CHAPTER 2.LITERATURE REVIEW
2.3 Interaction
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are we could use interaction as a method of alliance managing. The discovery of this notion not only enhanced our foundations in the knowledge section of the IS research framework, but also enables us to forward our research to discover how to use interaction to manage the alliances between SMEs.
2.3 Interaction
From the SD-logic view (Vargo & Lusch, 2004), service is different from product because the actor of the value creation is different; while a product’s value is determined by the manufacturer, the value of a service is co-created by the provider and consumer. This feature makes service a more complicated concept than product because service involves more actors that are needed to be taking into consideration.
To understand the complicated nature of service, we can use the science of system thinking to analysis service more systematically (Spohrer & Maglio, 2010). A service system is a bunch of actors, which called entities here, like individuals, groups, business, even nations, interacting under a specific scope to co-create value for each other entities. In a service system, entities provide their own value proposition and interact with other entities under a governance mechanism to create value outcomes (Spohrer et al, 2011)( also see Figure 1.1) . Deem to the work of system thinking, we can analyze a service by separating it into three parts to have better understanding:
entities, interaction, and outcome. In this research, we aim at the interaction part.
Long before the interaction concept was proposed in service science or system thinking, the industrial and market (IMP) group have perform intensive interaction-related researches for years. According to the IMP perspectives, they argued that interaction is the core of the research of the relationship and network perspective of business markets, because it is the basis of the business transaction and basically the smallest analytical unit (Håkansson, 1982; Snehota & Håkansson, 1995;
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Naude & Turnbull, 1998; Turnbull & Valla, 1986). One of the key researches of IMP group about interaction was proposed by Håkansson (1982), in the research, Håkansson stated that interaction of business shall be considered in a more macro scope; he separated interactions into four types of elements to study: interaction process, interaction parties, interaction environment, and interaction atmosphere (Figure 2.2).
Figure 2.2 Illustration of interaction model (Adapted from Håkansson, 1982)
The interaction process can be divided into short term and long term; the short term process is the actual exchanging process that happens between businesses, and the long term process is the aggregation of the relationship which builds within the exchanging process.
The interaction parties are the businesses that involving in the interaction, which are separated into organization and individual, by which organization is the company itself, and the individual usually refers to the person that interacts with another company’s representative.
The environment is the business environment in which the interaction is taking
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place, which considers the structure of the market and the dynamism, internationalization, position, social system. The environment is the outcome of businesses within the same industry, the society, and government’s brawling.
The last one is the interaction atmosphere surrounding every interaction that the businesses are having. The atmosphere can be considered in terms of power dependence, cooperation, closeness, and expectations. All the factors within the atmosphere are affected by the environment, parties, process of the interaction, and are affecting them vice versa. Atmosphere is built through times, and is a dynamic factor that is changing and influencing the entire interaction condition all the time.
However, even though the IMP interaction model expatiated the interaction well, there are some statements against their research. One of the arguments is about the level of complexity of IMP interaction model. An IMP group research done by O'Farrell & Moffat (1991) applied the IMP interaction model as the basis of their research, but mentioned about its considerations of the complexity of the IMP interaction model. Håkansson (2002) indicated that interaction patterns are important and in some business marketing strategy businesses tend to aggregate interactive choices into specific interaction patterns. Wynstra et al (2006) also stated that no large scale efforts of investigating the interaction patterns around service, which they considered as a gap that needs to be fulfilled in their research.
An interaction pattern is the outcome of pattern recognition, which is a process that a specific individual trying to understand complicated and unrelated-like events as an identifiable patterns of behavior (Matlin, 2002). The pattern approach was widely used in many fields, like computer science, human interaction, psychology and physiology, business, artificial intelligence, and social science (Hannemann &
Kiczales, 2001; Stark et al, 1962; Fehr, 2004; Hemelrijk, 1990; Barros et al, 2005;
Fukunaga, 1990). However, not much interaction pattern related research can be
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found, and most of the research only states that interaction have patterns (Halinen, 1997; Turnbull & Ford & Cunningham, 1996; Håkansson, 2002; Woo & Ennew, 2004). One of the researches with handful content of interaction patterns was given by Wynstra et al (2006).
In Wynstra et al’s research (2006), they defined interaction patterns in terms of different service types, which are component, semi-manufactured, instrumental, and consumption. Each interaction pattern stands for a specific type of service that a supplier provides to its customer. For example, a supplier might not actually make components for its customers; however, the way they serve their customer fits the component service type’s interaction pattern; so the supplier and customer are having the component type of interaction pattern between them.
Different patterns have different objectives, capability requirements of supplier and customer, representatives of supplier and customer, and the following Figure 2.3 can highlight their works. For managerial persons, one can apply to these different groups of patterns after clearly assessing how their customers use their service for further improvement direction and key point of the service. And for academic research contribution, previous research stressed intensively on ongoing production and delivery of service, this research rather aims on the supporting activities and resources of these processes. Also, this research adds in customer perspective, which enables to identify the similarities in the business interaction between services in different industry while most previous research mostly focusing on a specific industry (Wynstra et al, 2006).
This research of Wynstra et al’s (2006) provides a good example of how interaction patterns works for business and how to study them. However, we argue about two things: service system not only has a buyer and a supplier entity, but also other related entities; and also shall interpret more on how each interaction patterns was occurred.
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We do more explanations in the following paragraphs.
In a service system, the final outcome of value is co-developed by entities (Spohrer, et al, 2011), applying this concept to alliance, this means the value of the alliance is created by both sides. Take the supply chain perspective into alliance, there exists more than supplier and customer entities these vertical entities, but also exists other organizations like competitors and non-competitors that need to collaborate with to create value (Simatupang et al, 2002).
Figure 2.3 Propositions on objectives, capabilities and interfaces for the different service types
(Adapted from Wynstra et al’s, 2004).
At the meanwhile, alliance might not only occur only in a one-to-one type, a concept of alliance constellation was proposed, that is a company will form alliance with multiple companies to compete with other alike groups of companies (Gomes-Casseres, 1997). The advantages of alliance is obvious, so does the advantage of alliance with more than one company The benefit of alliance constellation was
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classified into five items(Gomes-Casseres, 2003): linking to market, combining skills, building market momentum, reducing costs, sharing risks. The mentioned “combing skills” advantage was said to be able to create a new business or compatibility for the alliance. According to Juttner et. al (2007), they stated that to become a market winner a company shall have advantages on both marketing and supply chain, which we can refer to the concept that constellations build strong supply chain through multiple companies, and have strong linkage with the downstream market-closer companies shall be able to bring them victory in the industry. Leenders and Wierenga (2001) stated that integrating marketing forces and R&D capability is a major concern of companies that wish to have excellent new product development, also can adhere to the concept that for companies that have strong supply chain for the product or service, alliance with proper marketer and R&D facilities is a great choice. Concluding, SMEs have much more alliance choices and combinations that need to be considered than the four service types regarding only customer-supplier relationship of interaction patterns that Wynstra et al’s (2006) have mentioned.
A second consideration of Wynstra et al’s (2006) research is that the content of the interaction patterns they defined did take little from the IMP interaction model actually. One of the reasons that the IMP interaction model involves less in their research is because most of the four elements of the IMP interaction model (process, parties, and environment) was closely related to the specialty of a specific industry, involving too much IMP interaction model might jeopardize their researchs without loss of generalities. However, the IMP interaction model was still a great analysis framework for interaction researching, and we argued that it shall be concerned more in interaction patterns constructing.
The last element within the IMP interaction model that was not excluded because of industry dependent is the interaction atmosphere (Spencer & Sutton-Brady 1996). The
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atmosphere is a long-term variability of interaction which is influencing and influenced by the interaction; the atmosphere is surrounding the interacting entities and affecting the process that the interacting entities are taking, and also the outcome of the process will influence the atmosphere of the interaction (Håkansson,1982). Due to the long-term feature the atmosphere is having, we argue that using atmosphere in the interaction patterns can reflect the condition of the interaction.
Although the IMP group have did much research on interaction, according to another IMP researchers (Woo & Ennew, 2004), they have argued that constructs of the interaction atmosphere are not unshakeable. Young and Wilkinson (1997) have argued that the construct of atmosphere is including a great diversity of research related to the business relationship managing, but the heart of the atmosphere actually is the competitiveness and cooperativeness of the business, and also the trust between the alliance partners. Hence, our next step is to make sure every constructs within the atmosphere, which are power dependency, cooperation, closeness and expectations are appropriate to embed.
The power dependency is about the degree that one company is able to influence its partner, and also whether one company is able to survive with or without another company’s existence (Håkansson, 1982). The measurement of the power dependence is customer preference, completeness of line, sales, human resource, brand image, accessibility to market information (El-Ansary & Stern, 1972), which we argue to be related with the competitiveness of a business. While highly related with the competitiveness of business, power dependency seems appropriate to be a construct of interaction atmosphere.
The closeness of companies is another construct of the atmosphere, however, mentioned by Håkansson(1982), in which closeness is a construct that a company must manage well in the interaction, while too close or indifferent are both not a good
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interacting condition, which is quite different to the power dependence construct that is the higher(or lower) the better. On the other hand, the high closeness of company with another company often result in high power dependence (Turnbull et al, 1996) which Håkansson (1982) had agreed that the closeness of two partners will reflect on company’s power dependence degree. Another argument of closeness coming from Laing and Lian (2005), they stated that closeness of companies is the basic of trust - while companies are high in closeness, the level of trust or the easiness of forming trust is usually higher than other companies. Since closeness is crossing both trust and power dependence, which is referring to the competitiveness of the atmosphere, we argue that instead of keeping closeness, it is better to keep the power dependence construct, and add the trust construct into atmosphere measuring.
The rest of the constructs are cooperation and expectations. While the construct of the cooperation is referring to the compatibility of two companies’ ability and the willingness to cooperate (Håkansson, 1982), it is naturally same to what Young and Wilkinson (1997) had argued; so it is fitting to the revised atmosphere constructs without questions. Meanwhile, the importance of expectations is agreed in many business related researches, research had stated that ability expectations and outcome expectations of the company are decisive factors of starting a new venture or not, (Townsend et al., 2008), marketing researches had put emphasis on managing customer’s expectations for years(Gronroos, 2008; Parasuraman et al, 1988), and business alliance related research also devoted efforts on discovering how to manage expectations (Arino & Ring, 2010; Barney, 1986; Royer & Roland, 2009).
Moreover, a value proposition of another company could be also considered as forming expectation for the exchanger; accordingly, expectations serve as an important factor as well as any other constructs. Concluding, we suggest that all the constructs of the interaction’s atmosphere shall be taken into consideration in the
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interaction between two companies.
Summarizing the previous paragraphs, we are stating two arguments against Wynstra et al’s (2006) research. The first one is that interaction patterns in alliance relationship shall be more than only one-to-one, customer-supplier relation; instead it shall be patterns that involving lateral companies, and is multiple-to-multiple relation.
The second one is that the IMP interaction model shall be more involved with proper revising, which we have the four construct involving in the interaction patterns: power dependence, cooperation, trust and expectation.
However, while Wynstra et al’s (2006) interaction patterns categories are based on the different service types of a supplier to the customer, adding lateral companies into the interaction patterns will create countless service types belongs to lateral-supplier and lateral-customer interactions, which are considered not feasible for this research.
Instead, we argue that the interaction patterns shall be categorized by the roles of entities it is partnering with, which are customer, supplier, and lateral entities.
Moreover, within this research, the customer and supplier entity are defined in a broader definition to cover wider diversity of different industries. The customer entity will be defined as both customers and all the entities that could help linking the SME with its current customer or bridge connection with new customer. The supplier entity will be defined as both material suppliers and all the entities that hold the key resource or knowledge which can improve the SME’s current products or services quality. (We will still use customer and supplier to call these entities in the following paragraphs to maintain the readability of this thesis)
On the other hand, the original interaction patterns (Wynstra et al, 2006) only provide the best interaction pattern of a specific service type that can achieve a direction for managers to refer to. However, we consider that it will be more useful for manager if there are more different level patterns to compare and assess their
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company’s status. By taking more patterns into the framework, the usability of this model could be expanded greatly from a directing-only function to more an analysis tool that are able to evaluate current condition and provide guidance to SMEs.
Thankfully, the four constructs we have identified: power dependence, cooperation, trust, and expectation are originally having levels (Laing and Lian, 2005; Johnson et al, 1996; Chatman, Barsade, 1995); thus the interaction patterns using this four constructs are able to be classified into different levels of patterns. While low in power dependence, cooperation, trust, expectation are referring to a worse interaction with an alliance partner, indicating a need of improvement; high in power dependence, cooperation, trust, and expectation corresponds to a better condition of interaction. In consideration that lacking of levels will cause SME hard to assess their current pattern, but an excessive number of levels will also cause diffusion, we here roughly define 3 levels of interaction patterns: worst, average, and best, performed by different performance of the four construct (in Figure 2.4).
Regarding to the concerns, we re-invent the interaction patterns of Wynstra et al’s (2006) research. First, the service types categorize method will be replaced by the roles of the alliance entities, which the role are supplier, customer and lateral entities.
Secondly, the interaction pattern which a SME belongs to could be measured by the four constructs from the interaction atmosphere of IMP’s interaction model: power dependency, cooperation, trust and expectations. Lastly, the “only best” interaction patterns classification will be expanded into three levels of interaction patterns. Thus a SME company can have three levels of interaction patterns: worst, average, and best with three roles of alliance partners: customer, supplier, and lateral.
Concluding, by the categorizing method we just mentioned, we defined proper business interaction patterns that are fitting to our purpose, responding to the first problem we mentioned in section 1.3 that we need to solved in order to fulfill this
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research’s intentions. This adjusted interaction pattern framework could support us in alliance managing for service innovation, and further provides us foundations to forward to model-creating process for interaction pattern based service innovation theory. In Chapter 4, we will further describe how interaction pattern could be manage by different constructs, and how could interaction pattern manipulating leads to service innovation. To reiterate, this section, alike the previous section 2.2, is corresponding to the knowledge base part of in the formation system research framework.
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Figure 2.4 Interaction patterns and constructs mapping diagram
This chapter had reviewed research from the following fields: service innovation, alliance, and interaction that are relating with the intention and foundation of this research. We have summarized ideas proposed in the previous sections into 5 five points in the following:
(1) Existing service innovation tools shall consider interaction of the entities within the service system more to gain a stronger theory foundation.
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(2) Existing service innovation tools are not mainly designed for SMEs while these tools require people well-trained of using these models, which SMEs usually lacks of, to exploit its value.
(3) Alliance with other companies is one of the best ways for SMEs to do innovation since SMEs are scarce in innovation-necessary resources
(4) The key of innovating through alliance is managing the interactions well.
(5) Interactions can be classified into patterns to become more analyzable, and different patterns could possibly serve as measurements and guidance for SMEs to follow and use to gain higher service value.
These concepts provide the knowledge foundation of this research, and by linking these concepts, we can form our theory base to solve the problem we have perceived.
These concepts provide the knowledge foundation of this research, and by linking these concepts, we can form our theory base to solve the problem we have perceived.