Industrial network approach

This approach stemmed from the IMP 2 project, which included the European researchers from IMP 1 and researchers from Australia, Japan, and the United States (Håkansson and Snehota 2000). It aimed to develop a network model that explains the organisation-environment interface (Araujo and Easton 1996;

Håkansson and Snehota 1989). As such it represents the network view of business relationships (Ford 2009; Håkansson et al. 2009). This empirical research culminated in the emergence of the industrial network approach that primarily explains how business markets function (Ford and Mouzas 2008).

This approach is theoretically grounded in the interaction approach of the IMP Group (Easton 1992; Håkansson and Snehota 2000). The term ‘network’ in this sense encapsulates how this approach views the business-environment interface.

Based on the interaction and industrial network approach, Håkansson (1987) developed the first generation of the interaction model which is often referred to as the AAR model (Håkansson et al. 2009). This model, in principle, explains the process of interaction in business-to-business settings. Theoretically grounded in the interaction approach, this model suggests that networks can be described in terms of three classes of interrelated variables: Actors, Activities, and Resources. These three variables were given equal attention in the original model (Håkansson and Waluszewski 2002, P. 30). In this model, actors refer to those who perform activities and/or control resources. Actors perform activities through which they use certain resources to change other resources (Håkansson and Snehota 1995b). As such a network of actors, a network of activities, and a network of resources are intertwined.

Introducing the ‘substance of relationships’ metaphor, Håkansson and Snehota (1995a) developed the AAR model into a more complex model that entails three types of relationship substances: Links, Ties, and Bonds. Håkansson and Snehota (1995a, p. 26) explain these substances:

“The links connecting activities performed by two actors, the ties connecting various resource elements controlled by two actors, and the bonds connecting

the perceptions and values of the two actors that are the focus of the analysis.”

Moreover, the new model investigates relationship contents in three different layers (i.e. company, dyadic relationships, and network).

The new AAR model is the most eminent model of the industrial network approach. It has become the theoretical grounding for much research that has been undertaken in this field (Håkansson and Johanson 1992). More recently the four R model (Håkansson and Waluszewski 2002) has also become a prevailing model. This model identifies four types of resources. These are

‘products’, ‘facilities’, ‘business units’, and ‘business relationships’ (Håkansson and Waluszewski 2002, p. 33). This approach mainly focuses on interaction and exchange in business-to-business settings from the network perspectives (Araujo and Easton 1996; Ritter and Gemünden 2003). As such, the industrial network approach complements the interaction perspective by widening the view from dyadic (or interorganisational) relationships to the networks of organization in which organizations are the nodes and the interorganisational relationships are the links.

This model stems from the view that organizations are not operating in isolation, but rather they are functioning in environments that include other actors. The network structure in this perspective consists of the relationships or

‘threads’ and a limited number of identified actors. Often, these actors know each other very well (Ford and Håkansson 2006). Easton (1992) argues that the network structure represents an aggregation of dyadic structures. Each actor within the network possesses resources of potential interest to other actors, and this accounts for their interdependency (Ford et al. 1986; Håkansson and Snehota 1995c). Therefore companies try to exploit these shared resources.

The ‘threads’ refer to the way an organisation is connected to other actors. In other words, an organisation is involved in continuous -direct and indirect- exchange relationships with these actors and thus each actor exerts huge influence on the firm. These relations create the firm’s identity (Håkansson and Snehota 1989). Similarly, Mouzas and Ford (2007) referred to the constitution

of a network as a system of beliefs, norms, rules and other conventions that are shared between actors in a network. Whether by intention or not, these systems provide a framework within which interaction takes place.

The central argument of the industrial network approach, in principle, is the concept of resource interdependency (Anderson et al. 1994). Håkansson and Snehota (1989, p. 260) argue that “within the framework of interorganisational relationships, a complex set of interdependencies gradually evolves.” This is the fundamental premise within the IMP approach that an actor in a network relies on some other actors within its network. The rationale behind this is that within a network, actors look for access to external resources. In this sense, companies are interdependent because they rely on the resources that are available in the network but are not possessed by an individual firm (Ritter 2000). Therefore firms within a network are strongly interconnected (Ritter and Gemünden 2003). This integration of activities and resources helps actors to meet their needs. Thus the notion of business relationships is a cornerstone because it connects the firms in a network.

However, interrelation of parties within a network requires a ‘mutual orientation’ (Ford et al. 1986). This interdependency is one of the salient properties of a network that makes it difficult to disconnect a firm from its network (Håkansson and Snehota 1989). Several studies have tried to explain the notion of interdependency and interconnectedness of firms within a network. Concepts such as ties (Håkansson and Snehota 1995a), interface (Baraldi and Strömsten 2006), connections (Ritter 2000), dimensions (Gadde and Håkansson 2001) more or less refer to the same notion (i.e.

interdependency and interconnectedness). Given the importance of ‘external’

resources and interconnectedness of firms (Ritter 2000), it is impossible to disconnect a firm from its context and hence organisational boundaries become unclear (Håkansson and Snehota 1989). Indeed, a network in this perspective literally has no boundaries.

It also has to be noted that the ‘markets-as-networks’ is a subset of the industrial network approach that studies the exchange on a macro level (Johanson and

Mattsson 1994). As such it represents the network view of the market. In their discussion on markets-as-networks McLoughlin and Horan (2000) emphasised the managerial orientation of relationship marketing. Whereas markets-as-networks focuses on understanding the nature of relationships through interaction between organisations in industrial markets, the focus of relationship marketing is on managing relationships of a focal company (Mattsson 1997; McLoughlin and Horan 2000; McLoughlin and Horan 2002).

Morgan and Hunt (1994) also argue that relationship marketing is part of a bigger picture which they call the ‘developing network paradigm’.