Vol. 51, pp. 629-36. Fishbein, M. and Azjen, I. (1975), Belief, Attitude, Intention, and Behavior: An Introduction to Theory and Research, Addison-Wesley, Reading, MA. Hackman, J.R. (1976), ‘‘Group influences on individuals’’, in Dunnette, M.D. (Ed.), Handbook of Industrial and Organizational Psychology, Rand-McNally, Chicago, IL, pp. 1455-1525. Isenberg, D.J. (1986), ‘‘Group polarization: a critical review and meta-analysis’’, Journal of Personality and Social Psychology, Vol. 50 No. 6, pp. 1141-51. Jehn, K.A. (1995), ‘‘A multimethod examination of the benefits and detriments of intragroup conflict’’, Administrative Science Quarterly, Vol. 40, pp. 256-82. Kaplan, M.F. (1987), ‘‘The influencing process in group decision making’’, in Hendrick, C. (Ed.), Group Processes, Sage Publications, Newbury Park, CA, pp. 189-212. Kaplan, M.F. and Miller, C.E. (1987), ‘‘Group decision making and normative versus informational influence: effects of type of issue and assigned decision rule’’, Journal of Personality and Social Psychology, Vol. 53 No. 2, pp. 306-13. Klayman, J. and Ha, Y. (1987), ‘‘Confirmation, disconfirmation, and information in hypothesis testing’’, Psychological Review, Vol. 94 No. 2, pp. 211-28. Klayman, J. and Ha, Y. (1989), ‘‘Hypothesis testing in rule discovery: strategy, structure, and content’’, Journal of Experimental Psychology: Learning, Memory, and Cognition, Vol. 15 No. 4, pp. 596-604. Kohli, A. (1989), ‘‘Determinants of influence in organizational buying: a contingency approach’’, Journal of Marketing, Vol. 53, July, pp. 50-65. Komorita, S.S. and Parks, C.D. (1995), ‘‘Interpersonal relations: mixed-motive interaction’’, Annual Review of Psychology, Vol. 46, pp. 183-207. Laughlin, P.R. and Earley, P.C. (1982), ‘‘Social combination models, persuasive arguments theory, social comparison theory, and choice shift’’, Journal of Personality and Social Psychology, Vol. 42 No. 2, pp. 273-80. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
179
Laughlin, P.R. and Hollingshead, A.B. (1995), ‘‘A theory of collective induction’’, Organizational Behavior and Human Decision Processes, Vol. 61 No. 1, January, pp. 94-107. McQuiston, D.H. (1989), ‘‘Novelty, complexity, and importance as causal determinants of industrial buyer behavior’’, Journal of Marketing, Vol. 53, April, pp. 66-79. Netemeyer, R.G. and Bearden, W.O. (1992), ‘‘A comparative analysis of two models of behavioral intention’’, Journal of the Academy of Marketing Science, Vol. 20 No. 1, pp. 49-59. O’Reilly III, C.A. and Caldwell, D.F. (1985), ‘‘The impact of normative social influence and cohesiveness on task perceptions and attitudes: a social information processing approach’’, Journal of Occupational Psychology, Vol. 58, pp. 193-206. Puto, C.P., Patton III, W.E. and King, R.H. (1985), ‘‘Risk handling strategies in industrial vendor selection decisions’’, Journal of Marketing, Vol. 49, Winter, pp. 89-98. Rao, V.R. and Steckel, J.H. (1991), ‘‘A polarization model for describing group preferences’’, Journal of Consumer Research, Vol. 18, June, pp. 108-18. Robinson, P.J., Faris, C.W. and Wind, Y. (1967), Industrial Buying and Creative Marketing, Allyn & Bacon, Boston, MA. Ronchetto, J.R., Jr, Hutt, M.D. and Reingen, P.H. (1989), ‘‘Embedded influence patterns in organizational buying systems’’, Journal of Marketing, Vol. 53, October, pp. 51-62. Rosen, D.L. and Olshavsky, R.W. (1987), ‘‘The dual role of informational social influence: implications for marketing management’’, Journal of Business Research, Vol. 15, pp. 123-44. Rugs, D. and Kaplan, M.F. (1993), ‘‘Effectiveness of informational and normative influences in group decision making depends on the group interactive goal’’, British Journal of Social Psychology, Vol. 32, pp. 147-58. Ryan, M.J. (1982), ‘‘Behavioral intention formation: the interdependency of attitudinal and social influence variables’’, Journal of Consumer Research, Vol. 9, December, pp. 263-78. Sheth, J.N. (1973), ‘‘A model of industrial buyer behavior’’, Journal of Marketing, Vol. 37, October, pp. 50-6. Silk, A.J. and Kalwani, M.U. (1982), ‘‘Measuring influence in organizational purchase decisions’’, Journal of Marketing Research, Vol. 19, May, pp. 165-81. Thomas, R.J. (1982), ‘‘Correlates of interpersonal purchase influence in organizations’’, Journal of Consumer Research, Vol. 9, September, pp. 171-82. Webster Jr, F.E. and Wind, Y. (1972), ‘‘A general model for understanding organizational buying behavior’’, Journal of Marketing, Vol. 36 (April), pp. 12-19. Wilson, E.J., Lilien, G.L. and Wilson, D.T. (1991), ‘‘Developing and testing a contingency paradigm of group choice in organizational buying’’, Journal of Marketing Research, Vol. 23, November, pp. 452-66.
&
180
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Stakeholder analysis for multi-sector innovations Michele D. Bunn Assistant Professor of Marketing, Department of Management and Marketing, The University of Alabama, Tuscaloosa, Alabama, USA
Grant T. Savage Professor of Management, Department of Management and Marketing, The University of Alabama, Tuscaloose, Alabama, USA
Betsy B. Holloway PhD Candidate, Department of Management and Marketing, The University of Alabama, Tuscaloose, Alabama, USA
Keywords Business-to-business marketing, Innovation, Stakeholders, Marketing strategy, Public sector Abstract Business-to-business technology development firms face a unique set of challenges when participating in the opportunities made possible by emerging multisector innovations. The greatest challenge involves the firm’s efforts to influence and shape the market in its favor. This requires strategies for dealing with numerous stakeholders – many with which the firm has had little experience. Because both the risks and pay-offs are great, the firm needs an analytical and systematic process for stakeholder analysis to provide the basis for stakeholder management strategies. The case of one significant multi-sector innovation – wireless technologies for integrated traffic management and emergency response – provides an illustrative context for demonstrating a five-step process for stakeholder analysis.
Introduction Technological innovation drives many of the revolutionary changes in business-to-business markets. The scope of high-tech markets has expanded greatly from computers and telecommunications to basic industries such as oil and gas, food and beverages, and transportation. In fact, no industry sector has gone untouched by technological innovation. Central to much of this innovative activity are ‘‘business-to-business technology firms’’. These firms research, develop, and commercialize the numerous components and sub-systems that become linked in complex innovative applications. They comprise a large and growing number of firms selling to a broad range of industry sectors (Mohr, 2001). Fresh perspectives for success
‘‘Multi-sector’’ innovations present the greatest opportunities for growth and profits, however, they are also characterized by complicated product development and marketing decisions. In particular, the stakeholder relations surrounding multi-sector innovations create challenges unseen in other product development projects. Given the enormous up-side potential, technology development firms need fresh perspectives to be successful in the deployment of multi-sector innovations. The nature of multi-sector innovations Innovations are often characterized on a continuum from ‘‘incremental’’ to ‘‘radical’’ (Mohr, 2001). Radical innovations create supply-side markets
The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 181-203, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419808
181
driven by the functional performance of a new technology (Cooper, 2000). The most dramatic breakthroughs, however, come from the convergence of several technologies with profound changes in society and industry (Tofler, 1980). We refer to these as ‘‘multi-sector innovations’’. Their characteristics include: powerful effects on the political, behavioral, economic, social, and technological environments; both public and private sector participation; blending of old and new technologies; and both lateral and vertical relationships within and across sectors. Multi-sector innovations are unique and rare, yet an extremely important type of innovation because their impact is broad in scope and long-lasting. The difference of multisector innovations
The most important difference between multi-sector innovations and other types of radically new products is the relevance of a wide range of organizations or ‘‘stakeholders’’ influencing the success of the innovation. Examples of multi-sector innovations include the development of biotechnology products, satellite cable TV, alternative energy sources, and integrated intelligent transportation systems. Stakeholder analysis process While the scope and impact of multi-sector innovations is irrefutable, the most appropriate product development and marketing approaches remain unclear. The unique challenge for a business-to-business technology development firm is understanding the dynamics of the stakeholder influences that shape the potential opportunity. Recognizing the complexity of multi-sector innovations, we propose a stakeholder analysis approach for understanding the importance and nature of various stakeholder groups and their impact on market development. Based on field research and an iterative review of the various literatures, we develop a five-step process:
Five-step process
(1) Identify the key sectors and stakeholders relevant to the multi-sector innovation. (2) Describe important characteristics of each stakeholder group. (3) Analyze and classify the stakeholders according to stakeholder attributes. (4) Examine the dynamic relationships among stakeholders. (5) Evaluate generic stakeholder management strategies. The process serves as the foundation for developing specific strategies and allocating resources to deal with critical stakeholders. We apply the five-step stakeholder analysis process in the context of a specific multi-sector innovation from the perspective of a business-to-business technology developer. Integrated traffic management and emergency response system An integrated traffic management and emergency response system is an innovative approach to sharing data and coordinating resources between and among traffic agencies and medical response organizations. The potential for an integrated traffic management and emergency response system emerged from the confluence of several events and conditions. The number of vehicles on US roadways is growing faster than capacity, and traffic congestion is increasing. Crashes and other roadway incidents create additional traffic tie-ups and often result in secondary events. Though the number of cellular phones has increased dramatically, no location information is available from wireless phones and drivers often cannot pinpoint their own location. In serious crashes, the driver may be
182
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
unconscious or injured and cannot place the call. When responding to crashes, emergency services organizations have little information to deploy the appropriate response. Further, due to lack of traffic information, emergency vehicles have difficulty choosing the best route to the incident through and around the traffic tie-ups. Saving lives, time and money
The basic concept of an integrated traffic management and emergency response system rests on the ability to collect, store, process and distribute information for the purposes of saving lives, time and money. This capability emerged from the work on ‘‘intelligent transportation systems’’ (ITS) – the application of information, communications, and control technologies to improve the operation of the transport network. The basic traffic applications include synchronization of traffic signals, variable message signs to indicate traffic delays and construction, and electronic toll collection. To deal with the inability to locate wireless emergency callers, the Federal Communications Commission has mandated that wireless carriers provide public safety answering points (PSAPs or ‘‘911’’ operators) with the location of wireless 9-1-1 callers (Federal Communications Commission, 1996) – known as ‘‘E9-1-1’’. Meanwhile, the growth of telematics (communicating with in-vehicle devices) is explosive – over 1.5 million automobiles were expected to be equipped with telematics by the end of 2000 (Maples, 2001). This combination of events created the opportunity for a fully integrated traffic management and emergency response system to coordinate highway and medical resources in the case of roadway incidents. The system would save lives, reduce the impact of serious injuries, conserve public safety resources, and improve transportation efficiency (Rendell, 1999). The ability to deploy such a system, however, rests on two key technological developments: ‘‘geo-location’’ and ‘‘automatic collision notification’’.
Geo-location for traffic management
Innovations in geo-location technology create the capability to capture location data for E9-1-1 response. One method relies on the signal sent periodically when a wireless phone activates to indicate the location for incoming calls (‘‘I am here’’). Another method uses the signal sent out from the cellular phone during a call. These signals, not simply the relatively infrequent E9-1-1 calls, provide geo-location for traffic management – an application known as ‘‘traffic probes’’ (The Washington Post Online, 1999). Wireless geo-location technology can therefore provide real-time traffic data for all roadways covered by cellular service (Kelley, 2000). Wireless technology is also capable of improving emergency response through automatic collision notification (ACN) devices installed in vehicles. The ACN device automatically senses a crash and immediately relays the ‘‘crash pulse’’ along with other information on severity and location to the E9-1-1 dispatcher. Although more than a dozen commercial in-vehicle devices are currently available in original equipment from the automobile manufacturers (e.g. General Motors’ OnStar), these have limited capabilities and use a third-party call center rather than being fully integrated with the PSAPs or ‘‘911’’ operators. The more advanced ACN systems currently under development by business-to-business technology firms hold much promise to provide a faster emergency response as well as more appropriate medical treatment. ACN therefore has the potential to lower death rates and injury severity. The diagram in Figure 1 provides an overview of an integrated traffic management and emergency response system based on up-and-coming telecommunications and ITS technologies.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
183
184
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Figure 1. The context – wireless technologies for integrated traffic management and emergency response
At the heart of the system is a ‘‘voice and data network’’ that gathers and distributes information on the inputs, actions, and outputs of various contributors to and users of the system. The two boxes on the far left side – ‘‘Conditions and planned events’’ and ‘‘Unplanned events’’ – provide the primary sources of data flowing into the network. The two boxes on the far right represent the major beneficiaries of the system – ‘‘Traffic management’’ and ‘‘Emergency response system’’. At the top are two boxes capturing important by-products of the integrated system – ‘‘Commercial services’’ and ‘‘Research and analysis for system improvements’’. The commercial services include revenue-generating products that might be sold to government agencies, companies, or consumers. Research and analysis focuses on changes to various aspects of the system for improved performance. The benefits to users and the public are obvious and significant. Deployment of the fully integrated system, however, would require the participation, cooperation, and/or support of numerous stakeholders from various sectors – emergency responders, medical services, government agencies, commercial suppliers, commercial users, and others. Opportunities for business-tobusiness technology firms include the development of various products that provide important capabilities to the system and to many of these stakeholder groups. These include, for example, crash sensors (to detect incidents), location devices (GPS or related technologies), telematics platforms (to communicate out of the car), and equipment to receive and display the messages (computer assisted dispatch equipment). Clearly, the integration of traffic management and emergency response represents a multi-sector innovation with enormous potential for technology development firms to realize sales revenue and profit growth. Making the system reality
The means to making the integrated system a reality, however, are both vague and tenuous. The potential emerges from a unique mix of market, political, technological, and institutional circumstances. These include an interrelated set of both enablers and barriers to deployment – the likes of which many technology development firms have not encountered in previous product development efforts. Issues facing the technology development firm Firms that recognize the up-side potential of this multi-sector innovation face a basic set of decisions that are common to all new product development processes (Sivadas and Dwyer, 2000; Wind and Mahajan, 1997). These include, for example:
Challenges
.
What products should the company develop to take advantage of the market opportunities created by a multi-sector innovation?
.
How should the company fund the research and development efforts related to a multi-sector innovation?
.
What entry strategy is appropriate for the markets emerging from a multi-sector innovation?
Although these decisions are relevant to many new product opportunities, there is added complexity in the context of multi-sector innovations. More importantly, however, the technology development firm faces different challenges when trying to take advantage of multi-sector innovations: .
Should the firm attempt to actively influence market demand and readiness in its favor?
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
185
.
What relationships should the firm develop with various stakeholders?
These questions concern the extent to which the firm is ‘‘market-driven’’ versus ‘‘market-driving’’ (Jaworski et al., 2000). Market-driven firms are likely to take a ‘‘wait and see’’ approach as the market develops. This is logical if the firm can predict how the multi-sector innovation will take shape in the marketplace, or if the firm believes the pay-off is too uncertain to take much risk. On the other hand, market-driving firms are likely to take an active role in shaping the market in a direction from which the firm benefits. This clearly involves more resources and risks, but also increases the likelihood of greater success – if and when – the innovation emerges in the marketplace. If the firm takes a proactive approach, however, it will – of necessity – become involved in stakeholder relations. The business-tobusiness technology development firm therefore needs a logical and organized approach to identifying, analyzing, and managing relevant stakeholder relationships. Stakeholder theory approach Planning for multi-sector innovations requires an understanding of the stakeholders and ‘‘the environmental issues that bind them together’’ (Cooper, 2000, p. 8). A stakeholder approach therefore holds much promise as a conceptual framework and analytical tool. There have been several uses of stakeholder concepts in the marketing literature. Most of the attention has focused on socially responsible purchasing (Drumwright, 1994), the design of green products (Polonsky and Ottman, 1998), and incorporating ecological considerations into the marketing strategy (Polonsky, 1995). More recently, Cooper (2000) emphasized the importance of stakeholder groups and the need to analyze their interests and influence with regard to radically new products. Unfortunately, with these few rare exceptions, the concept of a ‘‘stakeholder’’ from a marketing perspective is narrowly defined. Moreover, few concepts are well developed within the context of multi-sector innovations. We therefore turned to the management literature for useful concepts and tools. Stakeholders and academic research
The idea that firms have stakeholders relevant to important corporate decisions is commonly accepted in the management literature. Stakeholder constructs were inherent in the early work of system theorists (i.e. March and Simon, 1958), but it was Freeman’s (1984) seminal publication that brought stakeholder theory to the forefront of academic research. By 1995, there were more than a dozen books and over 100 articles focusing primarily on stakeholder concepts (Donaldson and Preston, 1995). Since then an international network of scholars and management experts has emerged (Huxham, 1996). For instance, The University of Toronto’s ‘‘Redefining the corporation’’ project supports a Web site to facilitate this network (http:// mgmt.utoronto.ca/~stake/index.htm). The conceptualization of stakeholders and stakeholder management is quite broad – a circumstance that is both beneficial and troublesome for the application to marketing problems. On the one hand, stakeholder theory provides a set of overarching concepts in which to frame a variety of company decisions and issues. On the other hand, there is little consistency in definitions and uses, resulting in diverse and contradictory evidence and arguments.
Three characteristics of research
186
Across the wide range of research in the area, we note three distinguishing characteristics of most stakeholder research. First, stakeholder research focuses primarily on dyadic ties between a stakeholder and the focal firm – JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
often between the firm and its shareholders, or between the firm and its employees (Rowley, 1997; Kochan and Rubinstein, 2000). Second, stakeholder research generally takes the perspective that stakeholder groups put demands (claims) or pressures on the firm, forcing the firm to respond or otherwise ‘‘placate’’ the stakeholders. Thus, there is a premise of an adversarial relationship (or dependency). Finally, stakeholder research mostly focuses on public policy issues such as ethical controversies (re: negative publicity) and social responsibility (re: dealing with minority groups). These characteristics of stakeholder research somewhat limit its application to marketing decisions. Other work in stakeholder theory, however, portrays stakeholder behavior and stakeholder management in ways more useful to a marketing context. Applying a social network perspective, research has considered the multiple and interdependent interactions that exist simultaneously (Rowley, 1997). Thus, stakeholders are conceptualized as having direct relationships with one another. In addition, coalitions of stakeholders are considered in the larger network of stakeholders, firms cooperate with some stakeholders, and firms are able to transform stakeholder relationships (Savage et al., 1991). Adaptations of the literature
Considering both traditional stakeholder research and emerging thought, and taking into account the work in the marketing literature on new product development and marketing relationships, we adapt the stakeholder concept to the study of multi-sector innovations. Our approach is characterized by the following adaptations of the previous literatures: .
The business-to-business technology development firm is one of the stakeholders relevant to a multi-sector innovation, although it is not necessarily at the center of the stakeholder network.
.
The firm is seeking opportunities by influencing stakeholder relationships rather than being reactive to stakeholder demands or trying to ‘‘satisfy’’ other stakeholders.
.
Not all stakeholders relevant to the multi-sector innovation have direct relationships with one another – in fact, the firm may not have any direct relationship with some or many critical stakeholders.
Based on these premises, we developed a stakeholder analysis process for business-to-business technology firms to better take advantage of the enormous potential for sales growth and profit from multi-sector innovations. Methodology As previously discussed, multi-sector innovations are rare, evolve over long periods of time across multiple sectors, and emerge from a complex set of market, political, technological, and institutional dynamics. The nature of these innovations therefore precludes many traditional research methods (Miles and Huberman, 1994). We relied on a qualitative research design that was an iterative process of fieldwork and literature review. Through this research method, we developed and applied the key steps of a stakeholder analysis process. The context was a feasibility study of an integrated traffic management and emergency response system in Birmingham, Alabama. Several developments at the state and local level created an opportunistic level of readiness for such a system. The Department of Transportation for the City of Birmingham JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
187
began an ambitious enhancement of the traffic management system and appeared receptive to a variety of technologies. Birmingham and the surrounding area was designated a ‘‘non-attainment’’ area for vehicle emissions and was seeking efficient ways to conform. In addition, The University of Alabama at Birmingham was successfully operating a six-county trauma response network, and the emergency response community was mobilized for a multi-jurisdictional effort. The motivations for the development of an integrated system focused on the local needs for improved traffic flow, better management of incidents, fewer accidents, improved survival rates from crashes, and lower severity of injuries. The project was funded by a grant from the University Transportation Center for Alabama (UTCA) in partnership with ComCARE Alliance (Communications for Coordinated Assistance and Response to Emergencies, based in Washington, DC) and Center for Transportation Injury Research (CenTIR) at the State University of New York at Buffalo. We identified and convened a diverse set of stakeholders and established task forces to focus on specific issues. An organizational structure was created to coordinate and facilitate the stakeholder exchanges. Throughout the project, we attended national conferences of key stakeholder groups, held numerous meetings and forums of stakeholders relevant to a possible deployment in Birmingham, conducted informal interviews with participants (n = 143), and completed structured in-depth interviews with key respondents (n = 45). The study lasted 12 months.
Applying the five-step process
The five-step stakeholder analysis process In this section we develop and apply the five-step stakeholder analysis process to the integrated traffic management and emergency response system described earlier in the paper. While this analysis can be approached from the perspective of any one of the relevant stakeholders, we take the perspective of the business-to-business technology development firm seeking deployment in Alabama. We assume, for discussion purposes, that the firm is developing crash sensors that would be imbedded in the vehicle to detect an impact. Note, however, that we base this analysis on our experience with the feasibility study in Alabama. An analysis performed in a different context, or in the same context – but taken from a different perspective – would produce different results than those reported here. Furthermore, space limitations preclude us from describing and discussing every one of the stakeholder issues and relationships. Our purpose is to use the context to illustrate the process and to highlight its usefulness to a business-to-business technology development firm. Step 1. Identify key sectors and stakeholder groups Adapting Freeman’s (1984, p. 46) characterization, we define stakeholders as ‘‘any group or individual who can affect or is affected by the deployment of the multi-sector innovation’’. These stakeholders have either direct or indirect relevance to the firm’s economic interests in selling a specific technology product. It therefore includes both actual and latent stakeholders. The firm does not necessarily have a relationship with all stakeholders – but each influences whether the technology is deployed – and hence whether the market for the firm’s product will develop and grow.
Relevant sectors influencing deployment
188
In the case of the integrated traffic management and emergency response system, a handful of the sectors are apparent. These include the emergency responders (911, police, fire, and ambulance services), medical care providers (trauma centers and community hospitals), transportation agencies, JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
telephone companies (wireline and wireless), and the community. Other important and relevant sectors are commercial users of the system (i.e. fleet operators) and suppliers of various elements of the system (hardware and software companies, including the technology development firms). Less obvious are other sectors that have proven to have critical influences on the potential deployment of the integrated system: non-profit organizations, other government agencies (in addition to those involved in traffic management and emergency response), and educational and research institutions. The major sectors and stakeholder groups identified in our study are listed in the first two columns of Table I. The broad diversity of stakeholders relevant to multi-sector innovations is evident. Learning process
Identification of relevant stakeholders requires a working knowledge of the integrated system and the organizations that have a ‘‘stake’’ in its deployment. As the firm learns more about the relevant stakeholders, others will be added to the list and the process would then iterate again through the steps outlined below. The learning process is similar to that involved in building organizational memory relevant to new product development creativity (Moorman and Miner, 1997). Step 2. Describe stakeholder interests and resources The second step is to understand the nature of these stakeholders and why they should be further considered in the analysis. This involves a description of the stakeholders in terms of their scope (local, state, regional, national, or international), why they might be interested in the integrated system (benefits to stakeholder group), their perceptions of the downside risks, and the contributions they could make toward successful deployment (resources offered). These four characteristics are described in Table I for each of the stakeholder groups.
Benefits of the integrated system
For many stakeholders, the benefits of the integrated traffic management and emergency response system concern the ability to more effectively achieve the stakeholder’s mission. For those involved directly in the system, these include, for example, faster emergency response, more appropriate response, improved traffic flow, and hazard elimination. Efficiency is also a major benefit as stakeholders see the system as a way to reduce operational costs. For other stakeholders, the benefits accrue indirectly through their members or constituents. The downside risks facing the stakeholder groups vary widely. Many arise from the multi-jurisdictional nature of the integrated system, concerns about privacy and security, competition with other stakeholders, the cost requirements for upgrading equipment and skills, and general uncertainty about the ability of the integrated system to achieve the lofty benefits that have been promised by the more ‘‘visionary’’ stakeholders.
Demand for products and services
One of the major resources offered by stakeholders to the success of integrated deployment is obviously the demand for the products and services that would drive the revenue to the technology development firms. In addition, various stakeholders provide influence by way of educating potential users, funding for development work, political actions, and the development of systems standards. Given the broad range of stakeholders with varying perceptions of benefits and diverse resources offered, the technology development firm needs
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
189
190
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Local
Community hospitals
State and Emergency national Management Agency (EMA) US Department National of Transportation
Local and regional
Local
Local
Local
Local and regional
Trauma centers
Local fire departments Ambulance services
Public service answering points (PSAPs) Local police departments
Stakeholder group Scope
Fulfils important TEA-21 legislative goals
Quick and appropriate deployment of resources
Fewer transfers of inappropriate patients
Reduced response time, accurate and appropriate response, minimize system costs Accurate information about incidents, reduced response time, appropriate response Better routing of emergency equipment with real-time traffic information Quick response, data supports patient transport decisions and removes hospitalbased pressures Injury type and severity data for appropriate treatment
Benefits to stakeholder group
Table I. Key stakeholders for integrated traffic management and emergency response system
Transportation agencies
EMS/trauma
Police/fire
911
Sector
May require new regulatory actions
Cost of data puts additional pressure on already slim margins, uncertainty about the benefits Creates pressure for revised trauma triage guidelines, introduces political issues related to transport policies Creates pressure for revised trauma triage guidelines, introduces political issues related to transport policies Potential lack of control may be threatening to the organization
Buyers of services, ability to educate a wide range of agencies on the benefits of the system Funding for demonstration projects, political influence (continued)
Buyers of services, provide outcomes data for prediction algorithms Buyers of services
Buyers of services
Buyers of services
Buyers of services, may have strong local political influence
Buyers of equipment and services, stimulate market demand
Variety of systems having different capabilities and reliabilities Accentuates sensitive issues associated with dispatch of ‘‘competing’’ police services in overlapping jurisdictions Need to upgrade equipment
Resources offered
Down-side risks
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
191
National and international
Local and regional
National
Table I. Key stakeholders for integrated traffic management and emergency response system
Third-party call centers Traffic information providers Automobile manufacturers
Potential liability issues should equipment failures occur
Market position, vehicle safety and convenience features
Down-side risks
Commercial suppliers
Benefits to stakeholder group
Meet clean-air requirements, provide real- Threatens traditional, accepted roadtime traffic data building mentality Reduce congestion, efficient use of funding Lacks the ability to win over key stakeholders Reduced travel time, emergency location, Potential loss of privacy, exposure to appropriate emergency response liability Some groups do not recognize benefits or View the system as a threat to privacy believe the costs outweigh the benefits Traffic information, safety, cost Exposure to liability due to availability of minimization through reduced idling time crash data Cost minimization through improved Reluctance to accept new products not scheduling proven by the large operators Opens legal issues about ownership and use Reduce costs (settle claims quickly, fewer of data stolen vehicles), novel billing strategies based on type and amount of vehicle use Access to network services, member Liability issues associated with handling features time-critical emergency calls Real-time traffic data Business model is unclear, not sure if costs can be recouped through service billing
Stakeholder group Scope
State Department State of Transportation City Traffic Local Department Community Traveling public Local and regional Privacy advocate National groups Fleet operators Large fleet Regional or operators national Small fleet Local operators Other Insurance National commercial users companies
Sector
Buyer of component products, promote features, stimulate demand at consumer level (continued)
Buyers of services
Established base of customers
Could provide strong public support if concerns are overcome Direct buyers of products and service, sales revenue Indirect buyers of products and services, stimulate market demand Buyers of services, stimulate demand
Demand for services
Allocation of state dollars to highway projects Local deployment of infrastructure
Resources offered
192
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
National
Lacks resources to rally support of other stakeholders, uncomfortable with leadership role Diverts attention from other issues and (Varies depending on the group) deployment to achieve outcomes desired by programs, uncertain links to association’s mission members
Traffic data for modeling and decision making
Local and regional
Members of US Congress Federal Communications Commission Regional Planning Commission Professional associations
Market share, long-term revenue and profit High initial costs with uncertain revenue growth stream Long-term revenue and Potential liability issues should equipment profit growth failures occur, uncertain revenue stream Long-term revenue and profit growth Unknown market demand, unclear business model Develop specialized expertise, assure future Lack of information and past knowledge to consulting relationships assess opportunities Benefits to constituencies Diverts funding from other pet projects, privacy issues are sensitive and very visible Compliance with Problems with enforcement FCC mandates
Regional or national National or international Regional or national Regional or national State and national National
Wireless carriers Component suppliers Systems integrators Consultants
Down-side risks
Benefits to stakeholder group
Stakeholder group Scope
Table I. Key stakeholders for integrated traffic management and emergency response system
Non-profit organizations
Other government
Sector
(continued)
Controls some funding for highway projects, potential local and regional political influence Support of various professional groups
Influence favorable legislation and appropriations Pressure key stakeholders to implement E-911 upgrades
Access to other stakeholders
Competitors or partners
Strategic partner, system development Competitors or partners
Resources offered
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
193
Table I.
Education and research
Sector Meets diverse needs of coalition members
Implementation of universal emergency telephone number system, technological advancement, member services Trucking industry image
National
National
Local and regional National
Coalitions
National Emergency Number Association State trucking association American Trucking Association University transportation centers Injury research centers Obtain data for research studies
Creates need for additional research to effectively employ technology
Regional and national Regional and national
Member services, efficiency, highway and driver safety, educate members
Benefits to stakeholder group
Stakeholder group Scope
Resources offered
Unclear research objectives, need to align with certain stakeholders may alienate others Requires new partnerships with private sector
Contradicts previous position in support of additional roadways Uncertainty about members’ preferences
Funding for research studies and model deployments, expertise
Funding for research studies and model deployments, expertise
Promote system among members, stimulate market demand Trade show sponsor, influence members, advocate standards
Pulls together a wide range of influence centered on the multisector innovation Difficulties of influencing other sectors Trade show sponsor, influence outside the emergency response community standards, communication to members
Divergent motivations, difficult to solidify support
Down-side risks
further analysis to develop strategies for influencing the market to its advantage. Step 3. Analyze and classify stakeholders according to stakeholder attributes The third step is the heart of the analysis and the most critical aspect of the stakeholder analysis process. Moving beyond the descriptions in step two (above), the analysis and classification of the stakeholders relevant to a multi-sector innovation give the firm a clearer picture of stakeholder positions – leading the way for the development of stakeholder relationship strategies. The analysis performed in this step is based on the work of Mitchell et al. (1997) who propose three attributes – power, legitimacy, and urgency – to categorize stakeholders into seven groups based on whether they possess one, two, or three of the attributes. Figure 2 shows the basic framework. Stakeholder power is often difficult to define, but not difficult to recognize. We follow Salancik and Pfeffer’s (1974, p. 3) conceptualization of power, ‘‘the ability to bring about the outcomes the stakeholder desires’’. Some themes related to power include centrality in the stakeholder structure (ties to many stakeholders), control over other stakeholders, ability to act as an intermediary between two other stakeholders (broker or gatekeeper), or economic power. Legitimacy is socially construed
Stakeholder legitimacy concerns the extent to which a stakeholder is accepted within the network of relationships. More specifically, legitimacy is the ‘‘perception that the actions of the stakeholder are desirable, proper, or appropriate within some socially construed system of norms, values, beliefs, and definitions’’ (Suchman, 1995, p. 574). It is important to note that legitimacy is socially construed in contrast to a narrowly defined legal standing.
Figure 2. Stakeholder typology 194
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
The third attribute, urgency, is the extent to which the stakeholder’s attention to the multi-sector innovation is heightened. In the context of a multi-sector innovation, urgency includes two aspects: the multi-sector innovation is important to the stakeholder, and the stakeholder’s interest is time-sensitive. The analysis of each of the stakeholders described in Table I according to these three attributes results in the categorization of the stakeholders into the seven types of stakeholders shown in Table II. Stakeholders increase in salience to the multi-sector innovation depending on the extent to which they possess the three attributes. A discussion of the seven stakeholder categories
Stakeholder types Latent (one attribute) Dormant stakeholder
Stakeholder attributes Power Legitimacy Urgency High
Low
Low
Discretionary stakeholder Low
High
Low
Demanding stakeholder
Low
Low
High
Expectant (two attributes) Dominant stakeholder High
High
Low
Dependent stakeholder
Low
High
High
Dangerous stakeholder
High
Low
High
Definitive (all three attributes) Definitive stakeholder High
High
High
Stakeholder groups Traveling public Insurance companies Local police and fire departments Regional planning commission Emergency management agency Small fleet operators Traffic information providers Some non-profit organizations Some consultants Wireless carriers Automobile manufacturers State Department of Transportation Members of US Congress Large fleet operators Public safety answering points (PSAPs) Ambulance services Trauma centers City traffic department Component suppliers Systems integrators Third-party call centers Some consultants Education and research organizations Some privacy advocacy groups US Department of Transportation Federal Communications Commission Some non-profit organizations Some privacy advocacy groups
Table II. Stakeholder attributes and types JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
195
shows the nature of each group and illustrates the usefulness of the process for understanding the relative positions of the stakeholders. Latent stakeholders. Latent stakeholders possess only one of the three stakeholder attributes: power (dormant stakeholders), legitimacy (discretionary stakeholders), or urgency (demanding stakeholders). Latent stakeholders therefore have the least salience among the relevant stakeholders. Dormant stakeholders are defined by high power, low legitimacy, and low urgency. They have the potential to influence the multi-sector innovation, but lack both the legitimate relationships and the sense of importance. Based on our field work, the traveling public would be categorized here. Consumers yield enormous power because they are the starting point for demand stimulation in this market. The demand for an integrated traffic management and emergency response system is being driven by the growing concern for highway safety and the frustrations and inconvenience of traffic delays. The primary market enabler is the rapidly increasing number of wireless subscribers across the country – expected to surpass wireline as the dominant method of telecommunications worldwide by 2008 (Zerega, 1999). Most consumers, however, are unaware of the potential of the integrated system and lack any mechanism for directly influencing the deployment. If cellular phone and chip manufacturers link ITS with cellular technology, a new market of final consumers is created for various location-based services. But, although attractive business opportunities exist for developing new services, the market is embryonic and ill-defined. This is due, in part, to various other forces that interrelate to slow the realization of these market opportunities. Dormant stakeholder
While the insurance industry might be a formidable customer for locationbased services and data on crash outcomes (see Table I), they are outside the mainstream of transportation (lacking legitimacy), and have shown more curiosity than interest (lacking urgency). The insurance industry is therefore a dormant stakeholder at this time. Discretionary stakeholders are defined by legitimacy, but they have no power to influence the situation and no urgent claims. Included from the field study are several local and regional agencies (police, fire, regional planning, and emergency management) and small or uninterested commercial users. Our experience in Alabama indicated these stakeholders lacked the motivation to pursue an integrated deployment of traffic management and emergency response (little urgency). This may have been due in part to their lower power position within the relevant network of stakeholders. With respect to public agencies, this varies widely across the country. For example, although not consistent with our experience in Alabama, other regional planning agencies may be quite powerful with respect to state departments of transportation. Without power or urgency, however, discretionary stakeholders may be viewed as indifferent and ignored by other stakeholders.
Interested observers
196
Demanding stakeholders have urgent claims related to the multi-sector innovation, but they have neither power nor legitimacy. They might also be described as ‘‘interested observers’’ since they are unable to exert much influence on the deployment. We include here some non-profit organizations and some consultants. Because the concept of the integrated traffic management and emergency response system is quite new, there are many small, and lesser-known, non-profit organizations rallying behind the concept. Since these organizations are not in the mainstream of the JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
transportation sector, they may not be seen as legitimate. Moreover, in trying to act alone, their small size precludes enough clout to get noticed. An example in this context is the American Association of Nurse Anesthetists. Various consultants seeking new opportunities with little experience in these areas face a similar situation. Expectant stakeholders. Expectant stakeholders possess two out of the three attributes: power and legitimacy (dominant stakeholders), legitimacy and urgency (dependent stakeholders), or power and urgency (dangerous stakeholders). By possessing two attributes, expectant stakeholders have a moderate level of salience to the multi-sector innovation, and therefore ‘‘expect something’’ based on a more active stance on the issues. Dominant stakeholders are both powerful and legitimate, but lack a sense of urgency with regard to the multi-sector innovation. Based on the feasibility of an integrated deployment in Alabama, the wireless carriers, automobile manufacturers, state Department of Transportation, members of the US Congress, and large fleet operators are included in this category. These stakeholders are central to the success of the integrated system, but they do not consider a deployment to be relevant or pressing. Thus, they may or may not choose to act on their power and legitimacy. The FCC mandate
The wireless carriers hold particular importance with respect to an integrated traffic management and emergency response system. In fact, the opportunity to deploy such a system is based, in part, on the pressures on wireless carriers brought by the Federal Communications Commission (FCC) mandate to provide location information for wireless callers. It appears, however that wireless carriers have not viewed E9-1-1 as a priority (little urgency). Thus, while a few carriers have completed projects to comply with the FCC’s mandate, many are ‘‘dragging their feet’’ (Association of Public-safety Communications Officials, 2000). Many safety and transportation officials have claimed the wireless carriers view E9-1-1 as a major regulatory burden rather than as a business and market opportunity. Both the Alabama Department of Transportation and the Alabama members of the US Congress have the power and legitimacy to influence deployment, but they lack the interest and motivation to pursue implementation. The reasons are varied, but mostly revolve around alternative priorities. The Alabama Department of Transportation, like many across the country, has made enormous commitments to hardware-based detection and monitoring equipment. Lacking knowledge of the newer technologies and not recognizing any clear reason to turn back on prior hardware-based plans, transportation officials are reluctant to embrace the new wireless technologies (no urgency). Likewise, congressional members see other programs as more pressing.
Dependent stakeholders
Dependent stakeholders have legitimacy and a sense of urgency with regard to integrated deployment but they lack the power to act on their interests. They are therefore dependent on other stakeholders for advocacy of the system deployment. This category includes the largest number of stakeholders from our analysis – and also the widest range of stakeholder groups. Included are several public (PSAPs, EMS responders, medical services, and city traffic departments) and private (suppliers and consultants) stakeholders who have the most to gain from the deployment, along with educational and research institutions. Most important to this research, however, this category includes suppliers – the business-to-business technology firms – from whose perspective the analysis is performed.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
197
The public sector stakeholders categorized as dependent clearly recognize the critical need for the integrated system (urgency) and are the recognized organizations that would be involved in its implementation (legitimacy). Several issues limit their power with regard to moving forward with a deployment. To begin with, transportation and emergency services planning are always challenging because each involves multiple jurisdictions with unique conditions and requirements (McHale, 2000). Behind these jurisdictional issues are factors at both the individual and organizational levels (International Association of Chiefs of Police, 2000). Individual issues involve self-preservation and turf protection, feelings of uncertainty, and threat to personal competence. At the organizational level, the separation of power across jurisdictions, tenuous federal-state-local relationships, and political factors all serve to limit the power of any single stakeholder. In addition, many of these organizations lack the resources to deal with problems related to inadequate equipment and interoperability. Many PSAPs, traffic management centers, and emergency services organizations lack the technological capacity to process the data obtained from an integrated system. These problems further dilute the power of these stakeholders, and thus they remain dependent on others to move forward with a deployment. Transportation sector
Technology development firms are generally well established in the transportation sector, or are known in other sectors such as defense or computers (legitimacy). Moreover, many of these firms believe opportunities will soon emerge and therefore are investing in new technologies and products essential to an integrated system (urgency). In particular, the two technological developments described earlier – wireless geo-location and automatic collision notification (ACN) – hold much promise for near-term deployment of the system. Clearly, the various business-to-business technology firms have been instrumental in moving these innovations forward and developing the groundwork for an integrated system. Unfortunately, they lack the power to assume a leadership role over the other stakeholders to achieve a deployment of an integrated traffic management and emergency response system. Dangerous stakeholders are characterized by power and urgency, but lack legitimacy. They are labeled as dangerous because the stakeholder management literature has found this type of stakeholder to be coercive and possibly violent (for example, when environmentalists spike trees in areas to be logged) (Mitchell et al., 1997). Although we maintain the label ‘‘dangerous’’, the danger is to the stakeholder-firm relationship since these stakeholders are acting outside the bounds of legitimacy.
Privacy advocacy
We categorize some privacy advocacy groups here. Although The Wireless Communication and Public Safety Act of 1999 protects the privacy of individuals, it is the public’s perceptions and concerns that are critical (Johnson, 2000). Many consumers concerned about privacy protection are unaware of the legislation, or unsure of its adequacy. Individuals who feel strongly (urgency) are able to disseminate passionate opinions against the idea of an integrated system, for example, over the Internet (power). Thus, some privacy advocacy groups hold extreme views that can be widely publicized to the detriment of potential deployment. Definitive stakeholders. Stakeholders categorized as definitive are the most salient to the deployment of an integrated traffic management and
198
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
emergency response system. They possess all three stakeholder attributes: power, legitimacy, and urgency. Agencies of the federal government
Definitive stakeholders represent the key players likely to have the greatest impact on the potential for deployment. This category includes agencies of the federal government (US Department of Transportation and the FCC) and non-profit organizations. Our experience in Alabama indicated these were the only organizations that were widely recognized and accepted (legitimacy), had the backing and wherewithal to move the system toward deployment (power), and were highly motivated on issues related to a possible deployment (urgency). Note that definitive stakeholders included in this category are national in scope and therefore none of the local or state stakeholders were considered definitive in our experience. The Transportation Equity Act for the 21st Century (TEA-21) provides resources for the development and deployment of ITS technologies (US Department of Transportation, 2000). Recognizing the importance and relevance of highway safety, the US Department of Transportation has taken a number of steps instrumental in moving towards the integration of traffic management and emergency response. This includes the establishment of a Joint Program Office to facilitate coordination of programs, an ITS safety program, and sponsorship arrangements with ITS America (the main trade association for ITS in the USA).
E9-1-1 upgrades
The FCC, mentioned earlier, has been responsible for the mandated E9-1-1 upgrades that create the backbone of the system. In response to delays and challenges by the wireless carriers, the FCC adopted important changes in its rules for wireless telephone services that have significant impact on the potential of location technologies for various applications. The FCC continues today to apply pressure to wireless carriers to conform to these mandates. Non-profit organizations have also proven to be definitive stakeholders on issues related to integrated traffic management and emergency response. The activities of several large trade organizations (such as ITS America and the National Emergency Number Association), and coalitions of various non-profits (such as the ComCARE Alliance), have been instrumental in educating stakeholders and facilitating a dialogue on important issues related to a potential deployment. At the same time, some large and established privacy advocacy groups are raising critical concerns and working to put in place safeguards on data sharing across the integrated system. Step 4. Examine the dynamic relationships among stakeholders The typology developed in step three (above) is a static map of stakeholder positions relative to the multi-sector innovation. For the sake of clarity, we assumed that attributes are either present or absent (a stakeholder group has power or does not have power). In reality, all stakeholders have varying degrees of the attributes and the extent to which a stakeholder possesses the attributes is changing constantly. The dynamic aspects of stakeholder relations are useful for either predicting how and when a stakeholder might change to a different group, or how the firm could initiate changes in stakeholder positions. Consequently, step four considers stakeholder dynamics in an effort to understand how and when stakeholders may acquire an additional attribute, lose position on an attribute, or exert influence through others who possess a desirable attribute.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
199
Telematics
We offer two examples of stakeholder groups who are acquiring another attribute over time and therefore may soon fall into a different stakeholder category. First, consumers are becoming more familiar with telematics (ATX Technologies, Inc., 2000). As preferences form, consumers will acquire increased legitimacy and will no longer be a ‘‘dormant’’ stakeholder, but a dominant stakeholder. Second, auto manufacturers will be paying more attention (increased urgency) to consumer interest in the products and services, and thus auto manufacturers will become a definitive stakeholder. Ford Motor Company, for instance, in a joint venture with Qualcomm, created a new company, ‘‘Wingcast’’, to install telematics technology in its vehicles (Briody, 2000) – a signal that urgency has increased and the auto manufactures may be more ‘‘definitive’’ than ‘‘dominant’’ in the near future. Another dynamic among stakeholders is when one stakeholder loses an attribute. This may be occurring with regard to the FCC. Many have questioned the power of the FCC to enforce the E9-1-1 mandates. More than half of wireless carriers failed to meet the first deadline and many are filing for waivers now (Baran, 2001). Some (perhaps many) carriers apparently believe that the new administration and/or the new commissioners will not enforce the rules. Thus, it appears the FCC is becoming more of a ‘‘dependent’’ than ‘‘definitive’’ stakeholder with regard to this particular multi-sector innovation.
Set of dependent stakeholders
The third dynamic among stakeholders is when a stakeholder from one category attempts to gain an attribute by working through or influencing a stakeholder that possesses the desired attribute. Two examples illustrate this occurrence. First, hardware and software suppliers recently established The Wireless Location Industry Association (based in Washington, DC) in an effort to influence legislative, judicial, regulatory and administrative bodies. Thus, a set of dependent stakeholders (lacking power) is trying to influence a set of dominant stakeholders (high on power) in order to become a definitive stakeholder. Second, medical leaders recently sent open letters to auto manufacturers to urge more progress on ACN devices (ComCARE Alliance, 2001). This is evidence again of a dependent stakeholder trying to gain the advocacy of a powerful dominant stakeholder. Step 5. Evaluate generic stakeholder management strategies In addition to the outcomes of the previous four steps, the firm must also consider its relationship to the various stakeholders with regard to specific issues (i.e. privacy, standards, interoperability, and so on). Such an analysis, however, is both proprietary and outside the scope of this paper. In step five we therefore provide an explanation of the generic stakeholder strategies with some implications for how the business-to-business technology development firm would choose among these to develop customized stakeholder management strategies.
Six generic strategies
200
The stakeholder literature is actually quite weak on the delineation of strategies for stakeholder management. In general, there has been much discussion of dichotomous responses, for example, offensive versus defensive, or passive compliance versus active manipulation and control. Again, these concepts are rooted in the traditional ‘‘adversarial’’ approach to stakeholder relations. We therefore incorporated ideas from Savage et al. (1991) and Harrison and St John (1996) to develop a set of six generic stakeholder management strategies appropriate for a firm within the context of a multi-sector innovation: JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
(1) Lead. When the momentum toward deployment of a multi-sector innovation is dragging, and there are no clear leaders in sight, the firm may choose to take a leadership role. (2) Collaborate. The firm may enter strategic alliances or partnerships with suppliers, competitors, or customers. (3) Involve. To leverage its relationships with key stakeholders, the firm may include them on their board of directors or work on governmentsponsored research projects. (4) Defend. In the case of detrimental stakeholder behaviors, the firm may defend itself by reducing its dependency on the stakeholder. This might involve, for example, moving toward one technology and away from another. (5) Educate. To enhance its communication links with important stakeholders, the firm may engage in a wide range of activities to influence the stakeholders under the umbrella of ‘‘education’’. This includes membership in non-profit organizations, appearances on industry panels at trade shows, and dissemination of ‘‘white papers’’ on technological issues. (6) Monitor. With regard to some stakeholders, the firm may choose to gather information and observe relevant stakeholders. This will involve many of the same activities that are characteristic of other stakeholder strategies (for instance, participation in trade show activities could serve to educate or monitor stakeholders). Resource allocations
The choice among these strategies is dependent on numerous factors including the firm’s relationship with the involved stakeholders and the cost/ benefit trade-offs of each strategy. The firm must carefully assess each strategy in terms of resource allocations – where to spend time and money in attempting to influence deployment. All six of the strategies listed above involve resource commitments. The resources required for the ‘‘lead’’ strategy are somewhat obvious. For example, the efforts of Acunia, Inc. (a business-to-business technology development firm) to get the industry to adopt an open framework for telematics are likely to have drawn management’s time and attention from other issues and projects (some have described the firm’s efforts as ‘‘evangelistic’’) (Arnholt, 2001). The level of resources required for other stakeholder strategies are not so obvious. Even the ‘‘monitor’’ strategy (which on the surface could appear to be a ‘‘do nothing’’ strategy) may take substantial resources to collect useful information about a key stakeholder. Thus, for each stakeholder, the firm must carefully consider its objective (acquire an attribute or influence others with the desired attribute), and the costs relative to the benefits of each stakeholder strategy. Conclusions The application of the five-step stakeholder analysis process is useful to business-to-business technology development firms as a way to improve the new product development process in the case of multi-sector innovations. By focusing management’s attention on key stakeholder attributes, the process provides important insights into stakeholder relationships, predicted changes in stakeholder positions, and the likely success of various stakeholder management strategies. No single theoretical perspective, however, addresses all the issues related to multi-sector innovations. The five-step stakeholder analysis process compliments – rather than replaces – other tools
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
201
and techniques for managing the new product development process. In conclusion then, we offer several comments related to the five-step process. Perceptions of stakeholder attributes
The three attributes are variables, not steady states. The five-step process is therefore iterative and continuous. The characterization of the stakeholders according to the attributes and stakeholder categories is based on perceptions. Stakeholder analysis is therefore not an easy task. Multi-sector innovations do not lend themselves to traditional market research techniques. Their occurrence is rare. At times, the multi-sector innovation is developing slowly based on subtle developments in unfamiliar sectors. At other times, it develops at what seems to be ‘‘lightning speed’’ and the firm may never realize what factors brought about the changes. Management must therefore continually assess the extent to which their perceptions of stakeholder attributes are an accurate reflection of stakeholder positions and behaviors. The five-step process reported in this paper is meant to provide business-tobusiness marketing managers with an understanding of the problems and issues they face with this type of innovation and to overcome the unique research challenges posed by multi-sector innovations. Because of the profound impact of multi-sector innovations, there remains a great opportunity for scholarly research to make additional contributions to this area of research. References Arnholt, M. (2001), ‘‘SAE 2001: Acunia presses for open telematics framework’’, Ward’s AutoWorld, March 3. Association of Public-safety Communications Officials (2000), ‘‘Comments on phase II reports and Nextel waiver request’’, press release. ATX Technologies Inc. (2000), ‘‘Study shows Gen X, Gen Y excitement in telematics’’, press release, November 13, http://www.atxtechnologies.com Baran, S. (2001), ‘‘Show me the way: time for the wireless carriers to deliver’’, Internet World Magazine, March 15, http://www.internetworld.com Briody, D. (2000), ‘‘Ford gives wings to telematics’’, Red Herring, August 2. ComCARE Alliance (2001), ‘‘Medical leaders send open letters to Mercedes and GM’’, press release, March 20. Cooper, L.G. (2000), ‘‘Strategic marketing planning for radically new products’’, Journal of Marketing, Vol. 64, pp. 1-16. Donaldson, T. and Preston, L.E. (1995), ‘‘The stakeholder theory of the corporation: concepts, evidence, and implications’’, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Drumwright, M.E. (1994), ‘‘Socially responsible organizational buying: environmental concern as a non-economic buying criterion’’, Journal of Marketing, Vol. 58, pp. 1-19. Federal Communications Commission (1996), Telecommunications Act of 1996, Pub. LA. No. 104-14, 110 Stat. 56. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Harrison, J.S. and St John, C.H. (1996), ‘‘Managing and partnering with external stakeholders’’, The Academy of Management Executive, Vol. 10, pp. 46-60. Huxham, C. (1996), Creating Collaborative Advantage, Sage Publications, London. International Association of Chiefs of Police (2000), ‘‘A study of best practices in information integration’’, unpublished report for the CapWIN Executive Steering Committee. Jaworski, B., Kohli, A.J. and Sahay, A. (2000), ‘‘Market-driven versus driving markets’’, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 45-54. Johnson, M. (2000), ‘‘ITS and legal issues – a primer’’, in Intelligent Transportation Primer, US Department of Transportation, Federal Highway Administration: Institute of Transportation Engineers, pp. 23.1-23.13. Kelley, J. (2000), ‘‘Business continuity battling high-tech’’, Risk Management, Vol. 47, pp. 31-3.
202
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Kochan, T.A. and Rubinstein, S.A. (2000), ‘‘Toward a stakeholder theory of the firm: the Saturn partnership’’, Organization Science, Vol. 11 No. 4, pp. 367-86. McHale, G. (2000), ‘‘A tool for integrating ITS into the planning process’’, Public Roads, Vol. 63 No. 6, pp. 11-13. Maples, J. (2001), ‘‘Will telematics drive the industry to distraction?’’, Red Herring, April 4. March, J.G. and Simon, H.A. (1958), Organizations, John Wiley & Sons, New York, NY. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis, Sage Publications, Thousand Oaks, CA. Mitchell, R.K., Agle, B.R. and Wood, D.J. (1997), ‘‘Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts’’, Academy of Management Review, Vol. 22 No. 4, pp. 853-86. Mohr, J.J. (2001), Marketing of High-Technology Products and Innovations, Prentice-Hall, Upper Saddle River, NJ. Moorman, C. and Miner, A.S. (1997), ‘‘The impact of organizational memory on new product performance and creativity’’, Journal of Marketing Research, Vol. XXXIV, pp. 91-106. Polonsky, M.J. (1995), ‘‘A stakeholder theory approach to designing environmental marketing strategy’’, Journal of Business and Industrial Marketing, Vol. 10 No. 3. pp. 29-46. Polonsky, M.J. and Ottman, J. (1998), ‘‘Stakeholder contribution to green new product development process’’, Journal of Marketing Management, Vol. 14 No. 6, pp. 533-58. Rendell, M.E.G. (1999), ‘‘Integrating transportation, EMS and 9-1-1: a vision for the future’’, remarks to the National Emergency Number Association, 9-1-1 Critical Issues Forum, Alexandria, VA. Rowley, T.J. (1997), ‘‘Moving beyond dyadic ties: a network theory of stakeholder influences’’, Academy of Management Review, Vol. 22, pp. 887-910. Salancik, G.R. and Pfeffer, J. (1974), ‘‘The bases and use of power in organizational decisionmaking: the case of universities’’, Administrative Science Quarterly, Vol. 19, pp. 453-73. Savage, G.T., Nix, T.W., Whitehead, C.J. and Blair, J.D. (1991), ‘‘Strategies for assessing and managing stakeholders’’, Academy of Management Executive, Vol. 5 No. 2, pp. 61-75. Sivadas, E. and Dwyer, F.R. (2000), ‘‘An examination of organizational factors influencing new product success in internal and alliance-based processes’’, Journal of Marketing, Vol. 64, pp. 31-49. Suchman, M.C. (1995), ‘‘Managing legitimacy: strategic and institutional approaches’’, Academy of Management Review, Vol. 20, pp. 571-610. Toffler, A. (1980), Third Wave, Pan Books, London. US Department of Transportation (2000), ITS Joint Program Office, ITS National Intelligent Transportation Systems Program Plan: Five Year Horizon. The Washington Post Online (1999), ‘‘Cell phones will be used to monitor traffic’’, December 22. Wind, J. and Mahajan, V. (1997), ‘‘Issues and opportunities in new product development: an introduction to the special issue’’, Journal of Marketing Research, Vol. XXXIV, pp. 1-12. Zerega, B. (1999), ‘‘The 3G force’’, Red Herring Magazine, August 1.
&
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
203
An executive summary for managers and executive readers can be found at the end of this issue
Marketing’s role in the knowledge economy Cynthia J. Bean Doctoral Student, Department of Communication, University of South Florida, Florida, USA
Leroy Robinson Jr Assistant Professor of Marketing, School of Business and Public Administration, University of Houston – Clear Lake, Texas, USA
Keywords Marketing strategy, Value analysis, Business-to-business marketing, Technology, Networks, Knowledge workers Abstract A potential weakness of marketing in the strategy dialogue has been a tendency on the part of marketing scholars to stay with outmoded frameworks. As the economy is decreasingly influenced by industrial value creation and increasingly influenced by knowledge creation and dissemination, the role of marketing in value creation and thus in strategy is accentuated. Synthesizing current literature regarding the environmental changes and the underlying foundations for value creation affected by these changes, and contrasting them to traditional, industrial value creation, an argument for the central role of marketing in the knowledge economy is provided and examples support the new value creation-marketing link.
Introduction Firm valuation and wealth generation by firms operating in the new economy continue to challenge traditional wisdom. The market valuation of many firms is increasingly out of proportion to the relative streams of revenue and collection of tangible assets. One of the significant variables explaining this phenomenon is the increasing importance of knowledge assets held by the firm (Kim and Mauborgne, 1999). Knowledge acquisition and exploitation becomes the center of differentiation between firms and, in fact, can sustain value creation separate and apart from value creation generated within the traditional models. Firms that effectively align their organizational efforts in this direction will increase their opportunities to create wealth above and beyond management of traditional physical assets. Kim and Mauborgne (1999) explicate the notion that growth and innovation now stem from within the firm, versus the traditionally accepted concept of external innovation driving growth; this change signals the arrival of the knowledge economy. Value chain concept
Historically firms have based their value creation on the transformation of goods as they move from manufacturer to end-user, as evidenced by Porter’s (1985) value chain concept and its focus on product, logistics and operations. Today’s environment offers firms new opportunities to create value from information. In fact, more economic value creation may be inherent in information than in the transformation of goods (Evans and Wurster, 2000). It is within the network flow of information that marketing has tremendous opportunity to create value for firms: the opportunity to use knowledge.
The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
204
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 204-214, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419817
Marketing’s new strategic role is evolving rapidly and is affected by a variety of changes in the business milieu including the emergence of the knowledge economy (Day and Montgomery, 1999). As economies, and thus new opportunities for value creation, are being altered or newly created by technological advances, academics and practitioners need to re-evaluate the universal acceptance of traditional fundamental value creation assumptions that serve as the pedestal on which business structures are built and decisions made to choose specific methods, strategies and tactics. Historical perspective
In order to better understand the new dynamics of marketing’s role a historical perspective on value creation and marketing’s traditional role is provided, followed by an examination of the changes leading to new value creation opportunities. First, to situate the change, the traditional value chain concept is reviewed. Second, marketing’s role in the traditional mode is presented. Third, a pre´cis of the environmental changes that have brought about the knowledge economy is offered. It is these environmental changes that have created the knowledge economy; an economy based on value creation not founded in physical goods transformation. Firms deriving significant value creation that is not founded in physical or fiscal assets are prevalent in today’s environment (Kim and Mauborgne, 1999). Based on this understanding of the new environment, opportunities for new methods of value creation are offered, and marketing’s unique contributions, afforded by these new opportunities, are explicated. Finally, a synthesis of the information presented clarifies the role marketing plays strategically in the new environment, demonstrating that the marketing function, essentially focused on knowledge of the product, the environment and customers, is situated precisely at the core of the value creation process in new information based value systems. Traditional strategy and value creation An understanding of the traditional framework of the value chain concept provides a starting point for explicating marketing’s role in creating value. The concepts of the value system and the value chain are cornerstones of business strategy development (Porter, 1985). These notions are elements of what has been the primary framework for businesses to evaluate and map their sources of sustainable competitive advantage for over a decade. The development and widespread acceptance of the value system and value chain concepts pre-dates the information and connectivity explosion created by advances in information technology generally and the Internet in particular.
Value activities
The value chain is built on the notion of value activities and margin, where value activities employ purchased inputs, human resources, and technology as well as information (Porter, 1985). Value activities thus defined are essentially activities involved in transforming goods as they move along a path from raw materials to production and eventually to end users. Primary value activities defined by Porter include inbound logistics, operations, outbound logistics, marketing and sales, and service, while secondary or support activities include procurement, technology development, human resource management and firm infrastructure. The marketing and sales component in the traditional value chain is defined as communication, pricing and channel management (Porter, 1985; Aaker, 1998). The method and level of disaggregating to delimit value activities has been grounded in traditional thinking based on experience in a primarily industrial economy. Activities have been isolated for evaluation according to their contribution to value creation based on ability to differentiate or contribution to cost, yet, the door is left open to isolate activities if they have different economics (Porter,
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
205
1985). As our economy becomes decreasingly influenced by industrial production and increasingly dependent upon knowledge work, a reevaluation of value activities is in order. Traditionally, information has traveled through the value chain attached to physical things and there has been a trade-off between the ability to achieve richness of information and breadth of reach, where reach is defined as the numbers of people exchanging information (Day and Montgomery, 1999; Evans and Wurster, 1997, 2000). That is to say, historically the richest messages reach the fewest people, while less rich communication can reach many. Organizations have traditionally been faced with a choice: reach few people with a rich communication or reach many people with a less rich communication. New economics of information
Value activities that have traditionally been isolated and measured regarding their contribution to value creation were activities embedded within the traditional economic frameworks of business: those frameworks where information is integrated and inseparable from things. This economic foundation inherently accepts a trade-off between the richness and reach of information. Separating value activities relevant specifically to information from value activities specifically dealing with movement or transformation of things has not been widely practiced, nor have scholars conducted in-depth examinations of such phenomena. This is due to the historical prevalence of identifying value activities as either those with the ability to differentiate or those that contribute to cost, as previously noted. Sometimes, value creation activities stem from operation under different economics. Until recently, existing circumstances have not forced a separation based on the criteria of separate economics. Value activities of information have not been treated separate from value activities related to physical things, however, as technology and communication advances allow for a new economics of information this is precisely what needs to happen. Marketing’s traditional role Strategy concerns the relationship of an organization to its environment (Jain, 1983; Biggadike, 1981) and the creation of value in the form of sustainable competitive advantage (Aaker, 1998). Specifically, ‘‘an organization monitors its environment, incorporates the effects of environmental changes into its corporate decision making, and formulates new strategies’’ (Jain, 1983). Marketing, as a function, is uniquely positioned in the strategy dialogue by virtue of association with relational and intellectual assets (Wind and Robertson, 1983).
Environmental changes
Weakness of marketing in the strategy dialogue has been lamented, and a tendency on the part of marketing scholars to stay with outmoded frameworks has been raised among other concerns (Day, 1992; Wind and Robertson, 1983). The current state of marketing strategy registers information technology’s significance within the field of marketing strategy as one of several consequential issues to consider in efforts required to advance the marketing discipline (Varadarajan and Jayachandran, 1999). Research related to information technology and its influence on industry structures is needed, as are efforts toward integration of understanding of environmental changes driven by information technologies, value creation and marketing. The notion of embracing new, relevant conceptions of the environment, contrary to the inclination toward the conservative position that sometimes cements academicians to outmoded frameworks, is just one element required
206
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
in developing renewed efforts toward an updated marketing strategy model to guide the discipline. Specifically, there is potential for redefinition of industry structures that rapid information technology changes may produce which generates the prospect for new characterization of marketing’s role in these emergent structures (Varadarajan and Jayachandran, 1999). The notion of information and relationships becoming ever more central to the firm is not new. Webster (1992) predicted the evolving reliance of firms on knowledge and relationships, writing nearly a decade ago, directing scholars to consider specific marketing proficiency in understanding end-user markets and in producing a knowledge base for the firm as a firm’s core capabilities. In the new millennium, the role these intangible assets play in creating sustainable competitive advantage seems increasingly relevant. Within traditional value creation frameworks, however, these are not separated nor identified as specific to value creation.
New technologies and value
The new environment of the new millennium As technology increasingly influences business, firms look increasingly to new technologies for value and competitive advantage. Technology and information processing advances have spawned the recognition of knowledge as an asset to be managed and the notion that competitive advantage is achieved through the set of relations or exchanges in which a firm is involved (Glazer, 1991). Results from surveys questioning firms about their e-commerce initiatives are illustrative of the concept that the new environment is changing how firms view value creation. In a study of 250 information technology managers performed by Information Week Research (Fisher Center, University of California, Berkeley) 71 percent of respondents mentioned improving customer relationships and it was the most frequently mentioned factor influencing the decision to engage in e-commerce; the second most mentioned factor was competitive advantage, noted by 59 percent of respondents (Szuprowicz, 1999). Another study reported that the top three expected pay-offs from Internet investments were improved communication, enhanced customer service and improved knowledge sharing (Callahan and Pasternack, 1999).
Information exchange
Technological advances have altered communication within and across firms, and are increasingly altering the foundations of business. The concepts that have framed the notion of value creation and value activities no longer encompass the value creation formulae of all of today’s firms. Information is ‘‘the glue that holds value chains and supply chains together’’ but ‘‘that glue is now melting’’ (Evans and Wurster, 2000). The open and inexpensive exchange of information alters the value equation within that traditional channel structure for the flow of things. New value creation options A major change brought about by technology and telecommunications is the split between physical movement of goods and the movement of information (Evans and Wurster, 1997, 2000). In terms of value creation, the importance of this change is noteworthy. Value creation can happen through the transformation of physical goods in a value chain (as goods pass through a hierarchical stream from a producer to a customer) or else from the network flow of information (Evans and Wurster, 1997, 2000). The notion of deconstruction of the value chain is prevalent and the phrase ‘‘cannibalize your own markets’’ has become a mantra for businesses facing new competition emerging from the chaotic business landscape embroiled by the
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
207
rapid growth of Internet use by business (Downes and Mui, 1998). These factors contribute to create an environment where the acquisition and exploitation of information assets will be increasingly important. The traditional, hierarchical value chain will continue to exist for physical goods movement from producer to customer. The traditional framework for understanding the creation of value continues to be apropos in that physical realm, although it may be altered by the removal of much of the information portion that is integrated in the traditional value equation. Examining the changes to value systems based on the movement of physical assets through the value system is not the topic examined here, rather, it is the other side of the new, bifurcated value creation scheme that is created by the influences of technology and communication advances on the business landscape. Information value networks
As value chains are reconstructed or demolished, and hyperarchies or information value networks evolve as new means of value creation, value activities are increasingly based on non-tangible assets (Kim and Mauborgne, 1999). It is this increasing dependence on non-tangible assets for value creation in the knowledge economy that presents an opportunity for marketing to contribute in an essential way to the strategy dialogue. Intellectual assets and relational assets Two types of market-based assets, defined as those that ‘‘arise from the comingling of the firm with other entities in its external environment’’ (Srivastava et al., 1998) satisfy the criteria for providing a firm with sustainable competitive advantage: relational assets and intellectual assets. The resource based theory of strategy formation stems from the learning and cultural schools (Mintzberg and Lampel, 1999). Using this theory, a firm’s resources can be judged to provide a firm with sustainable competitive advantage when these four criteria are satisfied: the resource is found to be valuable, rare and imperfectly imitable; and no strategically equivalent substitute resource exists (Barney, 1991). Market based assets, that is relational and intellectual assets, have been shown to satisfy these criteria for value generation (Srivastava et al., 1998).
Market based assets
These assets are largely intangible and external to the firm. Intellectual assets are intertwined with relational market based assets, and are defined as ‘‘the types of knowledge a firm possesses about the environment, such as the emerging and potential state of market conditions and the entities in it, including competitors, customers, channels, suppliers, and social and political interest groups’’ (Srivastava et al., 1998). The value of these assets in use is likely to serve as a basis for long-term customer value and they are suited ideally to exploit the benefits of organizational networks. In the new economy, knowledge use and understanding of customer value form the basis of value creation for the firm (Kim and Mauborgne, 1999). Market based assets are squarely rooted in the domain of the marketing discipline, both in practice and in theory, and are assets that are central to value creation in the economics of information when information can move separate from things. Marketing’s new role in value creation Given the boundary spanning nature of marketing’s function, it is a natural extension of marketing’s traditional role in value creation to note that marketing informs strategy and value creation when it comes to marketbased assets. In fact, the foundations of relational and intellectual assets are drawn from concepts of brand equity, customer satisfaction and strategic
208
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
relationships (Srivastava et al., 1998). Relational and intellectual assets are clearly in the domain of the marketing function. Intellectual assets
Of all the various members of the organization, marketing is traditionally the most informed and involved in those relationships (relational assets) involving channel members, end users, and other stakeholders central to customer value. Marketing is also positioned to better acquire additional information as it is generated in the external environment. In addition, marketing has a unique position as a listening source, where knowledge of the environment (intellectual assets) may be acquired. Marketing, as a function central to value creation, is the central link between knowledge and relational assets that can fuel the engine of value creation in the knowledge economy. Early evidence of market-based assets creating value in the knowledge economy is not hard to find. Examples of intellectual assets creating value, customized offerings based on market knowledge and/or individual customer definitions of value, and the market power of alliances built upon knowledge bases are just a few of the ways market-based assets are being employed. Intellectual and relational assets create value Firms that create value in the knowledge economy do so through stimulation of the demand side of the economy, expansion of existing markets, and creation of new markets (Kim and Maugorgne, 1999). The ability to create value by isolating activities that operate with a different set of economics (as in the separate economics of information now able to move separately from things such as salespeople, letters and envelopes) is the crux of some of the new opportunities in the knowledge economy for value creation. Engaging in value creation within these new economics of the knowledge economy involves a central role for marketing activities in view of the fact that marketing, as a function, is expert in utilizing intellectual and relational assets.
Collaboration of competitors
An example of this is MetalSite, formerly MetalExchange LP (Szuprowicz, 1999), an organization founded and supported by competing steel companies that makes excess inventory information available, making the market for steel more efficient as noted in Information Week (1998). This company is remarkable in that it was one of the first to stem from a collaboration of competitors according to Information Week (1998). The value created by knowledge assets is produced by the new economics that occur when information is able to move freely. It is an example of the first force in the deconstruction of the value chain, separation of the economics of information from the economics of things. The information itself is the basis of value. Prior to the ability of information to travel without envelopes and people, the value creation in information alone was limited by the constraints of the physical movement. Now, it functions separately and can be a value creation source, generated from, yet separate and apart from, the business of selling metals. Following this trend in the metals trading industry is E-metra, launched in October of 2000 according to Financial Times (2000a). E-metra is lauded as competition for London Metal Exchange as a marketplace for the trading of metals and is expected to also trade derivatives soon. E-metra has moved away from the practices of expensive international courier-based movement of documents to support metal trading. The trading of metals is an industry whose participants have recognized the separation of the economics of information. Competition in this industry can and is now played out in one of
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
209
two ways: in the traditional hierarchy, as in competing logistics efforts for moving of the product within markets, or in the knowledge arena, where value is created for organizations by the capture and sharing of information. Consumer/product information
Information in a marketing context can be ‘‘rich about the consumer, or rich about the product’’ (Evans and Wurster, 2000). Rich consumer information, coupled with broad reach in the new economics of information, makes the segment-of-one and branding more powerful. Competing on rich information in the knowledge economy will be possible if market-based intellectual and relational assets are employed productively. Bradley and Nolan (1998) assert the notion that capturing value in the network era means a move away from ‘‘make and sell’’ toward ‘‘sense and respond’’. This sense and respond notion illustrates that market-based relational and intellectual assets that are rich in information about the customer can be harnessed by marketing and operate as value producing assets, separate and apart from physical and hierarchical transactions. As firms can identify and capture their knowledge assets, value creation stemming from information and relationships can be the basis of new business endeavors. Another way value is created is in the customizing of offerings to customers based on knowledge assets. Customized offerings based on market knowledge Accumulated information assets, derived from facilitating the interactions between buyers and sellers, would appear to be a key feature of network intermediaries (Peter and Tulskie, 1999a). Empirical Media’s WiseWire, forerunner to the popular Lycos searches available today, was a customizable search engine, and an example of the accumulated information assets approach to value creation according to the New York Times (1998). This firm offers a search engine that conforms to the information a user indicates is ‘‘preferred’’ by providing a ‘‘satisfaction rating bar’’ that the user marks as he or she moves through pages. This information is combined with data from other similar users, to customize the user’s search processes. This ingenious customization uses both individual and community filtering to ensure the ability to avoid ‘‘staying too close to their customers’’ (Peppers and Rogers, 1997). This company illustrates the use of the intertwined nature of relational and intellectual assets, integrated through the operations of the marketing function. Value is created by reducing search time for consumers, and by building the loyalty of consumers who return to the search tools that bring them results most targeted to their needs. The relationship with customers fuels the datadriven customization of the service. Bought by Lycos in 1998 according to the New York Times (1998), the example of WiseWire demonstrates that the ability to create value from customization of information is yet another example of an opportunity to create value with market-based assets alone.
Traditional search mode
Customized offerings based on customer-defined value Customized offerings based on customer-defined value are another prevalent use of market-based assets. Searching in a hierarchy can be compared to ‘‘crawling along the richness reach trade off’’ of the traditional search mode (Evans and Wurster, 2000). The traditional mode has been replaced; thus, a great benefit in the information value network is virtually unrestricted reach. However, all this expanded reach is only clutter without navigators, and navigators that add value to customers are those that are based on marketbased intellectual and relational assets. This is illustrated by IBM’s definition of e-business vectors: fluid technology-based competencies that make firms responsive to change (Peter and Tulskie, 1999b). The concept IBM is heralding is a modular response to
210
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
each customer’s expression of his/her unique, individual definition of value. The idea that a catalogue of customer value components can be created for Web-based businesses, and that each firm/customer interface can be customized in terms of deploying these modules is another example of the use of intellectual and relational assets, intertwined and informed by the marketing function. Modules might include such items as automatic responses to e-mail, topic specific chat rooms, order status information on line, and so on. The use of such ‘‘plug and play’’ modular approaches, activated by the customer to meet specific customer needs and preferences, eases the path toward outsourcing, and toward building flexible value offerings for customers. Exploring customer based customization using information and physical assets is Yamazaki Mazak of Japan, a machine tool producer that is connecting factory machinery to customers via the Internet and letting customers run the machinery, remotely, via the transmission of bits of information, eliminating constraints of distance according to the Financial Times (2000b).
Synthesize skills of network partners
Spin-off businesses
Market power built on knowledge bases It has been suggested that building knowledge bases to serve customers and synthesize skills of network partners is often a leverage point for alliances of firms (McKenna, 1991). As organizations of the future become increasingly disaggregated and specialized, alliance relationships and their market power are likely to become more important (Achrol, 1997). Examples are marketplace concentrators like Industry.net, a marketplace concentrator that provides engineering information and access to 250,000 industrial online catalogues (Szuprowicz, 1999). Now part of the IHSGroup[1] operating as TechSavvy.co [2], this information aggregator provides information on parts, suppliers and military specifications as well as hard to find historical data for engineering. Another example of an information aggregator is the Mountain Zone, a content and community Internet site for skiing, snowboarding, climbing, hiking and biking (Szuprowicz, 1999). Another firm, e-Filtration Inc.[3] is an electronic marketplace for the filtration industry. Firms with bricks and mortar-based operations are finding opportunities to spin off new businesses in the knowledge economy too. A prime example is General Electric (GE), whose profit has jumped 20 percent according to the Los Angeles Times (2000) attributed to a variety of technology uses, one of which is Global Exchange Services, a business-to-business online marketplace. Scott McNealy of Sun Microsystems notes GE’s strategy of claiming the information economy, noting that GE, rather than being disintermediated, sets up its own exchange for information rather than joining an exchange (Financial Times, 2000c). Discussion and managerial implications As the dynamics of the marketplace change, practitioners and scholars are recognizing that the potential for marketing to add strategic value is magnified in the knowledge economy. How can firms recognize the opportunities? First, they must be able to separate from the traditional industrial thinking about value creation. Acknowledging the ability to build competencies and profit centers that have previously not existed because of the constraints of the traditional hierarchy, in which information moved with physical carriers, is a skill to be acquired. This skill can pay off in entirely new forms of commerce as the examples of such new endeavors have demonstrated. Second, and perhaps most importantly, marketing managers and senior managers must identify their market-based assets and evaluate
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
211
their properties. Exchanging goods for money leaves each party with one thing, either the good or the money. However, exchanging and sharing market-based assets has the potential to result in both parties doubling their assets. Trust in sharing may need to take on an expanded role in commerce in order to facilitate the open sharing that may be required to reap the benefits. Another property to consider is the shelf-life of market-based assets. How long do they retain their value? The role of continuous learning is likely to be increasingly important if these assets are limited in the ability to hold their value over time, and urgency relative to use of these assets may increase the already frenetic pace of business transactions. Do market-based assets depreciate or accumulate? Our traditional mindset built on the concept of depreciating assets may or may not suit market-based assets. The increase in freelance workers associated with the underlying changes creating the knowledge economy may alter significantly the ability of a firm to retain ownership of intellectual and relational assets. If capital has traditionally been a barrier to entry, and ideas are now taking the place of capital, new thinking about competition is required as reported in the Economist (2000). Organizational awareness
Third, marketing managers can promote organizational awareness of marketing’s value creating role through effective communication, not only to the marketing organizational members, but also to senior management. As marketing attempts to improve its inventory of market-based assets, and to build new businesses based on intellectual and relational assets not constrained by movement dependent on physical carriers, businesses will need to invest time and effort in the new opportunities in order to utilize those intangible assets effectively. Fourth, in order to sustain advantages in value creation derived from successful implementation of these recommendations marketing managers must continually monitor activity and results. By performing these tasks, marketing managers will increase the likelihood for optimization of a new market-based asset management system. Conclusions and future research The creation of value by the firm is no longer restricted to the traditional hierarchical value chain but now can occur in an information network. For some firms, the entire value equation will be an information-based system. For other organizations, separate value creation systems will co-exist within the firm: hierarchies for physical goods transformation, and network value systems that create value for the firm in new ways and require new strategies. The market-based assets founded in the resources termed relational assets and intellectual assets are resources essential to strategic success in the new knowledge economy, and these are inextricably embedded in the marketing function.
Challenges for marketers
212
The first challenge for marketers is identifying and operationalizing intellectual and relational assets. This will aid in organizing future thinking about marketing’s function relative to value creation in the knowledge economy. Firms can begin by examining their current inventories of marketbased assets for additional value creation. Spin-off opportunities may exist stemming solely from the use of these market-based assets in business arenas beyond current business definition boundaries. Bounding the opportunities for marketing with thinking limited by outmoded frameworks is akin to the myopia Levitt (1975) cautioned against several decades ago. Future research into marketing and strategy related decisions altered by rapid changes in information technology and industry structures, and further exploration of JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
the relationship between marketing and its centrality to value creation in the knowledge economy will require new lenses for scholars and practitioners alike. Web resources 1. http://www.ihsgroup.com 2. http://www.TechSavvy.com 3. http://www.eFiltration.com References Aaker, D.A. (1998), Strategic Marketing Management, John Wiley & Sons, Inc., New York, NY. Achrol, R.S. (1997), ‘‘Changes in the theory of interorganizational relations in marketing: toward a network paradigm’’, Journal of the Academy of Marketing Science, Vol. 25 No.1, pp. 56-71. Barney, J. (1991), ‘‘Firm resources and sustained competitive advantage’’, Journal of Management, Vol. 17 No. 1, pp. 99-120. Bradley, S.P. and Nolan, R.L. (1998), Sense & Respond: Capturing Value in the Network Era, Harvard Business School Press, Boston, MA. Biggadike, R.E. (1981), ‘‘The contributions of marketing to strategic management’’, Academy of Management Review, Vol. 6 No. 4, pp. 621-32. Callahan, C.V. and Pasternack, B.R. (1999), ‘‘Corporate strategy in a digital age’’, Strategy & Business, Vol. 15, second quarter, pp. 10-14. Day, G.S. (1992), ‘‘Marketing’s contribution to the strategy dialogue’’, Journal of the Academy of Marketing Science, Vol. 20 No. 4, pp. 323-9. Day, G.S. and Montgomery, D.B. (1999), ‘‘Charting new directions for marketing’’, Journal of Marketing, Vol. 63, Fall, pp. 3-13. Downes, L. and Mui, C. (1998), Unleashing the Killer App, Harvard Business School Press, Boston, MA. Economist (2000), ‘‘Who owns the knowledge economy?’’, Economist, April 8, US edition Evans, P.B. and Wurster, T.S. (1997), ‘‘Strategy and the new economics of information’’, Harvard Business Review, September-October, pp. 71-82. Evans, P.B. and Wurster, T.S. (2000), Blown to Bits: How the New Economics of Information Transforms Strategy, Harvard Business School Press, Boston, MA. Financial Times (2000a), ‘‘Companies and finance international’’, Financial Times, October 9, US edition. Financial Times (2000b), ‘‘Survey-engineering 2000’’, Financial Times, July 14. Financial Times (2000c), ‘‘FT-IT Review’’, Financial Times, August 2. Glazer, R. (1991), ‘‘Marketing in an information-intensive environment: strategic implications of knowledge as an asset’’, Journal of Marketing, Vol. 55 No. 4, pp. 1-19. Information Week (1998), ‘‘Changing the rules’’, Information Week, August 24. Jain, S. (1983), ‘‘The evolution of strategic marketing’’, Journal of Business Research, Vol. 11, pp. 409-25. Kim, W.C. and Mauborgne, R. (1999), ‘‘Strategy, value innovation and the knowledge economy’’, Sloan Management Review, Spring, pp. 41-54. Levitt, T. (1975), ‘‘Marketing myopia (with retrospective commentary)’’, Harvard Business Review, September-October, pp. 26-48. Los Angeles Times (2000), ‘‘GE takes to the Net to lower company costs’’, Los Angeles Times, October 9. McKenna, R. (1991), ‘‘Marketing is everything’’, Harvard Business Review, Vol. 69, JanuaryFebruary, pp. 65-79. Mintzberg, H. and Lampel, J. (1999), ‘‘Reflecting on the strategy process’’, Sloan Management Review, Spring, pp. 21-30. New York Times (1998), ‘‘Lycos buys a maker of customized search software’’, New York Times, May 1. Peppers, D. and Rogers, M. (1997), Enterprise One to One, Doubleday, New York, NY. JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
213
Peter, A. and Tulskie, W. (1999a), ‘‘Market for search intermediaries’’, paper presented at Electronic Commerce: Behaviors of Suppliers, Producers, Intermediaries and Consumers, Kingston, RI. Peter, A. and Tulskie, W. (1999b), ‘‘e-business vector: IT as a strategic capability’’, paper presented at Electronic Commerce: Behaviors of Suppliers, Producers, Intermediaries and Consumers, Kingston, RI. Porter, M.E. (1985), Competitive Advantage, The Free Press, New York, NY. Srivastava, K., Shervani, T. and Fahey, L. (1998), ‘‘Market-based assets and shareholder value: a framework for analysis’’, Journal of Marketing, Vol. 62, pp. 2-18. Szuprowicz, B.O. (1999), E-commerce: Implementing Global Marketing Strategies, Computer Technology Research Corp., Charleston, SC. Varadarajan, P.R. and Jaychandran, S. (1999), ‘‘Marketing strategy: an assessment of the state of the field and outlook’’, Journal of the Academy of Marketing Science, Vol. 27 No. 2, pp. 120-43. Webster, F. (1992), ‘‘The changing role of marketing in the corporation’’, Journal of Marketing, Vol. 56, pp. 1-17. Wind, Y. and Robertson, T.S. (1983), ‘‘Marketing strategy: new directions for theory and research’’, Journal of Marketing, Vol. 47, pp. 12-25.
&
214
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
An executive summary for managers and executive readers can be found at the end of this issue
Are we losing trust through technology? Michael K. Rich Professor of Marketing, Department of Business and Public Policy, Southwest State University, Marshall, Minnesota, USA
Keywords Value, Trust, Ethics, Technology, Sales, Internet Abstract The field of marketing has had a history of individuals and organizations attempting short-term gain through less than ethical means. The advent of the Web and other technological advances has placed powerful resources in the hands of practitioners. Coupled with that power is an acute public awareness of marketing abuses that have adversely hindered subsequent marketing efforts. Marketers need to address basic marketing skills through old-fashioned personal contact and personal relations that probably never will be effectively replaced with modern IT methodology. Additionally, marketing should take a proactive approach to defining marketing responsibilities to the public it serves to overcome the reputation that is established by a few who are unethical in their approach to the craft.
Marketing constructs
Five dimensions of marketing
The changing field of marketing Marketing has been an emerging discipline over the past 20 years; a discipline defined academically some time ago and now emerging with multiple descriptors within industrial circles. ‘‘Marketing’’ as a term is somewhat all-inclusive when someone cannot quite define the specific area of interest. Since it is a dynamic and rapidly growing discipline, advances have been made in several areas while others have tended to remain reactive to other disciplines. Many marketing scholars and practitioners alike have drawn on knowledge from other disciplines as diverse as anthropology, biology, economics, mathematics, psychology, statistics, and sociology to form meaningful theories and tactical approaches to issues that have been assigned under the marketing umbrella (Malhotra, 1999). Marketing effectiveness, as a construct, is multifaceted and only a few efforts have been made to conceptualize it. Probably the best-known and frequently utilized construct is Kotler’s (1977) conceptualization. It indicates that an organization’s marketing effectiveness comprises five dimensions: (1) customer philosophy; (2) integrated marketing organization; (3) adequate marketing information; (4) strategic orientation; and (5) operational efficiency. These each have profound meaning when properly understood for what they represent within the total marketing framework. This paper proposes that Kotler’s construct is still accurate but must be viewed in light of recent developments in technology if marketing is to be perceived as a positive, viable and proactive force in today’s fiercely competitive marketplace that is
The research register for this journal is available at http://www.emeraldinsight.com/researchregisters The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/0885-8624.htm
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 215-222, # MCB UP LIMITED, 0885-8624, DOI 10.1108/08858620210419826
215
now functioning on a global scale. Without overt action on the part of marketing professionals everywhere, marketing has the potential of being classified in the same light as those historical professions that dwelt in the shadows of legitimate business undertakings.
Legitimate practices
Betrayed trust
Proactive effort required Unfortunately, until the public becomes better educated concerning legitimate marketing practices through proactive efforts by our profession, there will be those that will continue to give this profession a bad name for their unethical pursuits in the name of short-term gain. Today, technology has the potential of branding legitimate marketing practitioners with the same image that has previously been reserved for the unethical elements of this profession. An example of the former would be a practice of attempting to make a piece of generally distributed advertising appear to be a word-of-mouth suggestion from a friend. In an envelope that appears to be hand-addressed (although generated as a computer cursive font), is an advertisement that appears to be torn from a newspaper (complete with ragged edges). The advertisement can appear within what appears to be closing stock quotations. Attached to this advertisement is a yellow ‘‘sticky’’ note with the scribbled message, ‘‘I thought you might enjoy this. I know I have,’’ signed only with a common first name or maybe only an initial. This note meets many of the prerequisites for effective communications: .
it is one on one;
.
it raises awareness of a specific, important need;
.
it offers a solution to that need;
.
it does so concisely; and
.
it evokes a response.
The critical element in relationship marketing – trust – was not just missing, it was betrayed (Randall, 1999). Technology was not a significant factor in deploying this questionable campaign (aside from the computer generated elements), but the deliberate deception and misleading aspects of the campaign would have most professionals challenging its legitimacy. For those who have received such a direct-mail effort, they become just a little more cynical toward the profession of marketing. When evaluating an example of the latter, divisions will be created within our ranks as to whether or not ethics are violated and trust damaged toward our profession. The embracing of technology in the name of expediency and comprehensiveness needs to be tempered with consideration concerning perceived violations of public trust. Often, the underpinnings of the questionable practices are innocent enough and demonstrate skill and an understanding of our developing craft. An example of a valid foundation would be the extension of the initial segmentation efforts that developed classifications such as Seniors, Boomers, Generation Xers, and Generation Yers. The assumed classification stereotypes of the image-conscious Baby Boomer, the cynical Generation Xer, independent Generation Yer, and the diverse and influential Senior are now enhanced with greater emphasis on digital databases to further refine these groups and more narrowly target intended messages through generational bias in advertising and one-to-one marketing (Chakrapani, 2001). Narrow targeting has now become sophisticated enough that some groups are crying foul, demanding a refining of current marketing practices that have proven to be too effective from the
216
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
perspective of some. An example would be targeted children’s advertising. One of the leading protesters, Dr Alvin F. Poussaint of the Harvard Medical School and Boston’s Judge Baker Children’s Center, contends that children’s advertising not only advocates violence but also is responsible for obesity in children, a breakdown in early learning skills and the destruction of parental authority. This sweeping condemnation is based on the past practice of psychologists consulting with advertisers that market to children. This practice is now being studied to determine if it should be declared unethical. ‘‘Nag factor’’
Past studies indicated that young children could not differentiate between commercials and cartoons when the commercials are in cartoon format. Earlier decisions restricted some sponsors’ attempts to basically create a 30-minute infomercial. According to Dr Poussaint, advertisers bombard children with advertisements that encourage the ‘‘nag factor’’. He was referring to a 1998 study conducted by Western International Media, now Initiative Media, which determined advertisements actually encouraged ‘‘the fine art of whining’’ by children. Studies have indicated that 20 percent to 40 percent of sales of jeans, burgers and other products occur because a child repeatedly asked for it. The study identified different parental groups such as ‘‘Indulgers (33 percent of parents) most likely to be affected by nagging and Conflicted (20 percent) that frequently give in to nagging, but are very ambivalent.’’ The study was intended to help companies figure out how to get children to nag more effectively; a factor that supposedly undermines parental authority within the family while harming the wellbeing of children and families. Advertising executives defend the study and kid’s advertising in general. ‘‘The nag factor, as negative as it sounds, is really about when kids and parents are watching TV together – that is when the advertising has the best effect,’’ said Mike Lotito, president and chief operating officer of Initiative Media (Linnett, 2000). It is difficult to contemplate large numbers of parents watching cartoon programming early Saturday mornings when much of this designed advertising is being delivered. Multiple-channel ethics As sophistication of marketing tools and techniques improve and carry greater impact, ethical considerations must be addressed if public trust in the profession is to be secured and maintained. Increasing competitive pressures are forcing most companies to seek out multiple channels of distribution in order to maximize sales. Driven by demanding bottom-line requirements, many marketers search for greater efficiencies to move greater volumes of product at enhanced margins. Sometimes that search will create conflict within the channel structure with ethical considerations once again becoming a concern.
Multiple channel decisions
Recent examples abound that underscore the impact of multiple channel decisions. For example, Compaq’s goal to support its struggling PC sales through 60 percent direct sales by the end of 2000 was not warmly received by its extensive dealer network that had been responsible for delivering Compaq’s past growth success. Compaq’s own studies had concluded that small to medium-sized businesses are heavily influenced by the computer reseller and if those same resellers abandon their support as a backlash for Compaq’s direct sales effort, Compaq’s bottom line would be adversely affected. Any short-term gain by the direct effort could be detrimental to the long-term health of Compaq (Hibbard et al., 2001). Over the past decade, researchers have expounded that developing close, cooperative channel relationships, based on trust and commitment, can
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
217
deliver significant benefits to the participating firms. Anderson and Narus (1990) argue that channel members that trust their partners, ‘‘are more likely to work out their disagreements amicably and, in fact, accept some level of conflict as being just another part of doing business.’’ Competitive pressures have now reached a point where high risk approaches are being taken by companies in the name of profit protection. It is not difficult to see why marketing tools might be used to their ultimate potential, in spite of the potential public backlash that might result if the practice was uncovered.
Consumer feedback
Global competition
The ethics of slotting fees Marketing, as a discipline, recognizes the value of direct consumer feedback in determining the future direction of customer choices and preferences. As our discipline moves toward becoming a more proactive voice in the marketplace, such issues as slotting fees could become a thing of the past. Through public education, marketing could illustrate that the present practice of charging for shelf space when a supplier attempts to introduce a new product denies the consumer the opportunity to vote for the success or failure of a product with his or her dollars. Instead, choices are made by grocery retailer fee arrangements and not by consumer demand (Aalberts and Jennings, 1999). This practice obviously denies the smaller innovative start-up the opportunity for exposure while assuring the large multinational a stranglehold on consumer choice. For all of the value associated with marketing research into consumer preferences, it would greatly benefit the research profession if this practice were eliminated – an event that will not occur without an educated public. That education could very well be the responsibility of this profession. Technology Technological advances combined with global expansion of business will have a profound impact on global marketing management, including increasing risk and uncertainty, real-time information management, and rapid response to global developments. The additional pressures of global competition will increase the temptation to pursue less-than-ethical marketing practices. Cross-impact analysis will become a more important tool for dealing with uncertain interactions among complex forces. The managerial mindset will have to grasp the big picture, think outside the box, discount the present short-term picture to properly create the long-term future scenario, and move far beyond benchmarking. Benchmarking, which focuses attention on meeting the thrusts of the most effective competitors, has proved to be a popular approach of many companies. But meeting competition assumes that competitors know what should be done and tends to lock management thinking into the past. Future global marketing managers might profit by focusing their attention on leading rather than meeting competitors – on leapfrogging them. This will lead to changes in decision-making orientations, including a shift from relatively stable environments and mechanistic management approaches to more turbulent environments and systemic management approaches and a shift from hard facts for solving problems to virtual facts for problem prevention (Lazer and Shaw, 2000). New pressures require new tools The effects of external factors on a business will be so profound that the old tools used by marketing managers, such as rules of thumb, guidelines, and models, will be of little use in meeting the decisions that must be made. Information overload is likely to occur as managers attempt to embrace
218
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
ever-increasing volumes of information to help ease the risk of the decisions that must be made. New guidelines are often suggested but maybe reverting to past proven methods will be more effective. Technology seems to decrease people skills in favor of e-mail, voice mail, Web site analysis, and database mining. Proven people skills have now been replaced with a demand for IT skills so that the volume, depth and currency of information might be more rapid than ever. Customer satisfaction
Organizations recognize that a one-point rise in a firm’s customer satisfaction index corresponds to an average $240 million increase in market value (Sweat and Hibbard, 1999). The apparent problem is that most organizations will try to minimize labor expenditures in meeting the need for increasing customer satisfaction. According to Information Week’s research priorities study of 300 IT executives, the top two key strategic technology, business, and IT project implementation priorities are understanding and meeting customer needs and improving customer service (Davis, 1999). It is not as if companies are looking for a low-cost method of attacking this issue of understanding and meeting customer needs by using IT since technology is now the number two expenditure, after labor, in most organizations. Also, most firms really do not know how much they spend on technology because they often overlook certain costs such as servers and cabling, hardware, software, maintenance, communications, remote access, presentation equipment, training, and related labor (Boomer, 2001). Often, even after massive expenditures to become technologically cutting-edge with IT, the structural realignments of a corporation that accompany entry into the Internet market are minor and the former organizational structure, with all of its mechanistic underpinnings, continues to shape the identity, beliefs and social ties of management (Houston et al., 2001) thus reducing the potential effectiveness of the IT inclusion. The impact of the resulting organization attempting to do business via the Web then become questionable along with the resulting customer satisfaction level achieved. Consideration also needs to be given to the general lack of marketing knowledge of most IT professionals. When IT is in a position to dictate corporate approaches to information delivery to customers and prospects, that delivery quite possibly is void of impact that effectively differentiates products and services in the mind of the prospect.
Online transactions
The use of the Web in conducting transactions, especially in the business-tobusiness market continues to expand. Currently, 15 percent to 20 percent of those transactions are done online, but that figure is projected to increase to 80 percent within the next six to eight years (Mazur, 2001). We find that as companies attempt to increase customer satisfaction through the use of IT approaches, the customer is becoming confronted with massive amounts of information in the form of Web sites and digitally encoded information sources. Often, the customer has an incomplete picture as to the exact nature of his or her needs and will form final views as information is gathered. If the customer is confronted with massive amounts of information with which to deal, then a solution for the information volume must first be found before a solution for the company’s situation can be addressed. As a result, intermediate information brokers such as Amazon.com, Autobytel, AOL, eBay, Yahoo! and the many search engines such as Excite are now appearing to assist the customer in sorting through the maze that confronts them on the Web (Wyner, 1999). In the attempt to get closer to the customer with information, companies have unwittingly created another layer between them and the customer by embracing IT as the solution for greater customer satisfaction without the need for extensive increases in total labor. Another
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
219
handicap thrust on the business attempting to gain customer information via the Web is the fear of unethical marketing practices pursued by many as Web sites capture information on those who visit and especially utilize information that is furnished by a site visitor who requests ‘‘free’’ materials offered in exchange for filling out a simple form online. Digital information exchange now makes possible greater amounts of information to be transferred unwittingly to a vendor site than could have been imagined just a few years ago. Although many businesses are acknowledging the importance of a Web site, to date little attention has been given to the business community’s perceptions of the ethics of this new medium, especially in light of the reported abilities of Web sites to capture information that is not cognitively conveyed by the site visitor (Bush et al., 2000). Strong corporate ethics The answers to this creeping destruction of marketing’s image are easier to describe than they are to implement. It really involves a proactive approach by marketing professionals within the organization. Research has shown that corporate ethics is an important organizational issue as well as a societal issue, and that there is a strong link between corporate ethics and organizational commitment (Hunt et al., 1989). Key ethical values
Management must make overt, clear, and consistent efforts to integrate key ethical values into the organization’s culture. The organization’s ethical profile reflects its internal and external public and how it wishes to interact with them: the community, staff, stockholders, and competition. Core values then become a filtering mechanism to ensure ethical content of marketing plans. The enculturation process can require years, and needs monitoring to determine if it works and adjusts to changing environments (Robin and Reidenbach, 1987). It is interesting to note that a survey of the American Marketing Association’s professional members revealed that the religiousness of a marketer could partially explain his/her perception of an ethical problem and behavioral intentions. The results also suggest that religiousness significantly influences the personal moral philosophies of marketers (Singhapakdi et al., 2000). Obviously then, the moral character of top management will influence the ethical characteristics of the organization. Strong ethics will better mold the organization with greater unity of purpose, and stronger customer service should result. Individual effort The final area for discussion is the power of one-on-one relationship building. The evidence is overwhelming that strong customer service is the result of knowing the customer. The process of knowing the customer can take two routes: (1) building an extensive database through information gathering built on a foundation of strong IT abilities; and (2) establishing strong personal links with the customer through personal contact on an individual basis.
Pitfalls of that process
220
As we have reviewed, there has been an effort to hold labor requirements to a minimum through strong IT linkages but we have also seen some of the pitfalls of that process. Re-examining the power of personal contact in the relationship-building process will reveal that many issues of concern to a prospect or customer can be determined through sensitive analysis of non-verbal signals as well as establishing a strong ‘‘comfort zone’’ with the customer through social style adaptation. This comfort level develops JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
meaningful trust on the part of the customer and a lasting relationship will be maintained that will endure through heavy competitive pressures (Rich and Smith, 2000). When considering the level of funds expended for IT systems just to maintain strong customer relationships, the cost of the individual contact method will often pale in comparison. Ford Motor Company, after analyzing its advertising effectiveness, had determined to shift much of its corporate advertising budget from print, TV, and radio advertisements to a program that will focus on an executive Internet dialogue on its Ford.com site to build customer trust. Each executive will be responsible for spending time answering questions submitted from customers. ‘‘The role of [the Internet contacts] is to humanize the company,’’ said Michael Wright, Trustmark marketing manager at Ford. He continued, ‘‘we want to provide an opportunity for people to discuss issues that are important to them, which even go beyond our products and services’’ (Cantwell, 2001). Strategic partnering
To maximize the one-on-one contact with customers, the classical role of the salesperson needs to also change. The salesperson cannot reasonably maintain personal contacts throughout a large organization to a level that can satisfy the strategic partnering of today’s demanding environment. The salesperson’s role and responsibilities continually evolve as firms react to competitive pressure. Studies suggest that in some instances the salesperson will vanish as the contact person for firms engaged in deep relationships. Deep relationships involve the selling firm placing staff on the buying firm’s floor space to coordinate acquisition of the product that the buyer needs. The tasks of selling, communication and coordination will remain but will be carried out by operational-level people in the selling organization. The salesperson becomes more of a coordinator of the entire effort (Wilson, 2000). Conclusion Technology is forcing marketing to examine itself and overtly establish standards by which practitioners will abide. The competitive pace of today’s global marketplace is so intense that the speed at which discovery is disseminated requires conduct above reproach and the expenditure of human energy to establish and expand business relationships that will have lasting qualities. Organizations cannot depend solely on data mining techniques and electronic contact with customers to insure the conveyance of a value image. Personal communication skills need to be revisited and personal contacts re-established to insure effective communications of customer needs and desires. Short-term gain achieved through questionable marketing practices will be short-lived as the electronic age informs all at the speed of cyberspace. References Aalberts, R. and Jennings, M. (1999), ‘‘The ethics of slotting: is this bribery, facilitation marketing or just plain competition?’’, Journal of Business Ethics, Vol. 20 No. 3, pp. 207-9. Anderson, J. and Narus, J. (1990), ‘‘A model of distributor firm and manufacturer firm working partnerships’’, Journal of Marketing, Vol. 54, January, pp. 42-58. Boomer, G. (2001), ‘‘Firms must spend more, market better, increase efficiency’’, The CPA Journal, Vol. 71 No. 3, p. 14. Bush, V., Venable, B. and Bush, A. (2000), ‘‘Ethics and marketing on the Internet: practitioners perceptions of societal, industry and company concerns’’, Journal of Business Ethics, Vol. 23 No. 3, pp. 237-49. Cantwell, J. (2001), ‘‘Ford plan: build trust, boost sales’’, Automotive News, Vol. 75 No. 5, 928, p. 6.
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
221
Chakrapani, C. (2001), ‘‘Future marketing’’, Marketing Research, Vol. 13 No. 1, p. 39. Davis, B. (1999), ‘‘More projects, less time’’, Information Week, June 14, pp. 42-56. Hibbard, J., Kumar, N. and Stern, L. (2001), ‘‘Examining the impact of destructive acts in marketing channel relationships’’, Journal of Marketing Research, Vol. 38 No. 1, p. 45. Houston, M., Walker, B., Hutt, M. and Reingen, P. (2001), ‘‘Cross-unit competition for a market charter: the enduring influence of structure’’, Journal of Marketing, Vol. 65 No. 2, pp. 19-34. Hunt, S., Wood, V. and Chonko, L. (1989), ‘‘Corporate ethical values and organizational commitment in marketing’’, Journal of Marketing, Vol. 53 No. 3, pp. 79-91. Kotler, P. (1977), ‘‘From sales obsession to marketing effectiveness’’, Harvard Business Review, November-December, pp. 67-75. Lazer, W. and Shaw, E. (2000), ‘‘Executive insights: global marketing management: at the dawn of the new millennium’’, Journal of International Marketing, Vol. 8 No. 1, pp. 65-77. Linnett, R. (2000), ‘‘Psychologists protest kids’ ads: Golden Marbles awards targeted; task force to examine ethics issue’’, Advertising Age, Vol. 71, p. 4. Malhotra, N. (1999), ‘‘Guest editorial: the past, present, and future of the marketing discipline, Academy of Marketing Science Journal, Vol. 27 No. 2, pp. 116-19. Mazur, L. (2001), ‘‘Understanding clients is crucial to B2B success’’, Marketing, February 8, p. 20. Randall, V. (1999), ‘‘Dysfunctional marketing fails’’, Communication World, Vol. 17 No. 1, p. 5. Rich, M. and Smith, D. (2000), ‘‘Determining relationship skills of prospective salespeople’’, Journal of Business and Industrial Marketing, Vol. 15 No. 4/5, pp. 242-59. Robin, D. and Reidenbach, R. (1987), ‘‘Social responsibility, ethics, and marketing strategy: closing the gap between concept and application’’, Journal of Marketing, Vol. 51 No. 1, pp. 44-59. Singhapakdi, A., Marta, J., Rallapalli, K. and Rao, C. (2000), ‘‘Toward an understanding of religiousness and marketing ethics: an empirical study’’, Journal of Business Ethics, Vol. 27 No. 4, pp. 305-20. Sweat, J. and Hibbard, J. (1999), ‘‘Customer disservice’’, Information Week, June 21, pp. 65-78. Wilson, D. (2000), ‘‘Deep relationships: the case of the vanishing salesperson’’, The Journal of Personal Selling & Sales Management, Vol. 20 No. 1, pp. 53-61. Wyner, G. (1999), ‘‘The future of customers’’, Marketing Management, Vol. 8 No. 3, p. 8.
&
222
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
Internet currency Edited by Dennis A. Pitta University of Baltimore
The Business Marketing Association: a resource for business to business marketers It is amazing who in my life uses the term B2B. Historians with no business connection, public school teachers and even my physician have learned the term. Their understanding may be at the same level as the general population’s grasp of the details of U235. Many of us have heard of it, many of us know something about it, but few of us are involved with it. The gulf between the general knowledge level and specialist expertise has been bridged by a professional organization. Since it focuses on business and industrial marketing, it may be a valuable resource for industrial marketers. The Business Marketing Association [http://www.marketing.org/] The BMA Web site bills itself as the home of the ‘‘leading professional association for business-to-business marketers and communicators’’. The organization lists a respectable number of members – 3,000 worldwide. It offers today’s marketers ‘‘broad information and education resources, in addition to networking opportunities through local chapters, conferences and seminars.’’ That description was attractive enough for me to delve further into the site. What is impressive from the start is the focus on business-to-business affairs and the clear, almost bulleted points that should be of interest to industrial marketers. The site does not waste space; each part is engineered to attract and motivate membership. The heart of the home page is a list of benefits and features. The list starts with a professional academic appeal. The BMA offers a sample white paper titled, Key Concepts of Business Marketing, by Paul Sherrington, CBC. The site prompts visitors to learn why its members enjoy a professional edge. The white paper details ‘‘what’s different – and what’s changing – about business-to-business marketing today.’’ The white paper is available in Adobe Acrobat format (pdf format), as is the extensive online BMA library of white papers that are available to members at no cost. Downloading the white paper proved easy and the content is pertinent and interesting. A second feature is B2B Direct, a BMA e-mail newsletter. The newsletter covers important e-commerce issues and is free. The site provides links to ease registration or a request for a sample issue. Another element is the members’ library. It is designed to serve the needs of its professional audience. Therefore, it contains the BMA’s entire collection of members-only resources, which include white papers, back issues of The Business-2Business Marketer, industry research, analytical tools, and other publications. The BMA states that it is a valuable feature of BMA membership. For members who want to keep current with the state of the art in B2B practice, the library now contains the 2001 Annual Conference speakers’ PowerPoint presentations. Further membership inducements appear in the form of a statement: ‘‘It’s a great time to join BMA! Now, for a limited time, you’ll receive a special free book bonus with your membership: choose any one of these three new marketing titles featured at this year’s BMA Annual Conference.’’ The titles are viewable with a handy link. The link opens a colorful Adobe Acrobat document, which offers photographs of the books along with detailed descriptions of their content. For example, one title is Brand Asset Management: Driving Profitable Growth Through Your Brands, by Scott Davis. The document contains an order form. Davis’s book lists for $29.95 – with a discounted price of $25.95 to members. Once again, BMA implements inducements to join. Professional organizations often negotiate relationships for their members. Airlines and car rental companies are among the most popular sources of special offers. However, instead of a random list of offers of interest to members as consumers, JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2-3 2001, pp. 223-224, # MCB UP LIMITED 0885-8624
223
The BMA has a professional focus. It states: ‘‘Although the significant core value of BMA membership is in the professional development opportunities the association offers, there are also value-added products and services that may enable you to enhance and transform your job or your business.’’ Therefore, the organization has established relationships with a number of companies that can aid the conduct of members’ business. Three such entities appear on the BMA relationship page. The first is a business book summary and review subscription service. The service selects and summarizes the best ‘‘business books that executives, managers, business owners, educators, and students should read, but have no time to read.’’ The second is a marketing plan software program that is described as a valuable tool for members. The third is a career service billed as a ‘‘leading provider of online career centers to Web site partners. Leveraging the vast resources available on the Internet, CareerWebSource has compiled and cataloged a database of over 24,000 different career resources. These resources, combined with original articles, surveys and expert advice, are customized for each career center to bring relevant, local career information to each site.’’ I am still puzzling over that description and the value of the service. The BMA provides a Web link to the provider that I tried several times. Over several days I could not connect using the link which is unfortunate since I really wanted to understand the nature of CareerWebSource’s services. I looked carefully at an additional element available for download. The BMA seems to know the value of samples in motivating behavior. It supplies a sample of its member newsletter (in Adobe Acrobat format), the Business 2 Business Marketer. The newsletter is free to members and bears a $15.00 price which must be another illustration of the intelligence found in the organization. The 12-page sample is a mix of practitioner-oriented academic articles and ‘‘tips, tricks and cutting-edge thought for today’s B-2-B professional.’’ For example, one tip is titled, ‘‘How to get more out of your press releases.’’ Other site characteristics The BMA site has a familiar navigation bar on the left side of the screen. There are ten separate links to areas such as: What’s new, The 2002 Annual Conference to be held in Kansas City, Missouri, Join BMA, Local chapters, The members’ library (access is password protected), Certification and several others. What is striking is the richness of the information. For example, the annual conference page contains seven separate links to important pages like the official hotel, the conference registration page, the local BMA chapter, several city tourist sites and the conference site. The page contains all the information an attendee would need in a convenient place. Perhaps the most important page on the site deals with professional certification. The BMA offers certification as a certified business communicator. Numerous links cover the basic question, why become certified as well as provide educational resources, quizzes, an online study guide, sample examinations, an examination schedule and even a list of the individuals who have earned their CBC designation in 2001. The BMA describes certification as an important recognition of the professional’s skills and knowledge. Summary The BMA offers something of interest to organizations engaged in B2B marketing. Companies that need training resources can exploit the CBC examination as an educational and motivational tool to increase the knowledge level of their employees. In addition, the newsletters and informational resources can be valuable. As a professional organization engaged in business and industrial marketing, it serves as a resource that marketers should know about. In our next issue, we will investigate other informative sites and invite readers to submit their favorite Internet sites for our consideration. Reader requests Please forward all requests to review innovative Internet sites to: Dr Dennis Pitta, University of Baltimore, 1420 North Charles Street, Baltimore, MD 21201-5779, USA. Alternatively, please send e-mail to
[email protected] for prompt attention.
224
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2-3 2002
This summary has been provided to allow managers and executives a rapid appreciation of the content of the articles in this issue. Those with a particular interest in the topics covered may then read the articles in toto to take advantage of the more comprehensive description of the research undertaken and their results to get the full benefit of the material present
Executive summary and implications for managers and executives Papers in this special issue explore some of the key challenges facing business and industrial marketing in the decade ahead. The authors demonstrate that technology is likely to play an ever-increasing role, but this must be squared with ways of achieving closer relationships with the customer. Firms must find ways of connecting with customers on a global scale, while incorporating the efficiency gains offered by new technology. Customer perceived value and satisfaction: distinct and complementary Eggert and Ulaga investigate whether customer value and satisfaction are distinct concepts. They also examine if value is better than satisfaction at predicting, for example, whether the customer will remain loyal, speak favourably to colleagues and friends about the product or service bought, or search for an alternative supplier. The customer’s feeling of satisfaction results from comparing the product’s performance with what he/she was expecting. If the product’s performance exceeds expectations, the customer will be satisfied. If the performance falls short of what he/she expected, the customer will be dissatisfied. The feeling of satisfaction or dissatisfaction essentially represents an affective state of mind. Researchers have repeatedly witnessed conflicting survey results of high satisfaction scores correlating with declining market share. Traditional customer satisfaction models deal only with existing clients and do not integrate potential customers or competition. Moreover, customer satisfaction does not specifically take account of the client’s perception of price or costs. This is a particularly important omission since purchasing managers in business markets tend to buy for economic rather than emotional reasons. Customer perceived value is usually seen as a trade-off between benefits and sacrifices perceived by the client in a supplier’s offering. Value is therefore the result of a process of comparison. The benefits are a combination of physical and service attributes and technical support available. The sacrifices are usually defined in monetary terms, but are sometimes viewed more widely. Different groups of customers, and different customers in the same purchasing organization, can perceive different values within the same product. Moreover, offering better value than competitors, by delivering a better trade-off between benefits and sacrifices in a product or service, will help a company to create sustainable competitive advantage. Satisfaction can be gauged only after the customer has bought the product or service. Value, in contrast, can be considered either before or after the purchase has taken place. Satisfaction measures how well a supplier is doing with its current market offering, as perceived by existing customers. Value, in contrast, looks to the future by assessing how value can be created for customers and by what means a supplier’s market offering can best meet customer requirements. Eggert and Ulaga develop and test two models in a survey of purchasing managers in Germany. The first model suggests a direct impact of perceived value on the purchasing managers’ intentions. In the second model, perceived value is mediated by satisfaction. The research suggests that value and satisfaction can be viewed and measured as distinct, yet complementary. Value and satisfaction tap different dimensions, yet strong interactions exist between them. Measuring satisfaction has not become obsolete with the advent of customer value research. While cognitive variables, linked to customer value, probably
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002, pp. 225-232, # MCB UP LIMITED, 0885-8624
225
predominate in organizational buying decisions, affective variables, linked to customer satisfaction, also have a role to play. After all, organizational buying ultimately consists of individuals making decisions. Managers responsible for designing marketing information systems need to know both how satisfied customers are with the company’s products and services, and how value is perceived by customers in market offerings. Value must first be created by the supplier for the customer. It must then be experienced in the customer’s organization and translated into satisfaction in order to result in, for example, customer loyalty and positive word of mouth. Network competence helps to define company performance Ritter et al. argue that a firm’s ability to develop and manage relationships with key suppliers, customers and other organizations, and to deal effectively with the interactions among them, is a core competence of a firm and one that directly affects its competitive strength and performance. They refer to this as the company’s ‘‘network competence’’. It includes tasks such as relationship initiation, exchange and co-ordination which help to maintain a single relationship, and tasks such as planning, organizing, staffing and controlling, which help to maintain a network of connected relationships. Network competence also covers the social and other skills possessed by the people handling a company’s relationships. Work in Germany has led to the development and calibration of a scale, NetComp, to measure a firm’s network competence. Ritter et al. demonstrate that this scale can be effectively applied outside Germany. They also show NetComp to be a good predictor of a firm’s overall ability to deal with relationships and networks with other organizations. The firms with high network competence are also those best able to manage technology-oriented relationships aimed at acquiring, jointly developing or diffusing technical know-how and resources. Their links with customers, suppliers, research institutions, consultants and even competitors also make these companies the most successful at innovating products, services or production facilities. Once again, these conclusions apply regardless of cultural context or level of economic development. Firms that are most market oriented also tend to be those with the best overall performance. Network competence and market orientation do overlap. However, network competence is a more general concept than market orientation because it measures a firm’s general competence to develop and manage relationships and networks with all types of business partner, and not only customers. Moreover, network competence focuses more on co-operation with various partners and even competitors, rather than the way in which a firm defends itself against, and differentiates itself from, its competitors. Nevertheless, there is close correlation between a company’s market orientation and its network competence. One possible explanation is that market-oriented firms have realized the need for network competence in order to survive in the modern business world, and so market orientation and network competence are not in conflict. The Internet as a forum for business-to-business buying and selling Businesses bought some $336 billion of goods and services over the Internet in 2000. This figure is set to rise to between $2.4 trillion and $7 trillion by 2004. The utilities are forecast to conduct more than 90 percent of their business-to-business buying and selling online, shipping and warehousing will carry out some 66 per cent online and motor vehicles 51 per cent. 226
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
E-commerce is more suited to the business-to-business market than to the consumer market. The Web enables large amounts of technical information to be passed on rapidly and consistently to business clients. The Internet facilitates efficient dealings with established customers, before, during and after the sale. Moreover, business buyers have traditionally been less bound than individual consumers to sellers in their own geographical area. This makes business buyers particularly receptive to the concept of a world of buyers and sellers being only a click away. Lord and Collins gauge the accessibility of vendors to their prospective business customers and compare sellers’ approaches to online communication with the preferences expressed by buyers. The research reveals that business buyers want suppliers’ Web sites to provide information about products and services and the companies themselves. Business buyers particularly want price details and information about how products can be ordered online and how they are distributed. Many are interested in product certification information, which implies a concern for quality assurance, and easy access to information beyond that reported on Web sites. Significant numbers also want links to related Web sites, which indicates that they want to be able to compare different products easily. The Web sites of most sellers provide company and product information, details of distributors and e-mail addresses for buyers interested in following up what they see on the Web site. But the information is generally much less than buyers would like. In particular, they would prefer more Web sites to include the answers to frequently asked questions. They would also welcome more product certification information and easier ways of asking online for more literature. Many sites fail to include prices or provide the buyer with the facility to order online. Failure to include prices may be because the sellers provide different discounts to customers based on factors such as purchase volume, history as a customer or credit worthiness. Experienced buyers probably do not expect to see all possible discount options, but they do want more than silence on prices when visiting the site of a prospective supplier. Internet wholesalers are now springing up, offering buyers extensive support. Online brokers take quote requests from firms visiting their sites and send them to participating vendors for fast response. Other sites bring together buyers and sellers within a particular industry or region. An initial preference for a particular company may make that firm’s Web site the first Internet stop for a prospective buyer. But if the site does not contain the desired information, or does not allow the immediate online purchase the buyer desires, he or she will simply click on the site of a competitor or one of the new intermediaries. The impact of e-commerce on buying centres Osmonbekov et al. examine the impact of e-commerce on organizations’ buying centres. They put forward the view that, as e-commerce tools are adopted, information becomes easier to access and transfer among buying centre employees. As a result, fewer employees are needed to reach decisions and the size of the buying centre can be reduced. E-commerce tools, such as intranet applications which can automate the approval process of senior managers, mean that much more can be achieved by operating staff and so fewer levels of management are needed. E-commerce tools tend to reduce not only the number, but also the types of employee actively involved in procurement. This is because e-commerce enables organizations to archive technical details, performance statistics, regulatory JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
227
requirements and so on, so that buying centre members can deal with this type of information directly, without having to involve more technical colleagues. On the other hand, technical personnel retain substantial influence in buying centres responsible for major capital purchases, materials and components. By increasing the quantity and widening the range of sources of technical information available to these people, the tools of e-commerce are likely to increase their influence over the purchasing decision. Moreover, technical personnel are more likely than other buying centre employees to be Web-savvy and more comfortable employing e-commerce tools to gather information. Of course, as the number and range of buying centre employees declines, the relative weight of each employee’s responsibility for the purchasing decision increases. In addition, new information technology tools put more information at the disposal of each remaining employee. He/she can, for example, browse suppliers’ online catalogues, view live online presentations and so on. This further increases the overall involvement of each employee. In this new situation, firms should ensure that all buying centre employees have e-commerce skills, or are able to gain them quickly. The employees should also be able to communicate, negotiate, evaluate and, in general, handle the challenges of procurement. Different departments sometimes have different goals in mind. For example, the main goal for engineering may be to get the most advanced machinery available, but for accounting personnel it may be cost. The tools of e-commerce can increase the amount of interdepartmental communication, educate buying centre members on the various facets of the purchase, reduce suspicions of hidden agendas and so help to lessen conflict. The tools of e-commerce can also improve co-ordination within the buying centre. They enable, for example, an accountant readily to check in real time the order changes made by an engineer, and update cost projections accordingly. E-commerce tools help companies to lower the costs of performing the various aspects of purchasing. E-commerce can also make for better product selection, improved inventory management and faster decision making. Firms which market to organizations that have adopted e-commerce tools in their buying centres can implement more focused marketing communications strategies to target a smaller set of decision makers, because of the fall in the number of buying centre employees. The seller may wish to consider providing more information (including technical information) about its products and company, because each buying centre employee will have greater involvement than before in the purchasing decision. Moreover, buying centre staff are likely to have access to information on the Internet that is not directly controlled by the seller. This may include the experiences of previous customers and information provided by objective third-party ratings services. The seller should be aware of the existence and importance of these sources and should consider how these sources attain, verify and summarize information about their firm. Organizational buyers should carefully consider whether their prospective business partners are able to practise e-commerce. Choosing to deal with marketers who have not adopted e-commerce may prevent the buying firm from realizing potential efficiency gains. Network alignments may soon be more important than individual firms as customers continue to value integrated solutions and speed of delivery and service more than they value the benefits delivered by individual products and brands. 228
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
There are, however, risks in the new world of e-commerce. Companies that restructure their buying centres to deal with a select group of e-commerce partners risk raising the cost of switching to alternative suppliers at some time in the future. There are evident security risks for both sellers and buyers when sensitive information is exchanged electronically. Current checks and balances within an organization’s buying system may be circumvented as fewer people and different functional areas come to characterize e-based procurement. Web-based selling and purchasing tools have yet to address fully such security concerns. Simulating buying centre decision processes The staff who make up buying centres are usually chosen to ensure that all the characteristics of the product or service being purchased meet the purchasing organization’s needs. The buying centre at a firm designing and manufacturing personal computers, for example, could be composed of personnel from the design, purchasing, manufacturing and customer service areas. In choosing a firm to supply a given component, these people would assess vendors’ various designs and supply capabilities to decide which set of choices best meets the organization’s requirements. McNally contends that these organizational purchasing decisions can be regarded as a rule-discovery process. Buying centres rarely have complete information when choosing the best set of vendors. For example, buying centre members may not know the reliability of a component vendor’s material supplies. The uncertainty resulting from such factors requires the group to search for similarities among vendors that have successfully provided products to the organization in the past, while also considering the organization’s current and future requirements. Of course, buying centre members are likely to differ over who they think would be the best supplier. These differences of opinion are usually resolved rationally, through problem solving. Sometimes, persuasion or irrational methods like bargaining and politicking are used to resolve conflict. The situation is complicated further by the fact that buying centre members want, on the one hand, to co-operate with each other in order to get the best solution for their organization, but are also motivated to compete with each other by factors such as differences of status, influence and, possibly, bonus systems which reward those who stand up for their sectional interests. McNally demonstrates that the conflict resolution process involves both ‘‘informational’’ and ‘‘normative’’ social influence. The former causes one group member to accept information from another group member as evidence of reality. The latter is influence to conform to the expectations of others, and has been little explored in a business-to-business context because collecting real world information from organizational buying groups is difficult. McNally presents a framework and method for investigating decision making in buying centres. The method, which has been used by social psychologists to examine rule-based decision processes, can enable simulated organizational purchasing decision processes to be monitored in a controlled environment. The method can be used to investigate which types of influence prevail in buying centres, and how members’ preferences change after group discussion. Such insight can improve the predictability of buying centre decisions and help buying centres to improve their decisionmaking processes. Analysing stakeholders in an era of technological innovation Technological innovation drives many of the revolutionary changes in business-to-business markets. No industry remains untouched by JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
229
technological change. Business-to-business technology firms play a central role in much of this innovation. These companies research, develop and commercialize the numerous components and subsystems that become linked in complex new applications in areas such as biotechnology products, satellite cable television, alternative energy sources and integrated intelligent transport systems. Business-to-business technology development firms face a unique set of challenges when attempting to exploit the opportunities made possible by these emerging multi-sector innovations. Perhaps the greatest challenge involves the firm’s efforts to influence and shape the market in its favour. This requires strategies for dealing with numerous stakeholders - many with which the firm has had little experience. Because both the risks and pay-offs are great, the firm needs a way of analysing stakeholders. Bunn et al. propose a five-step process for understanding the importance and nature of various stakeholder groups, and their impact on market development. The process serves as the foundation for developing specific strategies and allocating resources to deal with critical stakeholders. The authors describe the model in the context of a firm developing crash sensors that would be fitted to vehicles to detect an impact, as part of an integrated traffic management and emergency response system in Birmingham, Alabama, USA. (1) Identify the key sectors and stakeholders relevant to the multi-sector innovation. The stakeholders include any group or individual who can affect, or is affected by, deployment of the multi-sector innovation. The firm does not necessarily have a relationship with all the stakeholders, but each influences whether the technology is deployed and so whether the market for the firm’s product will develop and grow. (2) Describe important characteristics of each stakeholder group. This includes whether they are local, state, regional, national or international, why they might be interested in the integrated system, their perceptions of the risks and the contribution they could make toward a successful deployment. (3) Analyse and classify the stakeholders according to stakeholder attributes. Using the attributes of power (the ability to bring about the outcomes the stakeholder desires), legitimacy (the extent to which a stakeholder is accepted within the network of relationships) and urgency (the extent to which the stakeholder’s attention to the multi-sector innovation is heightened), stakeholders are categorized into seven groups based on whether they possess one, two or three of the attributes. (4) Examine the dynamic relationships among stakeholders. The extent to which a stakeholder possesses the attributes is changing constantly. By examining stakeholder dynamics, one can understand how and when stakeholders may acquire an additional attribute, lose position on an attribute or exert influence through others who possess a desirable attribute. (5) Evaluate generic stakeholder management strategies. This involves assessing the advantages and disadvantages of strategies such as taking the lead (when momentum is flagging and there are no other clear leaders in sight), collaborating (entering strategic alliances or partnerships with suppliers, competitors or customers), involving (by including key stakeholders on, for example, the board of directors, or in work on government sponsored research projects), defending (reducing dependency on a stakeholder which appears weak or wayward), 230
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
educating (as a way of enhancing communication with important stakeholders) or monitoring (gathering information on, and observing, relevant stakeholders). For each stakeholder, the firm must carefully consider its objective, and the costs relative to the benefits of each strategy. Bunn et al. point out that no single theory addresses all the issues related to multi-sector innovations. The five-step stakeholder analysis process complements, rather than replaces, other tools and techniques for managing new product development. Marketing’s role in the knowledge economy Historically firms have based their value creation on the transformation of goods as they move from raw materials to manufacturer to end-user. The focus has been on product, logistics and operations. The value activities of information have not been treated separately from value activities related to physical things. But the modern economy, with its technology and communication advances, offers companies new opportunities to create value from information, provided they separate the value activities of information from those of physical things. In this new context information and relationships become ever more central to the firm and the marketing function - essentially focused on knowledge of the product, the environment and customers - has a tremendous opportunity to create value. A firm’s marketing department is traditionally the most informed and involved in those relationships (‘‘relational assets’’) involving channel members, end users and other stakeholders central to customer value. Marketing is also well positioned to acquire additional information as it is generated outside the firm. In addition, marketing has a unique position as a listening source, where knowledge of the environment (‘‘intellectual assets’’) may be acquired. Marketing is therefore the central link between intellectual and relational assets that can fuel the engine of value creation in the knowledge economy. Bean and Robinson provide examples of how marketbased assets create value in the knowledge economy. MetalSite, an organization founded and supported by competing steel companies, makes the market for steel more efficient by making information about excess steel stocks available. The information itself is the basis of value. When information travelled by means of letters in the post, the value creation in information alone was limited by the constraints of physical movement. Now it functions separately and can be a value creation source generated by, yet separate from, the business of selling metals. When firms have plenty of information about the customer, they can move from ‘‘make and sell’’ toward ‘‘sense and respond’’. Tailoring products to meet the needs of individuals or small groups is another way of creating value based on knowledge assets. Empirical Media offers an Internet search engine that conforms to the information a user indicates is ‘‘preferred’’ by providing a ‘‘satisfaction rating bar’’ that the user marks as he or she moves through pages. This information is combined with that from other similar users, to customize the user’s search processes. Value is created by reducing search time for customers, and by building the loyalty of customers who return to the search tools that bring them results most targeted to their needs. IBM is currently working on ways of creating a catalogue of customer value components for Web-based businesses. Each encounter between the firm and client could then be customized. The system might include, for example, JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
231
automatic responses to e-mail, topic specific chat rooms, order status online and so on. TechSavvy.com is a marketplace concentrator that provides engineering information and access to 250,000 industrial online catalogues. The site includes information on parts, suppliers and military specifications, as well as hard to find historical data for engineering. If firms are to make the most of the opportunities of the knowledge economy, they must be able to build competencies and profit centres that have previously not existed because of the constraints of the traditional hierarchy, in which information moved with physical carriers. Marketing managers and senior managers must identify their market-based assets and evaluate their properties. Through communication, marketing managers must create awareness within the company of marketing’s value creating role. Businesses will need to invest time and effort in the new opportunities, in order to use their intangible assets effectively. And marketing managers must continually monitor activity and results in order to sustain the advantages they have gained in value creation. Will technology undermine trust in marketing? Competitive pressures in the new knowledge economy are so great that some companies may begin to undertake dubious marking practices to protect their profits. Rich believes that technology has the potential of branding legitimate marketing practitioners with the same image that has previously been reserved for their more unethical colleagues. There has long been concern about the capacity of information technology easily to combine information from many different sources. While there is no evidence to suggest that this is yet happening, the information from store loyalty cards on an individual’s weekly buying habits could, for example, be combined with bookstore records which reveal the consumer’s reading habits and satellite or cable TV records which show his/her preferred home entertainment, and telephone records which reveal whom he or she contacts most often, and when. In this context, a particularly menacing development is the reported ability of Web sites to capture information that the site visitor does not realize he/she is providing. Another concern is the rising influence, in many companies, of information technology specialists over marketing personnel. IT people can offer top management greater volume, depth and currency of information than ever. But the recommendations of IT specialists may not be tempered by the ‘‘feel’’ for the market which marketing colleagues, with their more honed ‘‘people’’ skills, can provide. Rich believes that management must make clear and consistent efforts to integrate key ethical values into the organization’s culture. He also suggests that companies should invest more in maintaining individual contact with customers. Ford Motor Company, for example, has decided to shift much of its corporate advertising budget from print, television and radio to a scheme that will build customer trust through dialogue over the Internet. In an effort to ‘‘humanize’’ the company, each executive will spend time answering questions submitted by customers. Companies in the years ahead must not allow modern, fast-paced and technology-driven business methods to drive out the time consuming and sometimes more long-term aspects of building relationships. In the last analysis, it is individual customers who buy products, even in a business-tobusiness context. (A pre´cis of the special issue ‘‘Business marketing in the decade ahead: the key challenges we face’’. Supplied by Marketing Consultants for Emerald.) 232
JOURNAL OF BUSINESS & INDUSTRIAL MARKETING, VOL. 17 NO. 2/3 2002
