Extending the Business Network Approach

Extending the business network approach involves the researcher’s reconsideration on what assumptions should be employed when determining what is within the boundaries of the network and what is left outside. Extending also implies that something ‘new’ is presented to the business network. What is considered ‘new’ though depends on what is recognised as established within a research field. This means that ‘new’ is not necessarily novel per se, but represents a ‘new’ direction in extending the business network approach. ‘New’ in that sense is something that provokes the researcher to challenge the assumptions on boundary-setting in the business network approach, and consequently offers alternatives supported by empirical studies or conceptual reasoning. ‘New’ can involve embarking into previously unchartered territories where the business network approach allows for alternative explanations. ‘New’ can also be what the rapid technological development brings, and where the business network approach provides deeper insight into the consequences. Furthermore, ‘new’ can be altered terms for firms and markets where research following the business network approach offers complementary views on business effects.

Relationships between commercial actors have existed for thousands of years as highlighted by Hadjikhani and LaPlaca (2013) and Hadjikhani in the final chapter of this volume. However, research on relationships between business actors, often summarised under headings such as industrial marketing or B2B, has a more recent origin. In the words of Hadjikhani and LaPlaca (2013: 294), relationship research ‘existed in society but had little scientific identity or inquiry’. This is even truer for research on wider relationship systems, that is, business networks. However, as will be demonstrated in the present volume, the situation in the beginning of the twenty-first century is quite different. Research on business networks is lively and manifested by a large number of publications. A search for ‘business networks’ in the databases SCI-EXPANDED, SSCI and A&HCI for all years until 2015 (with the restriction that the journals publishing the papers should be classified in the Subject Category ‘Business & Economics’ in all 156 journals) resulted in 553 hits, with the first papers published in 1992. Publications then did not accelerate until the early twenty-first century with an all-time high in 2012 of 70 hits, and somewhat lower figures in the following years. However, it should be noted that the 2015 figures merely refer to the first part of the year (Fig. 2.1) and will increase.

Perhaps the most striking institutional change over the last 30 years is the transition from some kind of state-governed and planned economy to a more open economic system governed by the market. This development has occurred or is currently occurring in countries that are often labelled transition economies or emerging markets. Included among these countries are China, India and Russia, as well as most other countries in the ‘communist bloc’ in the former Soviet Union, as well as Central and Eastern Europe. Within the market economies of Europe, similar, although less dramatic, changes in the mix between planned and market exchange have been implemented. Industrial sectors, for instance telecom, air transport and energy, have been transformed from plan governance to open market governance through an institutional deregulation. The plans and the associated authorities in planned economies are being abolished, prices are being liberalised and the countries, or the industrial sectors, are moving towards increasingly open market economies. The relative merits and problems of the two modes of coordination of economic life have been analysed and discussed in a number of studies. Coase (1937), Hayek (1945) and Williamson (1975) are examples of scholars who have analysed the plan (hierarchy) versus the market mechanism of economic coordination.

In traditional theories and models of the consumer marketing process, the active role in the marketing process is assumed to be confined to the business firm and/or constellations of commercial actors in a business network, while the role of the consumer is one of an isolated, receptive and, at most, merely re-active individual. By postulating an isolated, undistorted one-way flow of pre-allocated information regarding products (goods and services), the customer is implicitly described as somewhat exogenous to the marketing activities of firms and the business network (cf., Jensen-Schau et al. 2009).

Globalisation has intensified competition and empowered consumers worldwide. In order to sustain growth, firms are under constant pressure to embark on the development of new products and/or services while addressing societal and environmental issues. In times where mobile technology is changing every industry from healthcare to banking, the locus of innovation may not be limited to the in-house creation of ideas (Chesbrough 2003). Companies are instead looking to acquire external knowledge by partnering with multiple actors who may lie outside of the traditional (customer–supplier) business network of relationships.

Constrained by both domestic and foreign regulations, Swedish banks’ operations have historically primarily occurred in Sweden (Engwall 1992). National regulations only allowed minor operations in foreign markets, whilst internationally, other countries did not permit foreign banking ventures. The Swedish banks’ choices and possibilities for internationalisation were clearly constrained. Since the 1990s conditions have changed due to foreign and domestic deregulation, allowing Swedish banks to broaden their foreign ownership and expand internationally, often following their corporate customers to global markets (Marquardt 1994). To deepen our understanding on banks’ internationalisation, this chapter seeks to explore how their relationships with existing and potential corporate customers and, in turn, their business network, might influence the internationalisation process.

The vocabulary used in economic and business analyses of information and communication technology (ICT) developments comprises terms such as business models, ecosystems and platforms. Such terms require clarification and translation to concepts used in general economic and business analyses. The process that interests us in this chapter is the intermediating role of platforms for service innovation. Examples include mobile phone-based platforms that enable innovation in payment processes and related service transactions; hotel booking sites that enable innovation in several related tourist services; and technical platforms for development of services related to ‘smart homes.’ As illustration we use platforms developed to connect vehicles with a variety of actors and resources.

Companies often build an innovation strategy that is mostly reliant on internal knowledge and resources. This can lead to failure to meet customer needs (von Hippel 1986). By interacting with customers, companies can obtain crucial information and have the opportunity to involve customers in innovation and product development processes (Füller and Matzler 2007; Hadjikhani and Bengtson 2004; Laursen 2011; von Hippel 2009).

Firms have become highly dependent on their use of information systems for daily business activities (Nakata et al. 2010). To function efficiently and provide necessary support to the firm’s business, the management of a multitude of information systems involves continuous technical updates, as well as feature additions, adapting the system to the firm’s different business situations (Brady et al. 2008; Ekman 2015; Ekman et al. 2015). Information systems generally become more standardised, yet the high expertise knowledge needed for maintenance and development of them entails that suppliers of information systems are increasingly specialised on particular systems. Furthermore, the growing number of specialised information systems, and the increasing use in business, make their operational management time-consuming, requiring high degrees of specialised knowledge. As a consequence, firms chose to move the management of information systems to external parties providing the systems (IS-providers). This phenomenon has been described as information system outsourcing, with research on the topic mainly placing attention to the strategic process of management decisions on when to outsource and to whom (Lacity and Hirschheim 2012; Rivard and Aubert 2015). Outsourcing effectively means that the firm, not only for internal needs, but also for their ongoing business undertakings in marketing, sales and purchasing, relies heavily on IS-providers for business performance (Heckman 1999). Due to increasing numbers of information systems and information system providers (IS-providers), firms can no longer rely on one single IS-provider but nowadays have a complex arrangement involving multiple IS-providers for the diverse information systems utilised in business (Gallivan and Oh 1999).

Information technology (IT) as an international marketing tool has been acknowledged in several studies (Beccera et al. 2013; Chang and Chen 2008; Jarvenpaa et al. 2000; Mukherjee and Nath 2007; Safari et al. 2013), and the Internet as an alternative path for firm internationalisation has been explored recently (Kim 2003; Lim et al. 2004; Pezderka and Sinkovics 2011; Sinkovics et al. 2013; Yamin and Sinkovics 2006). Similarly, consumers’ domestic online purchasing behaviour has been investigated extensively in the last two decades (e.g., Beldad et al. 2010; Jarvenpaa et al. 2000; Mukherjee and Nath; 2007; Sabiote et al. 2012). These studies have been aimed at understanding the relationship between consumers and retailers on the Internet, usually where both parties are physically located within the same country. International business and marketing scholars have also extensively studied the phenomenon of firm online internationalisation, that is, ‘the conduct of business transactions across national boundaries, where the “crossing” of national boundaries takes place in the virtual rather than the real or spatial domain’ (Yamin and Sinkovics 2006: 340). The literature on online or Internet internationalisation has usually assumed that the ‘active’ party is the firm as seller or vendor. The possibility of consumers actively using the Internet to find and transact with vendors located in foreign markets has not been extensively studied except in a few cases (e.g., Hadjikhani et al. 2011; Safari 2012). However this is an interesting and important phenomenon that merits careful study. It is interesting because it is a phenomenon that could not exist prior to the establishment and routine access to the Internet as a search and transaction medium, and it is important because this phenomenon has the potential to change the development of the global economy. Through its website, a retailer potentially has access to the whole world as prospective customers. This notion means that small firms have the potential to transform into large multinational firms. However, most customers still make their online purchases from domestic online retailers based on the notion that foreign online purchasing is risky and complicated. This raises important issues that need to be explored in order to understand consumer risk perception in this context. New theoretical tools are needed for this purpose.

In this chapter the business network view will be extended by the introduction of an actor with a purpose other than that of business orientation—the scientific organisation. The main purpose of a scientific organisation is the production of knowledge. Few, if any, are questioning the role of science as such, but there is a large debate over the usefulness of science in industry and how this utility can be increased by improved transfer mechanisms. The debate is often unclear concerning what knowledge should be transferred, but in the case of the focal actor, the European Organization for Nuclear Research—CERN—the discussion revolves around the transfer of different kinds of technological knowledge. Thus, in this chapter, we analyse how technological knowledge is transferred from science to industry, and some of the difficulties involved in this task.

To understand organisational strategies scholars increasingly highlight the importance of approaching strategy as something which organisational members do rather than as something which the organisation itself holds (Jarzabkowski and Whittington 2008). Such reasoning acts as a basis in the strategy-as-practice stream for approaching strategy as a ‘pattern in a stream of goal-directed activity’ (Jarzabkowski 2005: 40) which continuously forms and reforms through social interactions between individual actors, at multiple organisational levels and in the external environment (Golsorkhi et al. 2010; Regnér 2008; Whittington 2006). In light of this reasoning, the practice approach has outlined the complexity of strategy, as well as deviated from the traditional view of strategy as a top-down stream of managerial decisions. Instead, the simultaneous existence of multiple and potentially contrasting streams of goal-orientated activities, favoured and maintained differently by actors across the organisation, is put forth to underlie strategy as a concept (Jarzabkowski 2005).

Over the years, research has covered many different aspects of business relationships; for example, there are streams investigating relationship initiation (e.g., Edvardsson et al. 2008), relationship development (e.g., Dwyer et al. 1987), critical episodes in relationships (e.g., Gidhagen 2002), relationship termination (e.g., Alajoutsijärvi et al. 2000), as well as network effects of relationships (e.g., Håkansson and Snehota 1995). However, there are few studies that focus on the time after a business relationship is terminated. A practical explanation may be the difficulty to study something ‘that is not,’ given, for instance, the reluctance to discuss any termination processes, or even problems of finding anyone with memories of the past. Another reason is of course that there may be considered little rationale in analysing something that is no more. However, this no-longer-existing business relationship may indeed be turned into ‘something’ again—once terminated, and later reactivated. In such a situation, the former relationship, its termination and also the time between termination and reactivation are all important aspects to consider.

The world of accounting saw a revolutionary change in 2005 when the 2002 EUs decision to adopt International Financial Reporting Standards (IFRS) for quoted companies was implemented. Organisations in the financial sector were especially affected by the new principles-based accounting regime, which saw historical cost accounting downplayed in favour of a market-based valuation philosophy (i.e., fair values). Today, it is evident that IFRS, together with other kinds of regulations, both internationally and nationally, has made both the interpretation and implementation of accounting standards more difficult (for an overview, see Nilsson and Stockenstrand 2015).

Perceptions of uncertainty can be significantly reduced by establishing trust within relationships as well as by the manner public view an organisation as legitimate. One of the most important aspects when explaining business-to-business interaction is the organisational relationship. Within the network approach, relationships are defined as developing over time, resulting in a number of adaptations and roles (IMP Group 2002: 22) which consequently become institutionalised within the relationship. Such institutionalisation concerns activities between the actors and may require substantial adaptation relating to internal organisational processes within each firm. Interactions between entities form rules and expectations for what constitutes an accepted behaviour; therefore the legitimacy concept is essential to consider in relationships. Legitimacy is a perception held by a beholder based on either direct or indirect relationships, as well as upon reputation. It is founded on different constituents’ expectations, perceptions, evaluations and judgments of the firm as being trustworthy, credible, desirable, proper or appropriate (Suchman 1995). Sharma (1991), over two decades ago, stated that without legitimacy the network will not be willing to supply resources. Furthermore, the concept of legitimacy has been widely discussed by researchers within institutional theory (cf., Human and Provan 2000; Meyer and Rowan 1991), recently regaining interest among various network researchers including, the analysis of foreign market entry (cf., Gebert-Persson and Káptalan-Nagy 2009; Jansson et al. 2007; Low and Johnston 2010), regional strategic networks (Gebert-Persson et al. 2010) and firms acting within political contexts (Hadjikhani 1998). However, these studies have primarily perceived legitimacy as a resource that can be drawn upon or affecting how actors are perceived.

One crucial, recurring challenge for business managers involves taking the right action when pressured to change from resource investment in a business relationship to the pausing or termination of such, which, in some situations may dissolve the relationship completely. In that ongoing quest, a substantial part of the information necessary for the managers’ choice of path of action stems from the past, current and potential future in the specific business relationship. However, to rely solely on the available information in the relationship is, in most situations, insufficient to select appropriate managerial action. The notion that business relationships are better understood as part of business networks is well established (see, e.g., Ford et al. 2002; Håkansson and Snehota 1995), consequently suggesting that further information, potentially vital for the choice of managerial action, can be sourced within the immediate surrounding business network.

In the current business environment, ethics and responsibility are emphasised as necessary values for successful business. Companies enforce ethical codes of conduct and stress non-harmful actions, expecting that commonly agreed principles will translate into actual business behaviour. Cases like Enron (Sims and Brinkman 2003) and the sub-prime mortgage crisis in the USA (Jennings 2008), the Bangladesh garment industry tragedy (Peck 2013) and unethical supply chain practices in the smart phone industry (Garside 2013) have created awareness of ethical issues and shown that companies can suffer severe reputational and financial damage when their unethical dealings are revealed. When such cases are reported, they often involve a major scandal that seriously impacts not only the company but also the whole industry or even the world economy (Benady 2009; Marriage 2013; Taticchi et al. 2013).