Causes of Intercompany Harmony in Business Markets

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1 copenhagen business school handelshøjskolen solbjerg plads 3 dk-2000 frederiksberg denmark Causes of Intercompany Harmony in Business Markets Causes of Intercompany Harmony in Business Markets An Empirical Investigation from a Dyad Perspective Oliver Jacob Weber ISSN ISBN PhD Series PhD School in Marketing PhD Series CBS PhD nr Oliver Jacob Weber A4 omslag.indd 1 20/05/

2 Causes of Intercompany Harmony in Business Markets

3 Oliver Jacob Weber Causes of Intercompany Harmony in Business Markets An Empirical Investigation from a Dyad Perspective 1st edition 2010 PhD Series The Author ISBN: ISSN: The Doctoral School of Economics and Management is an active national and international research environment at CBS for research degree students who deal with economics and management at business, industry and country level in a theoretical and empirical manner. All rights reserved. No parts of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system, without permission in writing from the publisher.

4 Oliver Jacob Weber Causes of Inter company Harmony in Business Markets An Empirical Investigation from a Dyad Perspective CBS / Copenhagen Business School PhD School in Marketing 18/

5 Causes of Inter-Company Harmony in Business Markets Contents Contents Chapter 1 Introduction Identification and presentation of the problem One perspective on causes of inter-company harmony A second perspective on causes of inter-company harmony The problem Research design Analytical approach Applied method The research design Inferences Outline of the chapters to come Chapter 2 Defining Central Concepts of Two Perspectives Defining the concept of inter-company harmony Inter-company harmony Inter-company disharmony Two perspectives on causes of inter-company harmony Inter-company harmony conditioned by mutual resource dependencies Inter-company harmony conditioned by the efficiency and equity of daily interactions Defining the concept of the strength and balance of mutual resource dependencies Mutual resource dependencies and the ability to control actions and behaviours in dyads Sources of the strength, subsequently the balance of mutual resource dependencies Defining the concept of the efficiency and equity of daily interactions The efficiency of daily interactions The equity of daily interactions Chapter 3 Analytical Approach Level of analysis and structure A dyad level of analysis Structure

6 Causes of Inter-Company Harmony in Business Markets Contents 3.2 Framework for investigating the concept of inter-company harmony in dyads Investigation of (the variable) companies overall happiness in dyads Framework for investigating the concept of the strength and balance of mutual resource dependencies in dyads Investigation of the variable Importance of Resources Investigation of the variable Scarcity of Resources (Deselecting) investigation of the variable Discretion over Resource Allocation and Use Investigation of the strength and balance of mutual resource dependencies Framework for investigation of the concept of efficiency and equity of daily interactions in dyads Investigation of (the variable) the expeditiousness and costs of daily interactions Investigation of (the variable) fair allocation of costs and benefits of daily interactions Criteria for validation of the two perspectives Criteria for validation of Perspective (I) Criteria for validation of Perspective (II) Inferences Chapter 4 Research Design Methodological Approach Three method s approach to the investigation of social phenomena Selecting the case study method Research design Applied logic Construction of case studies The research design and issues of reliability & validity Issues of reliability Issues of validity Chapter 5 Assessing the Concept of Inter-company Harmony in the Dyad Aarstiderne/Lars Skytte Jensen in and Now Harmony (or disharmony) in the dyad in Lars Skytte Jensen s perception of work with Aarstiderne

7 Causes of Inter-Company Harmony in Business Markets Contents Aarstiderne s perception of work with Lars Skytte Jensen in A state of harmony in the dyad Aarstiderne/Lars Skytte Jensen in Harmony (or disharmony) in the dyad at present Lars Skytte Jensen s perception of work with Aarstiderne at present Aarstiderne s perception of work with Lars Skytte Jensen at present A state of harmony in the dyad Aarstiderne/Lars Skytte Jensen at present Chapter 6 Assessing the Concept of the Strength and Balance of Mutual Resource Dependencies in the Dyad Aarstiderne/Lars Skytte Jensen in and now The strength and balance of mutual resource dependencies in Lars Skytte Jensen s important resources The scarcity of Lars Skytte Jensen s resources Aarstiderne s important resources The scarcity of Aarstiderne s resources The strength and balance of mutual resource dependencies in The strength and balance of mutual resource dependencies at present Lars Skytte Jensen s important resources The scarcity of Lars Skytte Jensen s resources Aarstiderne s important resources The scarcity of Aarstiderne s resources The strength and balance of mutual resource dependencies at present Changes in the two mutual resource dependencies in time Chapter 7 Assessing the Concept of the Efficiency and Equity of Daily Interactions in the dyad Aarstiderne/ Lars Skytte Jensen Lars Skytte Jensen s view of the efficiency and equity of daily interactions The efficiency of daily interactions The equity of daily interactions Aarstiderne s view of the efficiency and equity of daily interactions The efficiency of daily interactions The equity of daily interactions The efficiency and equity of daily interactions in the dyad Chapter 8 Causes of Inter-company Harmony Causes of inter-company harmony in the dyad Aarstiderne/ Lars Skytte Jensen

8 Causes of Inter-Company Harmony in Business Markets Contents Dismissal of Perspective I Support for Perspective II Validation of Perspective II in the dyad Supergros/Gasa Nordgrønt Harmony (or disharmony) in the dyad The efficiency and equity of daily interactions in the dyad Support for Perspective II in the dyad Supergros/Gasa Nordgrønt Validation of Perspective II in the dyad Retailer RED/Producer ONE Harmony (or disharmony) in the dyad The efficiency and equity of daily interactions Support for Perspective II in the dyad Retailer RED/Producer ONE Concluding remarks Chapter 9 Conclusion and Implications A review of empirical findings Support for Perspective II Dismissal of Perspective I Theoretical Implications Recommendations for future research Further investigation of the causes of inter-company harmony Investigation of the effects of inter-company harmony upon mutual resource dependencies Managerial implications Appendix Appendix Appendix Appendix Appendix Appendix Appendix Appendix References

9 Causes of Inter-Company Harmony in Business Markets Chapter 1 Chapter 1 Introduction In line with the concept of long-term relationships, as opposed to discrete exchanges, gaining acceptance amongst marketing researchers (e.g. Wilson, 1995; Ganesan, 1994; and Dwyer et al., 1987), the prevalent literature has increasingly emphasised the importance of cooperation between companies. As described in Selnes (1998), the objective of long-term relationships is to establish, maintain and enhance relations with trading partners at a profit. It is a dynamic process, whose success depends on the ability of companies to provide one another with episodes of value on a continuous basis. Definable as,...similar or complementary coordinated action taken by firms in interdependent relationships to achieve mutual outcomes or singular outcomes with reciprocation over time (Anderson and Narus, 1990, p. 45), cooperation between companies is viewed as an important foundation to the success of long-term relationships (Eriksson and Sharma, 2003). A joint effort based on coordination of activities thus permits companies to attain outcomes of mutual value otherwise not possible, e.g. exchange efficiency (Cannon and Perreault, 1999), decreased environmental uncertainty (Buvik and Grønhaug, 2000), and management of dependencies (Stern and El-Ansary, 1992). Inter-company harmony is often indicated an important dimension for the promotion of cooperative sentiments between companies (e.g. Payan and Svensson, 2007; Cannon and Perreault, 1999; Wilkinson, 1978; and Mallen, 1967). As defined in Chapter 2, inter-company harmony is a positive affective state resulting from an agreement in opinion between companies that work with one another constitute a pleasing whole. It is founded in companies perceiving that they hold goals of mutual interest and to the degree to which, they are able to attain these goals via a concerted effort. In addition, it is based on perceptions of domain and ideological consensus, as well as perceptions that the companies are able to able to exploit their respective capabilities when working with trading partners. 6

10 Causes of Inter-Company Harmony in Business Markets Chapter 1 Consequently, inter-company harmony brings an orientation that reflects a spirit of willingness to cooperate between trading partners. Perceptions of economic satisfaction, of own importance and of personal worth thus motivate companies to commit and adapt the resources (e.g. time, labour and money) necessary for successful handling of cooperative activities of various kinds. Contrarily, inter-company disharmony is likely to impede the willingness of companies to cooperate. A permanent conflictive state caused by perceptions of either goal incompatibility, lacking ability to jointly attain goals, domain and ideological disagreements, and/or the improper use of companies capabilities induce companies to develop negative sentiments towards one another that reduces companies motivation to invest resources in cooperative activities. 1.1 Identification and presentation of the problem Although inter-company harmony constitutes an important dimension for the success of cooperative long-term relationships, its causes have not been clearly documented in the prevalent academic marketing literature. Two notable, but simultaneously, conflicting perspectives exist (i.e. Figure 1.1): Figure 1.1 Two perspectives on causes of inter-company harmony found in the prevalent literature One perspective on causes of inter-company harmony As elaborated on in Chapter 2, one perspective finds that inter-company harmony is conditioned by the strength and balance of mutual resource dependencies (i.e. Perspective I in Figure 1.1): 7

11 Causes of Inter-Company Harmony in Business Markets Chapter 1 Mutual resource dependencies inevitable exist in business markets. Every company depends on certain resources possessed by trading partners to produce, distribute or consume products or services. Consequently, it follows that companies are in a position to influence (or control) each other s actions and behaviour, i.e. their ability to provide or withdraw valued resources makes it possible for companies to incite one another to act in desired ways. Here, the strength and balance of mutual resource dependencies decide the degree, to which companies control one another s actions and behaviour. The stronger the comparable dependency of one company towards resources possessed by another, the more that company must abide by demands put forward, and vice versa. In this light, parts of the prevalent literature advocate that strong and imbalanced mutual resource dependencies motivate inter-company disharmony. The ability of less dependent companies to dictate actions and behaviour implies that more dependent companies get frustrated because of a loss of autonomy. Consequently, conflicts accompanied by negative affective states develop between the parties. As opposed to this, weak and balanced mutual resource dependencies cause inter-company harmony. The inability to control each other s actions and behaviour significantly obliterates the preconditions for conflicts and tensions allowing companies to work together in mutual harmony A second perspective on causes of inter-company harmony A second perspective identified in the prevalent literature queries the soundness of Perspective I. Instead, it finds that inter-company harmony is favoured by the efficiency and equity of daily interactions between trading partners (i.e. Perspective II in Figure 1.1): The perspective operates with a notion that companies interact on two interrelated, but also partly autonomous levels: At one level, companies interact to agree on adequate inter-company exchange forms (i.e. exchanges of products, information, money, as well as economic and logistical structures for the exchanges). Mutual resource dependencies here decide the outcome of interactions (Figure 1.1). 8

12 Causes of Inter-Company Harmony in Business Markets Chapter 1 Thus less dependent companies are in a position to influence (or dictate) the content of the exchange forms, as a refusal can negatively affect more dependent companies access to, or use of, valued external resources. Although disagreements are likely to occur during the course of interactions, the sentiments causing inter-company disharmony do not surface. Hence, more dependent companies regard the influence of less dependent companies upon the content of exchanges forms, as a natural condition for doing trade in business markets. The second level of interactions takes place in day-to-day work and serves the purpose of successfully executing agreed upon exchanges, given the constraints of negotiated inter-company exchange forms. Thus, companies interact on a daily basis in order to coordinate with one another the performance of related marketing activities (or flows). Consequently, the perspective promotes the dependence of inter-company harmony on the efficiency of daily interactions. A positive affective state hence is explained by the companies being able to coordinate with one another in daily life the performance of marketing flows, in a way that supports expeditious and low cost exchanges. In the opposite case, the companies will develop negative sentiments towards working with one another, thus promoting inter-company disharmony. In addition, the perspective advocates that inter-company harmony is dependent on the equity of daily interactions. A positive affective state is hence also favoured by a fair allocation between the companies of the costs and benefits associated with the coordination of the performance of marketing flows. Alternatively, negative sentiments surface and inter-company disharmony will prevail The problem Based on the identification of these two notable but at the same time conflicting perspectives, this study sets out to establish a more unequivocal understanding of the causes of inter-company harmony. Consequently, the two following propositions are subject for validation: 9

13 Causes of Inter-Company Harmony in Business Markets Chapter Research design To approach the problem in question, a research design is developed that aims at validating the two propositions empirically. It is a result of certain analytical considerations and a reasoned choice of the case study method. These considerations, as well as the research design, are outlined in the following sub-sections Analytical approach A dyad level of analysis is chosen to enable that empirical inferences correspond with the theoretical context of the defined perspectives. The three central concepts of the two perspectives (i.e. inter-company harmony, the strength and balance of mutual resource dependencies, and the efficiency and equity of daily interactions), thus all revolve around the study of dyads. With this in mind, the analytical approach is based on separate investigations of the three concepts in dyads. Subsequently, it is determined whether the states of these in combinations that equal the two perspectives comply with the propositions put forward. Thus, the study investigates whether a dyad is characterised by harmony or disharmony. Following this, the strength and balance of mutual resource dependencies is investigated in the dyad. After that, the two investigated concepts are compared to determine whether their states comply with the reasoning put forward in Perspective I. The chosen structure is a result of this study experiencing difficulties in empirically investigating the separate effects of mutual resource dependencies, and the efficiency and equity of daily interactions upon inter-company harmony (i.e. section 3.1.2). Consequently, analytical frameworks are developed to make possible separate investigations of the three concepts in dyads: 10

14 Causes of Inter-Company Harmony in Business Markets Chapter 1 1. Having defined inter-company harmony as an agreement in opinion between two companies that working with one another constitutes a congruent (or pleasing) whole, an analytical framework is developed to investigate whether or not the companies on an overall basis are happy working with one another. If companies agree on this, then inter-company harmony is inferred. If one or both companies indicate otherwise, then inter-company disharmony is inferred. 2. The analytical framework developed to investigate the strength and balance of mutual resource dependencies in dyads is divided into two parts. Firstly, it aims at investigating the strength of companies resource dependencies (i.e. resource dependencies categorised as weak, medium or strong), which, in turn, is a result of counterparts possession of important and scarce resources. Then, the balance is investigated by comparing the strength of the companies resource dependencies. 3. Having defined the efficiency of daily interactions as the ability of companies to jointly handle tasks associated with the universal marketing flows at an expeditious and low cost level, an analytical framework is developed to investigate whether or not the companies on an overall basis perceive this to be the case. If one or both companies perceive otherwise, then daily interactions are inferred as inefficient. By defining the equity of daily interactions as fair allocation of the costs and benefits, which emerge from the companies jointly handling tasks associated with the universal marketing flows, an analytical framework is developed to investigate whether or not the companies on an overall basis perceive them to be so. In case one or both companies perceive otherwise, daily interactions are inferred as iniquitous. 11

15 Causes of Inter-Company Harmony in Business Markets Chapter 1 Also, four criteria are developed to determine whether or not the investigated concepts in dyads in combination satisfy the propositions put forward: The first two criteria relate to Perspective I. They comply with the perspective that inter-company harmony is at hand when related mutual resource dependencies in dyads are weak and balanced, and that inter-company disharmony is at hand in case mutual resource dependencies are strong and unbalanced. The last two criteria relate to Perspective II. They comply with the perspective that inter-company harmony is at hand when daily interactions in dyads are efficient and equitous, whereas intercompany disharmony prevails when daily interactions are inefficient and/or iniquitous. As opposed to Perspective II, the criteria related to Perspective I are based on two periods in time. As explained in detail in Chapter 3, this study encountered difficulties in categorising mutual resource dependencies in dyads in relative terms, as weak, medium or strong and as being balanced or imbalanced when only investigating one period in time. Therefore, the concept is investigated in two periods in time, thus making it possible to infer that mutual resource dependencies are, for example, stronger and more imbalanced when compared to a prior period in time. 12

16 Causes of Inter-Company Harmony in Business Markets Chapter Applied method This study applies the case study method, as opposed to a survey, to investigate the three concepts in dyads. As discussed in Chapter 4, the choice of this method is based on its ability to clarify the how and why of the somewhat vaguely (or generically) defined variables of the three concepts. Consequently, empirical investigation of the concepts is based on this study s overall assessment of companies view of the variables as they unfold in dyads. That is to say, data has been gathered concerning each of the variables in the context of specific dyads via qualitative and semi-structured interviews with those companies making out the dyad. Narratives have then been written, which focus on explicating each company s view of the variables. Finally, the narratives have been compared to make possible an assessment of the states of the concepts in dyads The research design Based on the analytical approach and the method applied, three case studies of dyads operating in the Danish grocery industry have randomly been chosen to make possible empirical validation of the two perspectives: A case study of the dyad Aarstiderne/Producer Lars Skytte Jensen is applied to seek initial support/dismissal of the perspectives. In the event that the investigated concepts in the dyad in combination do not comply with any of the four criteria formulated above, this study infers that the two perspectives are not valid, thus that other perspectives than the investigated ones need to be explored. 13

17 Causes of Inter-Company Harmony in Business Markets Chapter 1 If, however, a criterion is met via the case study, this study infers support for a related perspective (i.e. Perspective I or II). Subsequently, replication is sought via case studies of the dyads Supergros/Gasa Nordgrønt, and Retailer RED/Producer ONE. That is, the study seeks to strengthen its support for the perspective(s) by detecting equivalent support for it (or them) in the two other dyads. 1.3 Inferences In summary, this study finds empirical support for Perspective II. Thus, all case studies point to a connection between the concepts of inter-company harmony, and the efficiency and equity of daily interactions: As assessed in Chapter 5, inter-company harmony is at hand in the dyad Aarstiderne/Producer Lars Skytte Jensen. Also, the dyad is characterised by efficient and equitous daily interactions (Chapter 7). Hereby, the first criterion related to Perspective II is met, which thus makes it possible to infer support for the perspective. Conversely, in the dyad Supergros/Gasa Nordgrønt inter-company disharmony is at hand (Chapter 8). Moreover in this case inefficiency and iniquity is assessed to characterise daily interactions in the dyad. Hereby, the second criterion related to Perspective II is met, which is why it is possible to infer support for the perspective. Finally, inter-company disharmony is at hand in the dyad Retailer RED/Producer ONE (Chapter 8). As daily interactions in the dyad are characterised by efficiency and iniquity, the second criterion related to Perspective II is met. Thus, it is possible to infer support for the perspective. In addition, the study finds no empirical support for Perspective I. Consequently, it is dismissed: As assessed in Chapter 5, inter-company harmony is at hand in the dyad Aarstiderne/Producer Lars Skytte Jensen in the two periods in time under investigation (i.e and now). In Chapter 6, it is assessed that compared to the strength and balance of mutual resource dependencies at present increasingly is shifted in favour of Aarstiderne. Thus, even though Aarstiderne s ability to 14

18 Causes of Inter-Company Harmony in Business Markets Chapter 1 control the actions and behaviour of Producer Lars Skytte Jensen is increased, the dyad remains in a state of harmony. Hereby, it is possible to infer that none of the criteria related to Perspective I are met, and the perspective accordingly is dismiss on grounds of falsification. 1.4 Outline of the chapters to come This study concerning the causes of inter-company harmony in business markets contains the following chapters: In Chapter 2, two notable but conflicting perspectives on causes of inter-company harmony in business markets are reviewed. In addition, three central concepts related to the perspectives are defined, i.e. inter-company harmony, the strength and balance of mutual resource dependencies, and the efficiency and equity of daily interactions. In chapter 3 an analytical approach is developed to enable investigation of the two perspectives in dyads. The chapter begins by explaining the study s choice of 1) a dyad level of analysis and 2) structure to validate the two perspectives. Based on this, analytical frameworks are developed. In chapter 4, a related research design is developed. The chapter starts by explaining the study s choice of the case study method for validating the two perspectives in dyads. Next, the research design is explained. That is, the chapter presents the three dyads taking part in this study, i.e. 1) E- retailer Aarstiderne/ Producer Lars Skytte Jensen, 2) Wholesaler Supergros/ Producer-wholesaler Gasa Nordgrønt, and 3) Retailer RED/ Producer ONE. Furthermore, it presents the way in which the three dyads are applied to validate the two perspectives. Based hereupon, the chapter explains the construction of case studies of the dyads. Finally, the research design is discussed via issues of reliability and validity. In Chapters 5-7, the dyad Aarstiderne/Producer Lars Skytte Jensen is assessed in terms of the three concepts. Chapter 5 assesses whether or not the dyad is in a state of harmony in two periods in time (i.e and now). Next, Chapter 6 assesses the strength and balance of mutual resource dependencies in the dyad in and now. Finally, Chapter 7 assesses the efficiency and equity of daily interactions in the dyad. 15

19 Causes of Inter-Company Harmony in Business Markets Chapter 1 In Chapter 8, the causes of inter-company harmony in the dyad Aarstiderne/Producer Lars Skytte Jensen is determined. Here the concepts assessed in Chapter 5-7 are compared to determine whether their states comply with the propositions of the two perspectives. Finally, additional support for a validated perspective (or for validated perspectives) is sought via equivalent assessments in case studies of the dyads Supergros/Gasa Nordgrønt and Retailer RED/Producer ONE Concluding, Chapter 9 reviews results in terms of the theoretical and managerial implications of the study, as well as recommends areas in need of further investigation. 16

20 Causes of Inter-Company Harmony in Business Markets Chapter 2 Chapter 2 Defining Central Concepts of Two Perspectives As outlined in Chapter 1, the performances of interacting companies are likely to increase when relations between them are harmonious. By being linked to cooperative sentiments, inter-company harmony hence increases the willingness of implicated companies to commit resources, as well as to coordinate business processes with one another. Consequently, the joint handling of tasks associated with making products or services ready for consumption renders possible enhanced performances. With this background, this study sets out to clarify the causes of inter-company harmony. In this regard two notable, but conflicting perspectives are subjected to empirical examination. As illustrated in Figure 2.1, one perspective advocates that inter-company harmony is conditioned by the strength and balance of related mutual resource dependencies, while the other finds that it is conditioned by the efficiency and equity of daily interactions. Figure 2.1 Two perspectives on causes of inter-company harmony detected in the prevalent literature To elaborate, this chapter defines the concept of inter-company harmony (section 2.1). Following this, section 2.2 presents the two perspectives on causes of inter-company harmony. Next, section 2.3 defines the strength and balance of mutual resource dependencies. The study finds that this concept is a result of three variables of equal importance: the importance of resources, the scarcity of resources, and discretion over resource allocation and use. The more important and scarce resources companies possess, and the greater their ability to control the allocation and use of resources in dyads, the stronger the counterparts resources dependencies are. Accordingly, the 17

21 Causes of Inter-Company Harmony in Business Markets Chapter 2 existing balance is a result of the comparable strength of resource dependencies between companies. Finally, section 2.4 defines the concept of the efficiency and equity of daily interactions. Here, the efficiency of daily interactions is found to result from the ability of interacting companies to jointly handle tasks associated with marketing flows expeditiously and at a low cost level. The equity of daily interactions is defined as the result of fair allocation of the costs and benefits, which emerge from handling the tasks (i.e. reciprocity). 2.1 Defining the concept of inter-company harmony In summary, the section finds that inter-company harmony is a positive affective state resulting from an agreement in opinion between two companies that working with one another constitutes a congruent (or pleasing) whole (cf. Figure 2.2). Here, perceptions of a congruent whole develop in the light of the companies experiencing goal compatibility, fulfilment associated with attaining goals, consensus on domains and ideologies, and the proper use of company capabilities. Somewhat opposite, the section also defines inter-company disharmony as a negative affective state caused by two companies perceiving that working with one another constitutes an incongruent (or conflicting) whole. It thus develops in the light of the companies experiencing either a lack of goal compatibility, of fulfilment associated with attaining goals, of consensus on domains and ideologies, or of the proper use of company capabilities. Figure 2.2 Defining inter-company harmony and disharmony 18

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