3.3. Processual relationship development models

3.3.1. Interaction process model

Möller and Wilson (1989, 1995b) have augmented and extended the comprehensive and seminal framework construction of exchange relationships elaborated by the IMP Group (ibid). Their “Dyadic Interaction Model” for interorganizational business relationships includes the elements that form the essential parts of a business relationship and the context in which the focal interaction takes place, Fig. 21. Further, special emphasis is given to the interaction processes that form the core of a relationship (Möller & Wilson 1995b). Möller and Wilson describe the framework as a large-scale roadmap for the interaction phenomena or a complex contingency model that defines the dynamic elements of interaction. Möller and Wilson define five constituent building blocks to describe the interaction phenomena:

1. Environmental characteristics refer to the factors characterizing the markets and society where the focal business exchange takes place. Here Möller and Wilson (1985) find the network approach to markets and industries as the most novel perspective on environment compared to Williamson’s transaction cost analysis.

2. Task characteristics refer to the factors related to the object(s) of interaction. These could be described by the exchange of materials, parts, components, or complete products and services such as applications or systems. They can also be larger and more complex R&D projects. According to Möller and Wilson the task characteristics are dynamic, as their value and nature change during the interaction process.

3. Organizational characteristics refer to the properties of the interactants that belongs to the organizational level (departments, functions and groups) and to the personal level. Möller and Wilson find the organizational level description problematic as in the literature numbers of constructs based even on different theoretical approaches characterizing the organization exist.

4. Interaction processes form the business processes’ core that is necessary to carry out and control the exchange of resources. The central one of the interaction processes is the exchange process that is composed of two subprocesses: exchange of resources – e.g. products, services, technology, information and know-how and social exchange – e.g. beliefs, attitudes, values, norms and goals. The second interaction process is the adaptation process, which realizes that one or both partners in the relationship must change their behaviour – mentally or physically – to better serve the purpose and aim of the co-operation. The third process is the coordination process that steers and evaluates both partners’ behaviour in order to fulfil the common object. The process includes decisions, rules, procedures and terms of trade as well as trade practices and conflict resolution mechanisms.

5. Outcome factors consist of a large group of factors, processes and variables depending on the focus of the respective analysis. In this study the outcomes of interest are e.g. the phases in relationship development, intensity changes as well as changes in coordination mechanisms employed and qualitative patterns in bonds.

Möller and Wilson (Möller & Wilson 1995b) argue that lasting business relationships are complex. This is a consequence of the processes that are intertwined; the outcomes of processes affect other processes and the iterative nature of the dynamic processes. They further note that a pluralistic approach is needed to better form an extensive understanding of the relational exchange behaviour and each approach provides a partial view of the object analyse). This means that the model used must not be too complicated and regardless of all efforts the resulting view established by the analysis work still consists as a part of the whole phenomenon (ibid).

3.3.2. Customer-supplier relationship models

The business process modelling gained momentum with the BPR practices in the industry. It was asserted that business performance is directly attributable to process performance. This again started the business process analysis work as business can be viewed simply as the collection of all of its cross-functional processes. As the present business environment, especially in software business, is fast evolving with ever-shrinking business cycles Burlton (1995) questions the two extreme approaches suggested by Hammer and Strassmann as he sites them. According to him Strassmann’s concept of evolutionary approach in business development may result in extinction, it is too slow. On the other hand the Hammer’s ‘big-bang’ theories of revolutionary approach may be too drastic inflicting the same result, see also (Davenport, Jarvenpaa et al. 1996). The idea behind Burlton’s (1995) contemplation is the human in the organization and the human ability to change in this development process. Simply put, everything is people dependent. He stresses the accountability that comes from full responsibility for process outcomes delivered through complete processes. Interestingly accountability is also the key element in process development for Scherr (1993). Accountability is realized by directly linking the process performance to human performance where the human bears the full responsibility of the process outcomes delivered through complete processes. He further states that “only people can make and carry out the commitments required” (Burlton 1995, 26).

Burlton has defined five steps to describe the inter-organizational customer-supplier relationship. This is an adaptation of the previous model of Winograd and Flores (1987). The steps are prepare, negotiate conditions of mutual satisfaction, perform service, assess delivery and satisfaction and evaluate consequences and relationships (Burlton 1995). In his model the relationship development cycle is a never ending loop based on people, process and performance. Burlton (ibid) has added to the model the evaluation part that he finds an important element of the process. It focuses on assessing the outcome and comparing it to the agreed, expected and committed outcomes, i.e. are the conditions of satisfaction met? The last step also provides the possibility for feedback and gives a change to consider the previous cooperative life cycle in whole. This knowledge can again be used as firms start to plan for possible future projects.

Scherr (1993) also emphasizes the human role and perspective in defining and analysing the business processes. His focus is on people and their accountabilities. In this study these are the roles of customers and suppliers, agreements and commitments. He divides the four phases of dyadic communication to constitute the following customer and supplier actions (ibid).

It is possible for the customer as well as the supplier to start this communication, by the customer sending a request or the supplier making an offer without first receiving a request (opening). This model is substantially based on clear-cut actions of requests and offers and possible withdrawals at any time during the process.

In practice the withdrawal action would be very difficult or at least not desirable to be carried out after the primary phase as the joint effort has started. After the opening phase the negotiations start, during which the supplier’s deliverable, customer’s payments, timing and other necessary conditions are discussed. These elements form the conditions of satisfaction for the contract that are evaluated in the last assessment phase. As the parties have reached an agreement the supplier fulfils the conditions of satisfaction (performance). In the last phase the deliverable is assessed and the customer can express either his satisfaction or his dissatisfaction about the fulfilment of agreed conditions.

The model is iterative in its nature as there is always possibility to return back to the previous step. Scherr (ibid) gives also some measurement ideas of the relationship. The three basic attributes are time, overall outcome and history of the moves leading to it and customer satisfaction. The viewpoint of the framework is the customer. The customer is defined to be either an intra or inter company customer. This again builds customer-supplier-customer-supplier- chains. Accountability is also a key word for this model as it was for Burlton (above) and here Scherr (ibid) uses accountability to mean what a person is held responsible for.

Ring and Van de Ven (1994) have defined a compact and general three phase processual framework for the development of cooperative interorganizational relationships. The model is a recurrent circle of negotiations, commitments and executions, Fig. 22. The phases are consecutively assessed by efficiency and equity. They also emphasize the cyclical character of the processes over the sequential character. See also (Van de Ven 1992, 172) about critics for linear sequential model.

The cycle starts from the negotiations phase where the parties develop common expectations about motivations, adaptations and possible uncertainties are determined. The focus is on the formal bargaining process, but at the same time the partners learn to understand each other’s workings, i.e. they also take part in the socio-psychological process, during which trust building starts.

Entering the commitment phase the contractual terms and governance structure are agreed. This mutual view is then put in the form of a formal written contract or in an unwritten form of a psychological mutual commitment. The conditions of satisfaction are pronounced, hopefully clearly enough to avoid problems during the assessment. During the execution phase supplier and customer fulfils the agreed commitments. This model is interesting in the aspect that it allows renegotiations to be carried out, which are often needed when the project lasts for a longer period (Ring & Van de Ven 1994).

It is common that unforeseen events change the situation that the parties need to review the contract. As the processes unfold over time they are constantly assessed in terms of efficiency and equity. Ring and Van de Ven (ibid) warn that the phases overlap through recurrent sequences and in smaller projects and transactions the phases may temporally be within each other.

The general framework explains the processes not only in the different phases in the relationship development phase models but also in the transition process between the phases. The model could be seen as a macro as well as a micro model to explain all the situations unfolding during the whole life cycle of relationship, thus it is general and conceptual in its nature. They give some ideas to study the organizational processes with events as the units of observation. They are critical incidents that occur between partners as they develop the relationship. This makes it possible to observe simultaneously both the organizational and individual units of analysis. The event attributes are e.g. date, actor, action, outcome and data source (ibid).

Ring and Van de Ven argue that business relationships always need human factors that make the relationships emerge, evolve, grow and dissolve over time. In this central role of relationships development the actor has two different role characters. They distinguish between the interpersonal relationships and role relationships, which they argue, are not identical. This in its turn causes problems and lack of confidence if they collide (ibid). To safeguard against possible problems the parties usually rely on formal contracts instead of sheer trust.

3.3.3. Formation of entrepreneurial dyads

During the 1980’s several processual relationship development frameworks appeared. They have a different focus, conception and attributes of the development processes. Moreover the models have typically three to seven named stages. These models are (Ford 1982, Wilson & Mummalaneni 1986, Dwyer, Schurr et al. 1987, Liljegren 1988). Halinen and Alajoutsijärvi (Halinen 1994, Alajoutsijärvi 1996) have described and extensively analysed several of these frameworks.

Some new models and one enhancement to an older model have emerged during the 1990’s. Larson (1992) introduced her model of “Formation of entrepreneurial dyads” to consist of three main phases:

• Preconditions for exchange,

• Conditions to build and

• Integration and control.

This model emphasizes social aspects during the relationship commencement and development process. Larson’s model is interesting also from the perspective that it is based on empirical data collected among eleven small, innovative and high-growth firms. She found that during the first relationship start-up stage (preconditions for exchange) social aspects play an important role. Personal and company’s reputation and credibility and individual friendship with positive history paves the path for cooperation, but not without real business opportunities and proven know-how and technological skills. In other words the importance of the company’s and individual’s prior reputations is an almost necessary but not sufficient condition for a good start to a relationship, see also (Dwyer, Schurr et al. 1987). The companies search for long-term relationships with few companies and known people in order to reduce uncertainty and to find new opportunities for new joint projects.

During the second conditions to build stage the economic aspects play an important role as the companies start to build the relationship. To be successful this stage is also dominated by a growing number of transactions usually initiated by one of the partners that include trials through which mutual trust is developed. The trials were important trust builders as the companies could demonstrate in practice their performance level and willingness to commit to the relationship.

The third integration and control stage of integration and control the operational integration grew, they became more strategically interdependent and the integration and control through social relations extended. Larson sheds light also on the management of the governance of the processes belonging to this stage.

Ford et al. (henceforth Ford model) have elaborated and revised the old buyer-seller model from 1982 (Ford 1982) and (Ford, Gadde et al. 1998). The new framework was renamed to “Development of buyer-seller relationship in business markets” and the stages to:

• Pre-relationship,

• Exploratory,

• Development and

• Stable.

Ford et al. (1998) use the concept of learning (each other’s uncertainties and abilities), investment (tangible and intangible resources), adaptation (formal and informal), trust and commitment (level and history) and distance (social, cultural, technological and time) as he analyses the evolution of the business process.

The pre-relationship stage answers questions like: What will the customer and supplier both get from the relationship, how much should they invest in it, to what extent must they adapt, what will they learn from the cooperation and is the partner trustworthy Fig. 23?

In the exploratory stage the partners engage in serious discussions about the possible future application procurement or joint project launch. During the negotiations the partners start to learn from each other’s procedures and way of action. Partners are not yet able to demonstrate in concrete their willingness to commit as no concrete investments or adaptations are made at this stage; only time of management and experts who participate in negotiations is consumed.

During the development stage the business between the partners grows in volume and relationships on several planes are tied. Usually the contracts are signed for actual projects to start and adaptations processes start in practice. This stage is also characterized by mutual learning as a consequence of diverse know-how exchange. Trust and commitment is built by positive willingness to adapt and companies find the informal adaptations as major indicators of commitment to the nascent relationship. In this stage too extensive preparation of formal contracts can show possible mistrust. This is at the same time an intricate and delicate question of how and to which scale and depth to formulate the agreements without showing or manifesting signs of mistrust. However, only rational business is conducted with formal written contracts.

The stable stage is reached when the partners have obtained a certain stability in learning, adaptation and commitment to the relationship. Cooperation has become a routine process; companies have established standard routines and communication channels. This is in general a stage that the companies strive towards as at it the companies start to skim off the benefits of the relationship by building commitment and trust that easies the cooperation on all levels and aspects. The cooperation is institutionalised and less and less time is consumed by the management and procedures of the relationship. Business runs smoothly between the companies. However, all this depends on the individuals operating in the partner firms as well as on the management skills. To attenuate possible problems caused by relationship dissolutions or just from decreasing commitment the company should build a relationship portfolio to avoid harmful interdependence.

The problem with the stage model is that they do not usually describe the mechanism and procedures by which the stages follow each other, i.e. how and why to move to the next stage. Therefore Ford et al. (1998) remind that the unfolding of the business relationship is not a linear process aiming in one direction and to the optimal final state. During the development process there is no certainty, which stages will unfold and if they unfold then to what extent. Galliers and Swan (1998, 376) also express critics at stage models that they give inadequate explanations save the simplest processes. The models best suit phenomenon with linear and rational assumptions about causes and effects.

In software business these stages may be characterized by and the relationship development, i.e. the movement from one stage to another, could be verified e.g. as follows:

• The partners always start from the pre-relationship stage their common journey. (Here is not discussed how the partners have found each other.) The business-inspired issues and discussions characterize this stage as depicted in Fig. 11. The focal questions at this stage are: What will the partners get from and what must they invest in this possible cooperation?

• The partners move to the exploratory stage after they have drafted and signed some form of a contract that defines their relationship more explicitly. Usually after this the partners start their joint development projects that are among other things characterized by learning and distance reduction. This takes place by people from both organizations getting acquainted with each other as well as with the workings of the both companies. Also explicit and implicit adaptation is discernible.

• The developing stage is achieved after the partners have cooperated successfully during a period of a time in joint projects. Though it is extremely hard to define in advance the time or number of projects that the partners must work together before they are capable to move from stage to another, as every relationship is different and they also develop differently.

• The partners reach the stable stage after a longer time of cooperation and on this stage the partners know each other well and trust is prevailing state of affairs. Cooperation runs smoothly between partners as the relationship is institutionalised.

As stage models delineate the commencement and development of the business relationships their viewpoint emphasizes the positive growth aspect more and does not analyse much the dim side of the relationship, i.e. dissolution of the relationship. It depends on the fashion as to how much relationship break-ups affect what kind of safeguard and source of certainty the companies need during that process (Dwyer, Dahlstrom et al. 1995, Tähtinen 1999). From the studies and constructed frameworks focusing on business relationships the conclusion can be drawn that there is not much said about and still far less studies made about the role of contracting in relationship development and management.