Idea Logics and Network Theory in Business Marketing

Idea Logics and Network Theory in Business Marketing

Catherine Welch, School of International Business, University of NSW

Ian Wilkinson, School of Marketing, University of NSW

University of NSW, Sydney,

NSW, AUSTRALIA 2052

Email:

Revised July 2001

Due to be published in Journal of Business to Business Marketing, 9:3 2002

Idea Logics and Network Theory in Business Marketing

Abstract

We argue that the model of relationships and networks proposed by the IMP group in terms of actors, activities and resources (AAR), which forms the basis of much IMP research, needs to be extended to incorporate a fourth dimension of relations and networks, namely that of ideas or schemas. These schemas are the way managers make sense of their world and the interactions taking place with other organizations and represent a different kind of dynamical force shaping relationship and network development. We use an extended longitudinal case study to illustrate the role of firms’ schemas in shaping the evolution of a business network and consider the research and management implications arising from this additional network dimension.

Idea Logics and Network Theory in Business Marketing

1. Introduction

There is a rapidly expanding literature concerning the role and importance of interfirm and buyer/seller relations and networks in business marketing (e.g. Achrol 1997, Achrol and Kotler 1999, Anderson et al 1994, Moller and Halinen 1999). Various models of aspects of interfirm relations have been proposed and tested in a variety of business marketing and channels contexts (e.g. Anderson and Narus 1990, Morgan and Hunt 1994, Wilson 1995). A significant contributor to the development of theory and research in this area is the Industrial Marketing and Purchasing (IMP) group. This group of primarily European based researchers started in the 1970s and has conducted many studies of interfirm relations, including many in-depth case studies as well as major empirical surveys of relations and networks in a variety of domestic and international contexts (eg. Axelsson and Easton 1992, Ford 1997, Johanson and Mattsson 1994, Turnbull et al. 1996).

The focus of IMP researchers has been on the nature and role of interactions, relations and networks in business markets and a central part of their analysis rests on an actors, activities and resources (AAR) model as the fundamental dimensions of relations (e.g. Hakansson and Snehota 1995). In this paper we argue that the AAR model might usefully be extended to incorporate a fourth dimension of relations and networks, namely that of ideas or schemas. Idea logics are confounded with actors and resources in the current AAR model but have their own character and structure which impacts on network structure and operations, and interacts with the other three dimensions. Drawing on empirical evidence from a longitudinal case study of an international sugar industry network, we trace the evolution of idea logics and their impact on network membership, structure, behavior and development.

2. The AAR Model and Idea Logics

The IMP group views business relationships as comprising three “layers” or “effect parameters” (Håkansson & Snehota 1995): activity links, resource ties and actor bonds. Activity links refer to the connections among operations that are carried out within and between firms in networks and how mutual adaptations in activities take place between relationship partners. Resource ties develop as companies exchange or access each other’s resources (broadly defined) in carrying out their activities, in the process often transforming and adapting existing resources and creating new resources. Actor bonds refer to the ways individual and collective (organizational) actors in a relationship perceive and respond to each other both professionally and socially. These bonds arise over time and are mutually adapted through the knowledge and experience gained in interaction. They affect the way actors view and interpret situations, as well as their identities in relation to each other and to third parties. Bonds include the closeness-distance, degree of commitment, power-dependence, degree of cooperation, and conflict and trust among relationship partners.

Both suppliers and customers in a focal business relationship are in turn connected to other parties that affect the exchange, forming a business network comprising “a set of two or more connected business relationships” (Anderson et al. 1994, p. 2). Hence, the actor bonds, activity links and resource ties that evolve in a single dyadic relationship are connected to a wider web of actors, activity patterns and resource constellations comprising the business network.

IMP theories identify the development of shared cognition as one dimension of relationship and network development but it is not clear how such cognitions fit within the AAR conceptual framework. The most obvious link is with actor bonds, as shared cognition plays a role in the development of actor bonds within relationships. Actor bonds both create, and are dependent on, shared meanings, perceptions and norms. Over time, the network develops shared understandings, “a kind of network logic” (Håkansson & Snehota 1995). However, shared cognition is also important in the development of activity links and resource ties. As activities are adapted, modified and created, the emergent pattern of behaviour is “rationalized” by actors and “given a meaning that keeps the activity structure together” (p. 53). In the case of resource ties, learning takes place about the use, combination and re-combination of resources. The shared knowledge that develops within relationships influences the structure and content of resource ties. The resource constellation of a network “provides a favourable setting” for learning, making innovative resource use possible (p. 142). Yet at the same time, the shared wisdom accumulated in this process constrains and conditions the way in which resources are connected and adapted. Because the development of shared ideas and meanings affects each AAR dimension in different ways, we suggest analyzing it as a separate network process.

We argue that a focus on meanings, logics, norms, theories, recipes, knowledge systems, paradigms, cognitive maps, ideologies, schemas, scripts and mental models – in short, ideas – can contribute to our understanding of network development and behaviour. Ideas encompass the perceptions individuals and organisations have about self and others, their beliefs or “theories” about how the world functions, norms about appropriate behaviour, attitudes toward particular issues as well as values concerning what is desirable. As in the case of actors, activities and resources, ideas are shared and shaped through interaction. It is this collective, intersubjective nature of ideas which is the focus of this paper.

Support for our view comes from the work of other researchers. Thus Hellgren, et al. (1993) believe that existing IMP theory downplays the role of “meaning”, neglecting an important dynamic within networks. They argue, as part of their “force-field” analysis, that the “relational” dimension discussed by the network approach should be supplemented with an account of the ideological dimension within industries. They propose to remedy this neglect with the concept of “industrial wisdom”, which they define as “shared beliefs about the competitive rules of the game and the structural freedom of action within an industrial field.” (p. 93). Fairhead and O’Sullivan (1997) also argue that the actors, activities resources model should be extended to include underlying patterns of cognition and sense making processes.

Like these researchers, it is our contention that the connections between ideas within and between organisations are still not well developed and understood in network theories, and have become confounded with the analysis of other dimensions. By focusing attention on ideas and how they are interconnected and adapted to each other, we introduce another force driving network behaviour, development and evolution. Ideas are a co-evolutionary force in networks: actors act in networks according to ideas which themselves evolve through interaction. Ideas are in part socially constructed as well as communicated through intra- and inter-organisational interactions and relations (Easterby Smith et. al. 1999). As ideas change and evolve they affect the actor, resource and activity structures of networks; at the same time, changes in the AAR dimensions flow through to the idea logic of a network

In focusing on the role of ideas in inter-firm relationships, we are engaging with a trend in the social sciences variously labelled “the interpretive turn” and “the cognitive revolution”. This “revolution” was sparked by new theories of social cognition in ethnomethodology, phenomenological sociology, hermeneutics, cognitive psychology and the “new” institutionalism. The central concern of such theories is how individuals and groups make sense of the social world of which they are a part. Reality is not seen as external to human interpretation, or verstehen, but is constructed by our understanding of it; by interpreting the reality around them, actors change and structure it. Human action is based on existing preconceptions derived in part from an individual’s social world; at the same time, as individual act according to their preconceptions they induce changes to the world around them. Individual cognition and the social world therefore constitute each other.

In marketing such approaches have been used to study the way consumers make sense of their world and the role that consumption experiences play (e.g. Arnould and Wallendorf 1994; Calder 1977; Thompson 1998). However, little work has been done to understand the way organizational participants make sense of their world. But this is not the case in other management disciplines. Interpretive approaches have gained ground in organizational behaviour and strategic management since the 1980s (eg. Bartunek 1984; Isabella 1990), with research focusing on three different levels of cognition in organizational settings. The first, that of the managerial level, examines the information processing of individual managers. Such research has focused on the mental maps of managers and the way they use devices such as heuristics, biases, analogies and prototypes to make sense of the complex world around them (eg. Fiol and Huff 1992, Schwenk 1985). The second level of research is organizational, with researchers seeking to explain how “collective cognitions” emerge within firms (eg. Langfield-Smith 1992). Institutionalist and cognitive accounts turn their attention to the ways in which shared meaning systems develop and are regularised in social interaction. Organizations are viewed as “socially constructed systems of shared meaning” (Smircich & Stubbart 1985, p. 724), not just formalized patterns of behaviour. Meaning is institutionalized when it develops a “taken-for-granted” nature in organizational life.

The third level of cognition discussed in existing management literature is the one with the most relevance to this paper, because it concerns inter-organizational relations. This strand of cognitive research examines the way in which a distinct body of knowledge is generated and shared among firms. This set of shared ideas is most often analysed at an industry level and is variously termed “strategic frames” (Huff 1982), “industry recipes” (Spender 1989), “industry mindsets” (Phillips 1996) or “business communities” (Eriksson et al. 1996). Porac et al. (1989) take a slightly different approach, with their focus being competitive groups. They find that the structure of resource exchanges in a value chain affects the information flow and idea structure of firms, while at the same time the prevailing “mental models” inform the decisions which firms make about resource exchange. The result, they find, “is a competitive arena defined by symmetrical mental models throughout the value chain” (1989, p. 410). In other words, the mental models of firms align themselves over time, producing “cognitive communities” which span the boundaries of firms.

Only limited attention has been given to such cognitive theories in the business-to-business marketing literature. Perhaps the closest is work on the concept of relationship norms. For example, a recent study of buyer-seller relationships includes “cooperative norms” among its six relationship “connectors” (Cannon & Perreault 1999). However, the antecedents and dynamics of such norms are not well understood, as the authors of a seminal work on norms acknowledge (Heide & John 1992). Lusch and Brown (1996) find that the presence of relational norms are positively related to high bilateral dependency between buyer and seller, and a long-term orientation on the part of the parties to the relationship. They concede that their model is limited, and that other constructs  such as trust, commitment and bureaucratic structure  may be connected to the development of relational norms. The cognitive literature suggests that an additional construct, that of mental models, may also be a contributing factor to the development of individual and shared behavioral norms in business relationships, and that its role is worth exploring.

Other research in the channels area has drawn attention to the role of firms’ cognitive structures in shaping conflict and communication between firms. Research on the sources of conflict among firms have identified lack of shared meanings as sources of conflict, including differences in firms’ perceptions of reality and expectations and domain dissensus as causes (eg. Rosenbloom 1999). For example, a classic early study by Wittreich (1962) demonstrated how the different meanings small versus large firms attach to their role and purpose affect the problems of conflict and communication. Another example is the work of Hakkio and Pirjo (1998), who examined how relationship communication behaviour is affected by the degree of shared product meaning of channel members.

While ideas have been shown to be an important dimension of inter-organizational relations, the question remains as to how they might be incorporated into the IMP “market-as-networks” approach. Table 1 depicts the place of ideas in the scheme of analysis of industrial networks. It is an extension of the scheme described by Håkansson and Snehota (1995) and therefore we only describe the dimension of ideas that we have added. The rows of the table refer to the four dimensions of relations and networks: actors, activities, resources and ideas. The columns reflect three levels of analysis: the organization, relationship and network. Interactions occur among all cells in the matrix; change in any one of the dimensions affects the rest.

Table 1 about here

At the level of the organization are schemas, which refer to the systems of ideas underlying an organization’s actions and responses (Gell-Mann 1995). Because organizations are collective actors an organization’s schema is the product of the interaction among the schemas of those individuals comprising it, i.e. schemas are co-produced within the organization through the internal and external interactions of its members. An organization’s schema may be in part explicit as when it is written down in the form of objectives, values, missions, plans, technologies and blueprints. But it is also tacit and embedded in the machinery and equipment employed and in the behaviour and ongoing interactions taking place in the organization and with other organizations. Badaracco (1989) identifies different levels of knowledge embeddedness within an organization: within an individual craftsmen, within teams, and within the organization.

A relationship develops between two organizations as activity links, resource ties, actor bonds and schema couplings are formed. The latter reflect the way the schemas of two organizations become interrelated and adapted to each other over time in such a way as to be consistent with the ongoing relationship. Schema couplings are driven by the desire for people to maintain consonance among their various cognitions, including those related to the ongoing experience of interactions with the relationship partner.

At the level of the business network we may identify schema configurations, which are the pattern of co-adapted ideas characterising a network and which underlie its functioning. Other terms that suggest themselves as descriptors of the pattern of beliefs and values underlying network action and response are network cultures, paradigms, ideologies or recipes. The configuration of ideas and schemas within and between organizations in a network is embedded in the network of relations among organizations (Badaracco 1989):

Toyota’s knowledge of how to make cars lies embedded in highly specialized social and organisational relationships that have evolved through decades of common effort. It rests in routines, information flows, ways of making decisions, shared attitudes and expectations, and specialized knowledge that Toyota managers, workers, suppliers and purchasing agents, and others have about different aspects of their business, about each other, and about how they all can work together (ibid p 87).

Such configurations of schemas and ideas emerge in a bottom-up, self-organising way through the micro interactions and schema couplings developing among network actors (Holland 1998). Figure 1 depicts the processes involved in terms of the interactions among three organisations. Over time the actions, reactions and feedback result in single loop and double loop learning and the co-adaptation of ideas, bonds, activities and resources. Organizations act and react based on their schemas, which in turn leads to actions and reaction by others which affect the outcomes of individual organizations’ actions. Persistent patterns of schema configurations, together with their behavioural manifestations, may be conceptualised as network attractors, ie. self-reinforcing patterns of ideas and resulting actions and interactions within a network that are more or less stable and adapted to the network environment (Wilkinson & Young, forthcoming).