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Objectives

To examine how companies should interact inbusiness networks, i.e.:

Explore the paradoxes that are intrinsic to the natureof business network


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1. Introduction

Relationship marketing has become abuzzword for marketers:

- relationships and networks oint !entures,

strategic alliances and strategic networks

#etwork and relationship indicate that there issome kind of special organisational form at an

aggregate le!el abo!e that of indi!idualcompanies.


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2. What is a network?

$ network is a structure where a number ofnodes are related to each other b% speci&cthreads

$ complex business market can be seen as anetwork where the nodes are business units 'manufacturing and ser!ice companies and therelationships between them are the threads


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2.1. The existence of businessrelationships

Relationships are complex and long-term andtheir current form is the outcome of pre!iousinteractions between the business units.

Relationships enable companies to cope withtheir increasing technological dependence onothers and the need to de!elop and tailor

o(erings to more speci&c re)uirements.

*haracteristics of companies+ relationshipsinuence what happens inside the companies.


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2.2. The existence of connections betweenrelationships

usiness relationships are connected to eachother

Example: three companies related through two business relationships.The interaction between an% two of the companies, whether to bu% orsell, or to co-operate in some other aspect, will depend on whathappens in relation to the third part%

e!elopment of an% one relationship between twocompanies will depend on a number of factors:

on what has happened in the past in the relationship/

on what each of the two parties has pre!iousl% learned in its otherrelationships/

on what currentl% happens between the companies in the relationshipand in others in which the% are in!ol!ed/


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3. ana!erial "uestions aboutrelationships and networks

0hat kind of special opportunities andrestrictions does a network bring to acompan%1

0hat is the interpla% between inuencingothers and being inuenced b% them1

2ow can a compan% control a network andwhat are the e(ects on the network and on thecompan%1


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3.1. What kind of special opportunitiesand restrictions does a network brin! to a

co#pan$?

2ow the compan% and its counterparts can usetheir relationships to their ad!antage.

2ow these relationships restrict the pursuit oftheir indi!idual aspirations.

$ compan% is, in fact, examining opportunitiesand restrictions when it seeks to bring orderinto the !alue and costs in!ol!ed in the man%relationship choices open to it.


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3.2. What is the interpla$ betweenin%uencin! others and bein! in%uenced b$

the#1

3anagers must face the issue of what it reall%means to them to ha!e important business

relationships.

Relationships pro!ide the opportunit% for thecompan% to inuence others, but the same

relationships are also a force for these others toinuence the compan%.

3anagerial anal%sis and decision-making is

concerned with understanding a compan%+s


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3.3. &ow can a co#pan$ control anetwork and what are the e'ects on the

network and on the co#pan$?

Relates to the position that the compan% holdsin the network and to the network structure.

*oncerned with how the characteristics, aimsand acti!ities of all of the companies andrelationships in the network a(ect that total

structure


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(. Opportunities and li#itations innetworks) the *rst network paradox

$ node is directl% related to the existence ofthreads. The content of the threads is theresult of in!estments b% both of the

counterparts.

The greater the in!estments the moresubstantial will be the content.


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(.1. The *rst network paradox and thebusiness world

*ompanies within a network are not free to actaccording to their own aims, or tocircumstances as the% arise. The% do not

operate in isolation from others, or in responseto some generalized en!ironment as 44one-against-all++.

5nstead, each companies+ considerations andactions can onl% be full% understood within astructure of indi!iduall% signi&cantcounterparts and relationships.


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(.2. +n illustration of the *rst networkparadox

#etwork of companies and relationships in!ol!ed in the5nternet, i.e. relationships between hardware andsoftware suppliers and ser!ice pro!iders enable them too(er inno!ati!e product and ser!ice features to end-

users.

ut each of these network positions also represents anin!estment in the current structure and wa%s ofthinking.

ecause of this, existing relationships restrict acompan%+s abilit% to react to or to emulate new entrantswith new wa%s of operating, based on di(erentresources and without the constraints of alread%established network positions.


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(.3. ana!erial i#plications of the *rstnetwork paradox

i!ersit% of the network gi!es e!er% decision-maker m%riad opportunities to act and thefreedom to do almost whate!er it wants.

ut its abilit% to act and the e(ects of itsactions is constrained b% the existing structureof the network


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,. In%uencin! and bein! in%uenced in anetwork) the second network paradox

$ compan%+s relationships are the outcomes ofits strateg% and its actions.

ut the paradox is that the compan% is itselfthe outcome of those relationships and of whathas happened in them. Thus a network is botha wa% to inuence and to be inuenced.

oth situations exist simultaneousl% and bothpremises are e)uall% !alid


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,.1. The second network paradox and thebusiness world

$ compan% de!elops its own relationships therelationships is considered as tools used b% thecompan%.

ut the relationship7 tool can o!er-emphasise acompan%+s abilit% to act in a network and caneasil% become egocentric.

$ compan% is de!eloped b% or through itsrelationships emphasize the importance ofha!ing the right counterparts.


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,.2. +n illustration of the second networkparadox

Relationship between Ericsson and Telia:

*lose relationship for more than 899 %ears

when launching a new release of the ;3s%stem for mobile phones, Ericsson has totake into account a number of maor users,

of which Telia is onl% one.


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,.3. ana!erial i#plications of the secondnetwork paradox

compan%+s characteristics are the outcome ofits interactions and relationships and that itsfuture is dependent on what happens in thoserelationships.

5nterdependence between companies meansthat the strateg% process is interacti!e,e!olutionar% and responsi!e, rather than

independentl% de!eloped and implemented.

implications for indi!idual managers - theimportance for each compan% to manage all of

its interactions carefull% and for each indi!idual


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-. ontrollin! and bein! out of control innetworks the third network paradox

The paradox is that the more that a compan%

achie!es this ambition of control, the lesse(ecti!e and inno!ati!e will be the network.


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-.1. The third network paradox and thebusiness world

The more successful a single compan% is inforcing its thinking onto the network, the moreit and those around it are likel% to encounter

long-term problems.

5f the de!elopment process becomes directedfrom one centre it will become more integrated

and ma% ha!e fewer o!ert conicts, but thenetwork ma% cease to exist and become moreof a hierarch%


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-.2. +n illustration of the third networkparadox

53 tried to control its network, especiall% onthe customer side. The compan% set strictroles for the software companies who had the

rights to sell 53 computers and 53 was ableto de!elop a !er% e=cient geographicall%based organisation for production and sales

53 had no plans to change this organisation,until it became apparent that it had becomestatic and that the networks of othercompanies had been de!eloping much faster.53 lost-out because a controlled networkcannot de!elop faster than the compan% that


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-.3. ana!erial i#plications of the thirdnetwork paradox

This paradox reinforces the need for amanager to anal%se his compan%+s position interms of its speci&c relationships and its own

and others+ resources, rather than in terms of aset of products, markets and competitors.

$ll companies seek to manage their

relationships to their own ends >the onl% sourceof wisdom and inno!ation in the network wouldbe the compan% itself?.


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/. &ow should co#panies interact in

business networks? 0onclusion

The answers to managers+ )uestions abouttheir interactions will alwa%s depend on the

speci&c situation and context.

There are no nice neat solutions orstandardised approaches to strategic network

success.

The basis for interaction should be theformulation of new )uestions rather than

looking for optimal solutions


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/.1. Opportunities and threats

Relate to the 44hea!iness++ and the 44!ariet%++ ofthe network

@ariet% means that a compan% should interact to

continuousl% learn and de!elop the wa% it isembedded in its relationships and the network.@ariet% re)uires e!er-new conceptualisations ofsituations, relationships and business units.

2ea!iness emphasises the costs of changes andthe importance of using the resources that arealread% a!ailable to the compan% in its existing

relationships.


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/.2. In%uencin! and bein! in%uenced

$ compan% should use its interactions as a wa%to learn about the link between its ownresources and those acti!ated in itsrelationships

$ compan% should interact to tr% to understandhow the network functions from theperspecti!e of these speci&c others and how

the% see their own position and its own.


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/.3. ontrol in the network

*ompanies should aim for control but as soonas the% ac)uire some 44&nal++ control o!er thesurrounding network >or their suppl% chain or!alue chainA? the% should be worried.

3anagement task is to encourage and helpothers to continuousl% clarif% theirunderstanding of the network. 5t is their

actions, based on their perspecti!es thatpro!ide the d%namics of a network.

-x-

how should companies interact in business network

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