The ARA model

The concept of the ‘industrial network’ in the IMP tradition seems to appear for the first time in a paper by Håkansson and Johanson in 1984. The Activity–Resource–Actor (ARA) model is proposed and developed from the network approach by scholars such as

Håkansson (1987), Håkansson and Snehota (1989), Håkansson and Johanson (1992) and Axelsson and Easton (1992). The ARA model was developed using a foundation of social exchange theory and an interactive approach, based on the framework of the process and the outcomes of interaction. Cook and Emerson (1978) define an exchange network as ‘a set of two or more connected exchange relations’. Because no company exists in isolation (Håkansson, 1992), interactions take place between business actors and where this

exchange happens, relationships establish and develop. As well as the actors in the

exchanges, other actors are directly or indirectly involved in the interactions. A process of problem solving takes place between/among these actors through adaptation.

The components of ARA model are defined by interaction (Håkansson et al., 2009).

Håkansson et al. (2009) also define three layers of activity, resource, and actor in the ARA model. Activities take place between two actors (or in later versions of the model three or more actors involved in nets), referring activities of production, logistics, administration,

53

deliveries, information handling, and etc. Resources in the model may become more or less adapted and more or less mutually tied together as their interaction develops, in either tangible or intangible format, consisting of ‘raw materials, physical facilities, components, operating system and finance as well as human knowledge, ingenuity and ability.’

(Håkansson et al., 2009, p. 65). Håkansson et al. (2009, p.137) define actors as ‘a self-contained entity that is autonomous and independent with respect to others and to its environment’, who are ‘autonomous in how they choose to act and how they act determines the outcome of them.’

The ARA model describes the interaction process between companies in the general structure of a network. This model suggests that the interaction of the three variables (resources, activities and actors) is influenced by constellations of resources, patterns of activities and networks of actors (see Figure 3-3). The three variables interlink (Håkansson and Johanson, 1992; Håkansson and Snehota, 1995). Actors are defined as ‘those who perform activities and /or control resources’ (Håkansson and Johanson, 1992). In activities, actors ‘use resources to change other resources’ (Håkansson and Johanson, 1992).

Activities are carried out for the purpose of pursuing actors’ goals and processing their perceptions, and actors use resources as they perform activities.

The three variables add up to a relationship, influencing the determinants of the values and the consequences involved. They exist interactively in business networks through

relationships of activity links, resource ties and actor bonds. As defined by Håkansson and Snehota (2002):

Activity links regard technical, administrative, commercial and other activities of a company that can be connected in different ways to those of another company as a relationship develops.

Resource ties connect various resource elements (technological, material, knowledge resources and other intangibles) of two companies. Resource ties result from how the relationships have developed and represent in themselves a resource for a company.

54

Actors’ bonds connect actors and influence how the two actors perceive each other and form their identities in relation to each other. Bonds become established in interactions and reflect the interaction process.

Figure 3-3: Basic structure of ARA model (adopted from Håkansson (1987, p. 17)

Actors, resources and activities impact on each other and also performed a network of actors, a network of activities, and a network of resources interlinked to each other's networks. Detailed explanations of the three variables and their relationships are addressed in the following sections.

3.3.1.1 Actors and actor bonds

Actors play a central role in interactions and relationships in networks. Actors can be individuals, groups of individuals, departments of companies, companies, or organizations.

Håkansson and Waluszewski (2002, p. 38) state that ‘whether it is a physical resource, such as a product or a facility, or a social resource, such as a business unit or a business relationship, its features are interpreted, developed and preceded by individuals’.

‘Companies or individuals, as actors in business networks, are bounded in their perceptions,

55

knowledge and capabilities and therefore different from each other’ (Håkansson and

Snehota, 1995, p. 192). Although actors can be seen in many forms and at many levels, it is

‘individuals’ who pull resources together to conduct activities. Håkansson and Johanson (1992) propose five functions of actors: performing and controlling activities; developing relationships through exchange processes; directly/indirectly controlling resources, on which activities depend; seeking to fulfil their respective goals and interests; and using differential knowledge of activities, resources and other actors in the network.

Actors in markets participate in acquiring scarce resources. They become involved by using their knowledge of the networks and relationships to increase their ability to control resources and activities. Actors interdependently possess resources in networks, and are driven by conflicting or common interests (Håkansson and Johanson, 1992). But the way actors see and interpret situations may vary and as a result the bonds and identities between them vary also (Håkansson and Snehota, 2002, 1995). Bonds exist in relationships between actors based on respective mutually beneficial interests. Actors are connected by bonds (Witkowski and Thibodeau, 1999) which might relate to economic interest (e.g. cost, benefit), norms (regulations, long-term contracts), technology (product and technology adaptations, Research and Development, innovation), cognition (knowledge, affect, appraisal), and social connections (trust, commitment, personal). Bonds both influence the cognition of actors towards resources, activities and other actors and create an organised structure.

3.3.1.2 Resources and resource ties

Resources are used and combined within a network of actors. Barney (1991) defines a company's resources as ‘strengths that firms can use to conceive and implement their strategies’. In strategy process research, companies monopolise, control or combine resources for the purpose of enhancing their advantages. Resources have three characteristics (Håkansson and Johanson, 1992): control by actors, utilisation and

versatility. There are three types: physical capital resources, human capital resources and organizational capital resources (Barney, 1991). Competence in acquiring resources signals the development of a company. Actors acquire physical capital resources through

improving their technology, developing their equipment, testing and innovating. In order to acquire human capital resources, actors devote themselves to training, the building up of relationships and organizational learning (Argyris and Schön, 1996).

56

The process of actors accessing resources (Finch et al., 2012; Baraldi et al., 2012) is regarded as an individual organization’s resource collection (Håkansson and Snehota, 1995). The resource collection not only refers to actors’ own resources such as production facilities, plants and routines, but also to individuals, i.e. the skills and knowledge of staff.

Both internal and external resources are connected and form a resources constellation. The ARA model is based on the relationships between the resource constellation, the pattern of activities and the network of actors. The model reveals the relationships between activity, resource and actor, and the specific role that resources play in a business context.

Resources contribute to transformation and transfer activities. Håkansson and Johanson (1992) address the importance of experience of and knowledge about resources by

introducing the concept of the heterogeneous nature of resources. Experiential learning and the adaptation of resources increase performance. New knowledge can be produced

through the process of combining heterogeneous resources in new and improved ways.

Within a relationship, resource ties connect various resource elements, both tangible

elements such as products and intangible forms such as knowledge or techniques. Resource ties exist among interacting actors. Håkansson and Snehota (2002) consider resource ties as structural elements adding to the structure of resource constellations. Resource ties pull resources into the process of relationship development so that actors can mobilise and access the resources of others to solve their own problems through resource adaptation and sharing innovation (Håkansson, 1987; Håkansson and Waluszewski, 2002).

3.3.1.3 Activities and activity links

Activities take place when actors combine, develop, exchange or create resources (Håkansson and Johanson, 1992). Håkansson and Johanson distinguish two forms of activity: transformation activities and transfer activities. In transformation activities, changes in resources are required. In transfer activities, a change takes place in the control over resources between/among actors within a network. Transfer activities are affected by the relationships of the actors involved. Håkansson and Johanson (1992) state that ‘either certain transfer activities are performed in order to make possible certain transformation activities or certain transformation activities are performed in order to make possible certain transfer activities’. This is regarded as making adaptations. Moreover, these activities link with each other in different ways, usually with sequential features.

57

Activity links connect the business activities of companies (Ford and Mouzas, 2010). Once a relationship is built, technical, administrative or commercial activities are linked to each other. Activities are undertaken in exchanges and interactions. Because relationships change, the interaction activities need to change too. In this process, activity links represent coordination and ensure that sequential activities take place accordingly. By linking

activities, actors can break down complex tasks or projects into individual tasks which can be achieved more easily. Besides the sequential feature, activity links reflect a horizontal interdependence of activities (Håkansson and Snehota, 2002). Activities are linked horizontally; for example, many supply companies have to make sure their technologies and products match their manufacturers' or customers’ requirements.

The ARA model proposes an integrated analysis of stability and the development of networks. Stability is a vital feature for industrial markets but does not mean that the markets are static; dynamics are a central feature of industrial relationships. This thesis draws attention to the role of actors and sets of actors (Håkansson and Johanson, 1992) in changes in networked relationships.