a definition model and empirical analysis of business to business

A definition, model, and empiricalanalysis of business-to-business

relationship qualityMaria Holmlund

Department of Marketing,HANKEN Swedish School of Economics and Business Administration,

Centre for Relationship Marketing and Service Management, Helsinki, Finland

Abstract

Purpose The aim of this research is to provide insights into quality in a business-to-businessrelationship setting. The objectives are to review related relationship quality studies, to put forwardfirst a definition and then a model of perceived business-to-business relationship quality, andafterwards to illustrate and deepen this model with empirical data from a typical business-to-businessrelationship.

Design/methodology/approach The whole study rests on accumulated theoretical insights fromservice management combined with IMP literature which have been used together with empiricalfindings in an abductive manner to expand the scope on quality to encompass dyadic qualityperceptions in a business relationship setting.

Findings The definition and model do not so much depend on completely new elements, butinstead the contribution lies in the way that current insights and empirical data have been combinedinto a conceptually dense and comprehensive entirety. Focusing on the process character of arelationship and the content of quality perceptions in a relationship, several new conceptualisationsare developed and illustrated with empirical data. These are: unit and span of perceptions; comparisonstandards; variation in interactions; technical, social, and economic quality dimensions; process andoutcome quality domains; four different hierarchical levels for categorising business interactions; anda dyadic analysis of perceived relationship quality.

Research limitations/implications The proposed definition and model were developed foranalysing typical ongoing business-to-business relationships.

Practical implications The study offers a tool for analysing and improving relationships, settingpriorities in quality improvements, and selecting counterparts.

Originality/value This is the first published study that expands the scope on quality, embracinginteractions in the whole business relationship and two companies perceptions of their relationship.

Keywords Quality, Quality improvement, Customer service management,Business-to-business marketing

Paper type Case study

IntroductionThis paper seeks to explore relationship quality as a dyadic perceptual concept in abusiness-to-business relationship setting. Since, the early 1980s quality in terms of howconsumers perceive it has been at the core in service management studies (Gronroos, 1982;Parasuraman et al., 1988). Besides, service management and later relationshipmarketing (Gummesson, 1987; Storbacka et al., 1994; Liljander and Strandvik, 1995;Hennig-Thurau and Klee, 1997; Lang and Colgate, 2003), other streams of research havealso paid attention to quality in relationships, e.g. personal selling and sales management

The current issue and full text archive of this journal is available at

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IJSIM19,1

32

Received 30 January 2006Revised 2 February 2007Accepted 5 June 2007

International Journal of ServiceIndustry ManagementVol. 19 No. 1, 2008pp. 32-62q Emerald Group Publishing Limited0956-4233DOI 10.1108/09564230810855707

[email protected] - December 1, 2014 - Read articles at www.DeepDyve.com

(Crosby et al., 1990; Palmer and Bejou, 1994; Parsons, 2002), business-to-businessmarketing (Szmigin, 1993; Naude and Buttle, 2000; Ivens, 2004; Woo and Ennew, 2004),distribution channels (Kumar et al., 1995; Johnson, 1999), and international marketing(Lages et al., 2005).

Different antecedents of relationship quality have been examined such as salespersons characteristics (Crosby et al., 1990), relationship duration (Wray et al., 1994),relationship management (Smith, 1998), fairness (Kumar et al., 1995), IT channel use(Lang and Colgate, 2003) and various relationship functions (Walter et al., 2003; Ivens,2004). Of interest has additionally been how relationship quality affects share ofbusiness (Leuthesser, 1997) strategic integration (Johnson, 1999), customer retention(Hennig-Thurau and Klee, 1997; Hennig-Thurau, 2000), service quality (Woo andEnnew, 2004), offering quality (Leuthesser, 1997), profitability (Huntley, 2006), andsales effectiveness (Crosby et al., 1990; Wray et al., 1994).

Research problem and justification for the studyA large body of research has thus been devoted to the study of relationship quality indifferent business-to-business settings, providing useful insights as well as relevanttheoretical and managerial implications. Above all, different antecedents andconsequences have constituted relevant topics. However, comparing relationshipquality studies and their findings is not easy. The same constructs are used asantecedents and consequences as well as elements of relationship quality, and thedirectional link between relationship quality and other relationship concepts is unclear.It subsequently appears as if the relationship quality concept itself is still ratherunder-explored. Many researchers in fact assert this (Rosen and Suprenant, 1998; Naudeand Buttle, 2000; Hennig-Thurau, 2000; Hennig-Thurau et al., 2001; Walter et al., 2003;Woo and Ennew, 2004, Huntley, 2006): relationship quality as such still lacks a formalestablished definition and has received remarkably limited attention considering itssignificance as a key construct in the relationship paradigm within marketing.

On the one hand, previous relationship quality studies typically refer to the quality ofintangible aspects in a business relationship such as services and communication orsocial interactions in sales or customer service. Service management related studies aswell as others share this soft relationship element focus. On the other hand, similar toservice quality and relationship studies in general, relationship quality studiespredominantly apply the customers perspective. However, little attention has been paidto the nature of the quality of an entire business relationship, and this particularlypertains to business relationships where the perceptions of both parties in the dyad arerecognised. This paucity is remarkable not only from a scientific but also a businessperspective, and it needs immediate attention.

The present study is timely and relevant, in line with research in service managementand business-to-business marketing and also current business practice. For servicemanagement researchers the notion of perceived quality of the entire relationship isinteresting and relevant because of their growing interest in customer relationships.Transferring the notion of the perceived quality of a service to the perceived quality of abusiness relationship is natural because of fundamental similarities between servicesand relationships. Both are typically described in terms of having two counterparts,consisting of different processes, being mutual and the outcome of enacted interactionsrather than pre-determined actions, affected by time and change, and giving rise to

Business-to-business

relationship

33


different bonds and adjustments. With a different foundation, business-to-businessresearchers (Dwyer et al., 1987; Donaldson and OToole, 2000) have, on the other hand,developed conceptualisations and measures of what constitutes a good/strong or apoor/weak business relationship. Even if these studies are closely related to relationshipquality because they deal with evaluating relationships, quality as a construct is not atthe core. From a business perspective, yet again, management in any business istypically becoming more concerned with understanding and managing individualrelationships and the portfolios of relationships and, e.g. quality management andquality certificates are also increasingly incorporating relationship aspects. The qualityof relationships determines how the relationships develop, what the likelihood of itsending is, and what revenues, costs and profitability it incurs. Few companies can ignoreunderstanding relationships nowadays; the notion of relationship quality benefits theaspiration to remedy this.

Purpose and contribution of the studyAgainst this background, the aim of this research is to provide insights into quality ina business-to-business relationship setting. The objectives are to review relatedrelationship quality studies, to put forward first a definition and then a model ofperceived business-to-business relationship quality, and afterwards to illustrate anddeepen this model with empirical data from a typical business-to-business relationship.In the study the research tradition concerning service and relationship quality issynthesised with the stream of research on industrial relationships and networks thatis labelled the IMP approach (Hakansson, 1982; Hakansson and Snehota, 1995; Mollerand Wilson, 1995). The latter stream of studies has relevance for a wide variety ofindustry contexts, drawing on extensive empirical work and case studies for theorybuilding. It furthermore uses the whole business relationship as the unit of analysisand consequently supplements service management studies.

The new definition and model focus on a business-to-business setting and expandthe current scope on relationship quality to concern all kinds of interactions, not merelyintangible aspects or social interactions, taking place in the relationship between twofirms. The study additionally widens the scope of relationship quality as it, contraryto the current customer focus, is dyadic and takes both firms in the relationship intoaccount. The merging of the service management and IMP studies around the qualityissue will expand service quality models in the direction of relationships. This meansemploying insights and concepts from the IMP research to enrich the understanding ofperceived quality in line with the new focus, i.e. perceived quality from a relationshipperspective. In like manner, the introduction of the quality concept into a relationshipsetting will provide new insights into the management and evaluation of businessrelationships and as a result correspondingly enrich the IMP approach.

Outline of the paperThe first section of the paper offers, after examining current definitions, the newdefinition of perceived relationship quality (PRQ). The following section presents theempirical case study which was used to develop and illustrate the model. Thereafterthe new PRQ model and its main elements are first developed and then illustrated withthe case. The final section proposes contribution to research, research ideas, andimplications for managers.

IJSIM19,1

34


The notion of perceived relationship qualityPrevious studiesThe current study has its origin in service management where a strong focus oncustomer perceived quality has dominated the quality thinking. The early servicemanagement researchers had comparable definitions of quality which still todayvirtually all service management researchers share. Gronroos (1982) defined the qualityof a specified service as the outcome of an evaluation process, where the consumerscompare their expectations of the service with what they perceive they have received,resulting in the customer-perceived quality of the service. Lewis and Booms (1983)similarly defined it as a measure of how well the service delivered conforms tocustomers expectations on a consistent basis, and Parasuraman et al. (1985) viewed it asa global judgment or attitude that results from a comparison of customers expectationsand their perceptions of actual service performance. As for the content of theseperceptions, the most frequently used quality dimensions are: technical and functionalquality dimensions, as suggested by Gronroos (1982); and tangibles, reliability,responsiveness, assurance, empathy as suggested by Parasuraman et al. (1988).Regarding relationship quality on the other hand there is no commonly used definition,as shown in Table I, providing definitions of relationship quality in selected mainlybusiness-to-business studies.

The list shows that relationship quality as a construct has attracted attention forsome 20 years. Studies are regularly published on it, and it seems as if they willcontinue. The construct is thus indeed both significant and topical. Still, all in all itseems as if there are few conceptual and operational definitions of RQ in the literatureand a modest consensus on what dimensions constitute it. Hennig-Thurau (2000, p. 61)found the same, and contends that researchers may assume that everyone has somekind of intuitive understanding of what it involves and that therefore a sophisticateddiscussion is rare. Crosby et al.s (1990) study is clearly the seminal work sincevirtually all relationship-quality studies refer to it. This suggests that relationshipquality studies have adopted a salesperson-oriented approach stemming from a settingwhere reduction of customer uncertainty is the key. Furthermore, it is apparent thatinstead of defining or developing the relationship quality construct it has been treatedas a higher-order construct consisting of several first-order constructs, of whichsatisfaction (with the salesperson), commitment, and trust are the most common. Theseconstructs have in turn been used to quantitatively measure relationship qualitytogether with one or several antecedents or consequences. Moreover, the surveys havetypically been conducted among purchasing managers in fairly large companies inseveral lines of business. The customers perspective has nearly without exception(Lages et al., 2005) been in focus.

A new definition of perceived relationship qualityThe current study employs a different approach and transfers the perceived-servicequality definition to a business relationship setting and formulates the followingdyadic definition of PRQ:

Perceived relationship quality is the joint cognitive evaluation of business interactions bysignificant individuals in both firms in the dyad. The evaluation encompasses a comparisonof experienced with desired, potential, usual or previous interactions which constitutecomparison standards.


relationship

35


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Table I.Earlier relationshipquality studies

IJSIM19,1

36


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Table I.


relationship

37


Stu

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isti

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rela

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lati

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st,

com

mit

men

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am

ult

i-d

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of:

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mm

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st,

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lati

onsh

ipq

ual

ity

has

ad

irec

tan

dp

osit

ive

imp

act

onse

rvic

eq

ual

ity

RQ

isa

hig

her

-ord

erco

nst

ruct

ofco

oper

atio

n,

adap

tati

on,

and

atm

osp

her

e,as

per

ceiv

edb

yth

ecu

stom

er

Lag

esetal.

(200

5)D

evel

ops

and

test

sa

new

mea

sure

men

tsc

ale

(th

eR

EL

QU

AL

scal

e)to

asse

ssth

ed

egre

eof

rela

tion

ship

qu

alit

yb

etw

een

the

exp

orti

ng

firm

and

the

imp

orte

r

RQ

isse

enas

ah

igh

er-o

rder

con

stru

ctm

ade

ofse

ver

ald

isti

nct

,al

thou

gh

rela

ted

dim

ensi

ons:

inte

nsi

tyof

info

rmat

ion

shar

ing

,co

mm

un

icat

ion

qu

alit

y,

lon

g-t

erm

orie

nta

tion

and

sati

sfac

tion

wit

hth

ere

lati

onsh

ipb

etw

een

the

exp

orte

ran

dim

por

ter.

Th

ese

ller

asse

sses

RQ

Hu

ntl

ey(2

006)

Ind

uct

ivel

yco

nce

ptu

alis

esR

Q,

and

qu

anti

tati

vel

ym

easu

res

and

lin

ks

itto

pro

fita

bil

ity

RQ

isd

efin

edas

:t

he

deg

ree

tow

hic

hb

uy

ers

are

sati

sfied

over

tim

ew

ith

the

over

all

rela

tion

ship

asm

anif

este

din

pro

du

ctq

ual

ity

,ser

vic

eq

ual

ity

,an

dp

rice

pai

dfo

rth

ev

alu

ere

ceiv

edan

dth

ed

egre

eto

wh

ich

the

rela

tion

ship

fun

ctio

ns

asa

par

tner

ship

(p

.4)

Table I.

IJSIM19,1

38


This definition of PRQ is based on fundamentals of perceived service qualityconceptualisations, taking into account the specific characteristics of businessrelationships. In line with previous quality definitions based on perceptions in arelationship setting (Parasuraman et al., 1994; Liljander and Strandvik, 1995;Hennig-Thurau and Klee, 1997; Smith, 1998; Jarvelin, 2001; Huntley, 2006), the newdefinition is based on cognitive judgement and founded on a disconfirmationparadigm. Compared to most relationship quality conceptualisations, PRQ here doesnot, however, concern merely perceptions of intangible aspects or social interactionsbut encompasses perceptions of the entire relationship seen as an offering reflectingtwo companies interlinked production processes. Furthermore, in contrast to previousdefinitions, the suggested definition is dyadic, meaning that both companies, notmerely the customer, are significant for quality perceptions in their relationship.Another difference is that the definition specifies that it is not merely one person thatrepresents the business relationship but several such persons. Significant individualscomprise those persons who are important either because of their position or because oftheir influence on the relationship. This notion is new in relationship qualitydefinitions, but the idea is based on the well-documented notion of several personsfrom different functions and with different roles being part of a business-to-businessrelationship.

The empirical case studyThe case in the studyThe present study aims at theory building and goes beyond existing models in order todevelop a new model, by which is meant a tool for understanding a phenomenon ratherthan a set of interrelated propositions that are testable and explain a phenomenon.In the abductive process to achieve this service quality, models and studies togetherwith IMP studies were used and further combined with empirical insights in aniterative manner. The model thus represents new insights but is based on solidtheoretical and empirical grounds. Its empirical grounding is further enhanced by thefact that existing models are also based on empirical studies. Case studies andqualitative data are considered appropriate for concept development and theorygeneration (Gummesson, 1988; Coffey and Atkinson, 1996). A case study approach isparticularly usable in this study since it unveils specifics and details as well as viewingthe phenomenon as a complex system.

In this study, a case refers to a dyad, i.e. a relationship between two firms. A singlecase approach is considered as a viable strategy if great care is taken in the choice ofthe case and the data generation and analysis. One dyad was chosen which can becharacterised as instrumental (Stake, 1994, p. 243). The chosen case can be consideredto be a typical representative business-to-business relationship and therefore suitable.This means that the case in itself is of secondary interest; instead it is theoreticallyrepresentative and explanatory and plays a supportive role in facilitating theunderstanding of the phenomenon. The value and possibility to generalise are based onbeing capable of revealing general mechanisms that are expected to exist also in othersituations, and this does not depend on the number of cases. The case contributed intwo ways. Together, with an earlier pilot study, it first provided insights fordeveloping the model, and, then, offered empirical correspondence of the modelselements. This is a fruitful way to make use of empirical data in an abductive study.


relationship

39


Relative to the purpose of the study and based on the care given to case choice and thenature and number of empirical insights it is argued that the case is suitable and richenough to provide one of the bases for model development. More information on howthe case influenced the development of the model is provided in the model descriptionand research contribution.

There were many reasons why the chosen dyad was appropriate in thistheory-generating study. First, it was a typical industrial relationship in terms ofoperations; the firms and products concerned were not too complex; and the number ofinvolved individuals was reasonable. Second, the dyad was two years old when thedata generation took place: rich enough to reveal diversified aspects and situationswith informants still able to remember what had happened from the beginning anddocuments still available. Third, significant individuals in both firms were interestedin and willing to participate in the study. Fourth, access was facilitated by thegeographical closeness of the firms. Fifth, it was also important that the dyad was anactive, not dormant, relationship with ongoing business interactions. Sixth, therelationship was voluntary and both firms were able to terminate it when necessary.The two last aspects were important to ensure that a diversified picture of perceptionsin a relationship setting was obtained.

Empirical dataPersonal interviews were the most relevant data source because the focus was onperceptions. An issue related to this is how the data were generated as informants wereasked to recall the relationship as they experienced it, both in real-time and inretrospect. The relationship was thus studied as experienced and as reflecting theperceptions of the involved individuals, which is the basis for studying quality in termsof perceived quality. However, it was also important to be able to visit the firms and touse secondary data such as different quality manuals and materials and productbrochures. These complementary sources of empirical insights enabled me to get amore diverse picture of the companies and their products and ways of operating. Theysupported the informants information and my impression that the companies strivedto be customer-oriented and that customer service and service elements wereimportant. That I obtained this access also shows that the companies were open andhonest providing all kinds of information that could benefit the study. In the studiedcase, the firms managing directors were key informants, because they represented keyindividuals in the dyad and were the main owners and decision makers in each firm.They provided names and positions of other persons who were involved in the dyadand everyone involved agreed to share their views. Anonymity was also used in orderto improve access and generate more data.

Interview guides were used as checklists and to encourage significant issues, andstress was laid on getting examples as they activate new issues and illustrate andclarify general issues. The main topic categories were: information about the informantand the company; company quality management and priorities; customer and suppliermanagement; quality management changes; quality problems and for the studieddyad: background information, business content, joint tasks, development, andproblems, with an emphasis on obtaining examples illustrating the answers. Besides,explaining the nature of the study to each informant I also described the role and use ofinsights from the companies. Every informant agreed to the use of a tape recorder

IJSIM19,1

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during the interviews, which was a condition for retrieving the interviews for analysis.I conducted and transcribed all of the interviews myself, and they lasted betweenhalf-an-hour and 4 hours, on average about 2 hours, resulting in transcribed interviewsfrom each discussion of 15-50 pages, on average 35 pages. I aimed to be systematic andthorough throughout the study and kept a diary and wrote notes and observations in it,also during the interviews. The sellers managing director was interviewed on threeoccasions, for 6 hours in total, the production manager once for three and one halfhours, and the shift manager once for three hours. The buying companys managingdirectors was interviewed five times for 9 hours, the operative manager once for 4hours, and the sales manager once for 2 hours. The transcribed interviews were sent tothe informants, and follow-up telephone interviews were also used to some extent.During the subsequent occasion, the previous interview as well as new issues anddevelopments were discussed, and clarifications and additions to previous interviewswere made to increase the trustworthiness and density of the results.

The understanding of perceived quality was developed in stages and refined in aniterative process between literature studies and empirical data analysis. The empiricaldata were coded and re-coded several times in order to reflect the refined theoreticalconceptualisation. In addition, the theoretical conceptualisation, in turn, was furtherdeveloped in accordance with the reinterpreted empirical findings. Developing andfinding elements of content of quality dimensions was one way of analysing the data;another was discovering aspects of quality perceptions in the chosen setting.Analysing implied reading and interpreting the raw empirical data several times, andidentifying and coding excerpts based on previous quality and relationship models andthe new emerging model. The emerging excerpt categories constituted the raw materialproviding the details and illustrations that will be shown below.

Service elements in the studied caseEven if ideas inherent in service management are and should be applicable to anysetting (Gronroos, 1993) most of its research has taken place in the context oftraditional consumer service businesses, such as travel, financial services, etc. This isprobably because the focus has been on discrete service encounters which are easilyexamined in these businesses, and because in these businesses service elements suchas customer service and personal contacts provide a natural and established way ofcompeting. This has allowed service researchers to focus on characteristics thatdistinguish services from tangible products, but it neglects many business contexts inwhich services also play a significant role. The two companies in the current studyrepresent such industries and would normally be called product or manufacturingcompanies, a re-seller of ergonomic office equipment to business customers and amanufacturer of metal-moulded products and components.

Nevertheless, from a relationship perspective both of them rely heavily on variousservice elements. This is how they said that they view and manage their own businessas well; much of their opportunity for differentiation arises from service elements andthey are what customers and others expect. Thus, a focus on the characteristics of theproduct is not enough, certainly not if the aim is long-term business relationships. It isin fact difficult to draw the line between what constitutes the product/manufacturingbusiness and what is part of services, and even more difficult to determine which partis more important. For them and other companies making customer-specific


relationship

41


adjustments in products and processes and, for instance, participating in joint productdevelopment, being open and sharing ideas, socialising to some extent outside businesshours, and offering after-sales service, repair services, technical support, preventivemaintenance and flexible delivery schedules are part of normal business. Also, it is notonly a matter of what is done in the business with others but also at least as much ofhow the business is done. The situation for the two studied companies thereforecorresponds to how many similar companies in traditional product and manufacturingmarkets work nowadays, trying to become customer oriented and considering serviceas a natural part of their business.

The perceived relationship quality (PRQ) modelService management and IMP conceptualisations supplement each other and can becombined to develop a PRQ model in a business-to-business relationship setting. Usingadditional disciplines would have posed the requirement of being combinable withservice management and the IMP approach, and if that was fulfilled it couldunreasonably have increased the complexity of the model. To replace one of them ordraw on other marketing disciplines would have needed a different emphasis for thestudy. Service management and the IMP approach have much in common and areeasily combined in order to conceptualise quality in a business relationship setting.The two marketing disciplines are well established and based on extensive empiricalresearch. They endorse theory-generating studies, and they share several fundamentalideas such as an emphasis on processes, interactions, and human/social aspects. Theirresearch foci augment each other and can be merged.

The core and starting point for the new model is the perceived quality notion fromservice management; quality is a cognitive process where individuals compareexperienced performance with different kinds of expectations. The tolerance zone andcritical incident notions are also borrowed from service management as relevant forquality perceptions in the business-to-business relationship setting. As for the contentof quality perceptions, service management needs to be supplemented with insightsinto long-term business-to-business relationships. These conceptualisations can befound in the IMP approach which is used to extend process insights from an originalencounter-type service to a whole long-term business-to-business relationship. In linewith many IMP-related models, the new model is furthermore dyadic, and itdistinguishes between individual and company-level elements, and incorporatesdirectly and indirectly linked surrounding companies.

Figure 1 shows the new PRQ model which was developed in an abductive manner(Stake, 1994; Coffey and Atkinson, 1996; Gadde and Dubois, 2002) using empirical datatogether with service quality models and IMP studies. The model is an entity,denser and more encompassing in comparison to many current perceived servicequality models and lists. It combines a detailed analysis of the content of qualitydimensions with different aspects of perceptions in a dyadic business relationshipsetting and also depicts the connectedness of the focal firms to the surroundingnetwork. It is a structural model that specifies key elements of relationship qualityrather than explaining the development of relationship quality over time. The modelskey elements are here denoted in italics, and will in the next section be illustrated withempirical data.

IJSIM19,1

42


A significant feature of the model is the fact that it is dyadic. Perceptions may differbetween individuals (in the figure octagons illustrate that three individuals denoted A,B, C, D, E, and F in each company represent the relationship) and this can be capturedwith span of perception, which refers to differing width and depth of perception. Unitof perception in comparison means that perceptions can be analysed on different levels:individual, company, and dyad, for example. PRQ reflects firms experiences ofinteractions in a relationship relative to their reference points, labelled comparisonstandards (Liljander and Strandvik, 1995, 1996). Included in the experience notion isalso variation; that some interactions are critical (Flanagan, 1954), while others areroutine and absorbed in the stream of interactions constituting the relationship.

Having a dyadic perspective is not common in service quality studies which focusmore or less solely on how the consumer/buyer perceives the sellers service with theultimate aim for the selling counterpart to improve its to-the-customer visibleoperations and thereby increase customer loyalty and profitability. For a businessrelationship on the other hand it is not equally easy to draw the line between the twocompanies and their input and roles; instead it reflects the abilities, actions andintention of two often more balanced counterparts. Each sides view can indeed byitself be used to get a picture of PRQ, but the use of a dyadic perspective including thesellers and the buyers perceptions of their relationship results in a morecomprehensive depiction. Experiences, comparison standards or expectations, andthe notion of critical incidents are equally fundamental constructs in this model sincethey are perceived as service conceptualisations. Span and unit of perception on theother hand are new, resulting from analysing the empirical data and researchingcompanies and relationships instead of consumers. In service quality studies the issueof different width and depth of perceptions has not been raised.

Figure 1.The PRQ model

Firm A Firm B

Firm E Firm F Firm G Firm H

Firm C Firm D

Seller

Pers

on C

Pers

on B

Pers

on A

Pers

on D

Pers

on E

Pers

on F

Buyer

Com

paris

onst

anda

rds

Perc

eived

qual

ity

Expe

rienc

es

Com

paris

onst

anda

rds

Perc

eived

qual

ityEx

perie

nces

Process domain Outcome domain

Technical

Social

Economic

Relationship

Sequence Sequence

Episode Episode Episode

dimension

dimension

dimension

A A A A A A A A


relationship

43


The content of perceptions is a key element, and perceptions of a relationship are basedon the interactions taking place in the relationship. Two central conceptualisations in themodel for analysing this are: the cross-combination of quality dimensions with domains,and the hierarchical level categorisation of interaction. Typical quality dimensions as usedservice management (Gronroos, 1982; Parasuraman et al., 1988) were consideredinsufficient and too focused on customers interface with employees. The qualitydimensions were developed based on empirical insights and on how interactions inbusiness relationships are categorised in the IMP approach, namely, products, socialcontacts, money, or information (Hakansson, 1982), where the latter is considered asembedded in products and social contacts. The model suggests that, from a relationshipand dynamic point of view, perceptions may concern both the process and outcomeaspects of the interactions in the relationship. The model suggests that these are calleddomains where quality can emerge, and they represent one way of modelling quality in arelationship. The quality domains can be combined with different types of content ofquality. These are referred to as quality dimensions and constitute the technical, social andeconomic dimension. The technical dimension refers to the core offering in therelationship, while perceptions of social and financial issues constitute the social andeconomic dimension, respectively. This means that relationship quality consists of howdifferent processes and outcomes of a technical, social and economic nature are perceived.

In line with recent literature emphasising that the core competence in firms residesin their processes, the new model therefore highlights the significance of processes inrelationships. As for content of quality perceptions, the model encompasses a newdimension compared to current service quality models, the economic dimension.Economic aspects become important when the focus is shifted from evaluatingofferings to evaluating the whole business relationship. The model goes beyondcurrent studies on quality, focusing on service and social interactions. In addition,compared to current service quality models where the technical dimension refers to theresult of the service, this model views the technical dimension as pertaining to theoffering at the core of the relationship. Besides, economic issues and the core offering,social contacts constitute another type of interaction, which formed the third qualitydimension, the social dimension. Despite focusing on different types of social aspects,both the interaction and network approach and service quality studies emphasise theirsignificance in a relationship setting.

Whether interactions constitute aspects of a process or of an outcome depends onwhich interaction level is examined. By structuring interactions on the basis of theirinterconnectedness, interactions in business relationships can be identified on differenthierarchical levels (Holmlund, 2004). In this categorisation, interactions are configuredon four different aggregation levels, namely actions, episodes, sequences, andrelationships. These are hierarchical levels that range from a single individualexchange to an entire relationship of one particular firm. Lower levels are embedded inand part of the higher levels, and a lower level of analysis implies a short timeperspective on the interactions. Both lower and higher levels influence perceptions ofinteractions on a particular level. The categorisation is based on previous research, butcame to light only by combining the two bodies of literature and empirical findings.It is in line with earlier research concerning the importance of certain episodes, orcritical incidents, and with observations of relationships being sustained in spite ofoccasional poor quality.

IJSIM19,1

44


An additional feature of the model is that it considers the dyads context in thatother firms directly (companies E, F, G, and H) and indirectly (companies B and C)through intermediaries (companies A and D) affect perceptions of the focalrelationship. These aspects were derived from the IMP approach, which focuses onunderstanding this particular issue, i.e. how firms are connected to each other in anetwork setting. In comparison with how quality is understood in service management,it implies a wider scope in this approach because it encompasses the setting of theparties. In other words, this means that not only the two focal counterparts but alsoother firms in the surrounding network impact quality perceptions in a dyad.

Empirical illustration of the PRQ modelThe PRQ models key elements are next illustrated with: unit and span of perception,including experiences and comparison standards; variation in interactions; differentquality dimensions and domains; interaction levels; and finally a dyadic relationshipquality analysis. The quality domains are not illustrated separately but used to analyseeach of the quality dimensions. The names of the companies have been altered toensure anonymity, and were constructed by abbreviating and combining the firmsposition in the dyad and product. The buyer in the dyad is, hence, labelled BuyOff(buyer office equipment), and the seller is labelled SelMet (seller moulded metalcomponents).

Unit and span of perception, and comparison standardsWhen conducting research on companies, the issue of how to aggregate severalperceptions on the individual level into the company level perception implies, asalways, a number of challenges. This study refers to the aggregation issue as unit ofperception, and suggests that perceptions are studied, except for group interviews andother team-based data collection methods, primarily on the individual level. Thereafterit is a matter of aggregation how the company and dyad-level perceptions are formed.This can involve adding and complementing views, but in the event that views differ,which they often do, the perception of the person who has the power to make vitaldecisions in the firm regarding the relationship outweighs the others perceptions. Theperceptions of each studied company were complementary and non-conflicting but,had the issue arisen, these persons would have been the two managing directors.

The study furthermore highlights that span of perception may differ betweenpersons so that the individual who is likely to have the widest span is the managingdirector while individuals in specialised functions have perceptions primarily relatedto the particular function that they are involved in. This emerged in the case: the spanof perception was narrower on lower levels in the firms as the nature of working tasksbecame more operational and the extent of contact decreased. Both managing directorshad been involved in the relationship from the beginning. In fact, they stated that theyhad been involved in 90 per cent of the contacts in the beginning, and that it hadgradually decreased to about 10 per cent, after the production of the productshad started and the majority of the contacts had shifted to SelMets production shiftmanagers and BuyOffs operative manager. During periods when there were nodisruptions or delays, these two persons were basically the only two involved in therelationship focusing on delivery-related issues. However, both managing directorswere still involved in relationship-maintaining tasks such as problem correction,


relationship

45


product design, supplier selection, and contract negotiations. A differing span ofperception was not an especially highlighted issue, because both firms were rathersmall-sized, informal and decentralised, and the informants seemed well aware ofdifferent aspects related to the relationship, including those that they were notpersonally concerned with.

The analysis revealed that comparison standards were used and were vital for how thefirms perceived the relationship and that both firms used multiple and different types ofcomparison standards. That things should be done right the first time and that disruptionsshould be eliminated illustrates ideal-like standards since they can be interpreted asfeasible under ideal circumstances. Industry standards represent standards which reflectwhat the firm perceives as general market norms. Price issues in particular seemedto be evaluated in terms of how they compare with those of alternative suppliers.Experience-based standards in turn imply that the firms use their experience from theparticular relationship when they make evaluations of it, and these were amply used, forexample concerning how problems usually are corrected and products delivered in therelationship. The fourth type of standard is predictive and reflects expectations on futureinteractions. They may reflect key criteria for initiating the relationship which BuyOff hadwhen selecting a supplier: it had to be a firm that manufactures half-made products or thewhole package from the beginning to the end, and have the capacity issue, own personnel,machinery, know-how, and ideas in their area.

Variations in interactionsThere were certain incidents that the informants recalled more easily than others. Thissupports the notion that interactions vary and perceptions of a relationship are based onboth routine and critical incidents. Perceptions on the relationship level were, however,not immediately affected since the firms were found to have a wide tolerance zone;everyone is allowed and even expected to make occasional mistakes. Examples ofnegative incidents concerned, for example, how the other party without priornotification had changed a drawing, and how a prototype had flopped. Manufacturingand delivery seemed to cause a great number of potential problems and subsequentcritical incidents. Their importance and the buyers sensitivity to them may be related tothe type of offering which is heavily dependent on production and delivery timeschedules. Positive incidents in turn concerned, e.g. a successful recovery process and aprompt response occasion. Interaction variations seemed to be a matter of how variationis managed and, for example, of how long a variation is allowed to continue, howcomplaints are handled, and how compensations are made. It was evident that the firmstolerance for variation decreased and their sensitivity increased when otherrelationships could be affected, or the firms general operation was severely affected.

The technical dimension of relationship qualityThe studied dyad was a typical industrial relationship in which the emphasis is onproduct modification and manufacturing. Innovativeness and being able to makeadjustments, in addition to being reliable, were therefore important. BuyOff and SelMetdivided and carried out different tasks, and other firms participated in the designprocess. This process consisted of planning, choosing, preparing and modifyingmaterials, components, tools and prototypes. Different specifications, sketches,drawings and documents were made, and trial series were produced. BuyOff and

IJSIM19,1

46


SelMet shared many responsibilities pertaining to generating ideas and production,such as choosing subcontractors and raw materials. SelMet was responsible fordocumentation, manufacturing, assembling, packing, inspecting and storing theproducts, whereas BuyOff was responsible for transports. The planning andadjustment of tools, production, production series and capacity were importantaspects. SelMet did not have a quality certificate, but they had a quality handbook andmanual, and their employees had received quality training. Delays in production anddeliveries occurred and were often caused by late deliveries from third parties. Also,difficulties in forecasting the demand and thus in planning production series causedoccasional disruptions. It was relevant to repair the products because they were sold toend-customers. Defaulted products were replaced. The recovery process was thushighly relevant. Personal supervision to avoid delays and problems as well asflexibility and the rapid handling of problems were mentioned.

The technical outcome, which in this dyad refers to features of the manufacturedproducts, was explained with different aspects of reliability, innovation, conformance,aesthetics, and endurability. The reliability of the products was described in terms ofthe importance of developing functional products that the end-customers need andappreciate, while conformance referred to the significance of meeting technicalspecifications and producing defect-free products. Innovation and exterior features ofthe products were emphasised, and patents were not considered important because ofthe continuous modifications, which quickly make patents obsolete.

The social dimension of relationship qualityAlthough the firms had regular contact, the contact surface was rather narrow.It comprised basically two persons in BuyOff and three persons in SelMet who hadbeen involved in the relationship, and this, in turn, was considered to make therelationship vulnerable. On the other hand, the owners and hence key decision-makersin each firm were two of these significant persons in the dyad. The contact patternvaried: they had weekly contacts, but if disruptions occurred, then the contacts becamevery intensive.

As for social aspects on the individual level, personal qualities reflected in honestyand courtesy, and the need to be dependable and positive were emphasised by thestudied firms. Aspects of pleasure, such as socialising, informality, having fun andbeing friends, were also identifiable. The firms did not have a contract; however, bothfirms pointed out that common interest and duties need to be clarified in order toachieve smooth interactions. Congeniality in contacts was considered vital by thefirms, and many aspects were therefore found that represent smooth interactions: forexample, unexpected effort, waiting time, smooth communication, responsiveness,access, empathy, conflict solving, and flexibility.

Trust on a company level was also identifiable in the empirical data of both firms.The perceptions of the contacts with SelMets managing director were especiallypositive, and he, in turn, also expressed positive views of BuyOff. As he, to a greatextent, represented the selling firm, congeniality, attraction and trust on the companylevel were interpreted as fairly strong. Although there had been some problems in thebeginning that had needed clarification as well as a few conflicts, both firms hadconfidence in each other. This faith encompassed the future and, thus by definition, itreflects trust, a fundamental feature of a long-term relationship.


relationship

47


The interpreting of empirical data and distinguishing between, for example, aspects ofattraction and those of trust are difficult. In this study, more general aspects concerningcompany type, interpersonal appeal, atmosphere and reputation were interpreted asaspects of attraction at company level. Trust on the company level, in turn, was reflectedin, e.g. a low need for written documents, past successful experience, faith, honesty, andgeneral reliability. The third company-level outcome of social interactions, i.e. inter-firmcohesion, was illustrated with width of contact surface, hierarchical levels involved, andcontact style.

The economic dimension of relationship qualityHow process and outcome aspects of the economic dimension in a relationship areseparated depends on the chosen level of analysis. Perceptions of pricing, costs andproductivity can be interpreted from a dynamic perspective as reflections of differenteconomic processes, but may also be considered as different types of relationshipbenefits and costs. In the studied dyad, raw material, wages, production developmentand design, CAD planning, tools, inventory and transportation represent different costtypes and hence direct relationship costs. In addition, the use of subcontractors, forexample, to design and paint the products reflected another product-related cost type.Closely related to costing is the issue of productivity. Since, manufacturing was central,most aspects of productivity concerned the reduction of manufacturing costs.

Pricing was illustrated with different aspects of how prices were calculated andnegotiated. Despite the fact that the studied firms did not have contracts, they usuallymade written cost calculations. In addition, they had a price list stipulating terms ofprices and deliveries. As the price list was valid for one year and the increased pricelevel of raw material and wages usually fell outside the price interval during that time,annual negotiations were used to set prices. The common result was to increase theprice still during these negotiations, once the price had been dropped to maintain theend-product price level. The prices and terms of new products and for productmodifications were also determined in negotiations.

The analysis of economic benefits from the relationship contained many aspectsthat relate to the end-market of the products. The competitiveness of the product pricewas evaluated against the price level on the domestic and foreign end-market and howit changed relative to these. Volume, in turn, was described with aspects of end-productdemand, present and future potential volume, volume development and turnover. Endproduct dumping, financial prerequisites, and profit sharing were considered aspectsof how the firms perceived the profit margin. Compared to the productivity category inthe process domain, which was illustrated with various ways of affecting productivityfrom a process perspective, the benefit category of productivity enhancement wassummarised with cost reduction which incorporates improved production efficiencyand decreased inventory circulation.

The empirical data revealed four aspects that were interpreted as latent relationshiprewards which are the opposite of the notion of relationship burdens proposed byHakansson and Snehota (1995). One concerned positive stickiness and referred to theinfluence of the end-market, which was considered to be stable and have futurepotential. Another concerned determinedness and was the result of task division andjoint purchasing, whereby actions were directed in a way that led to economicrelationship benefits for both firms. Another statement of determinedness in the

IJSIM19,1

48


studied relationship concerned tool utilisation, because the lifetime of tools used waslong. Also, as the studied firms did not consider initial investment to be substantial,resource commitment of production equipment was perceived in a positive manner.

The other outcome category of economic issues refers to relationship costs whichrefer to costs that arise directly from the relationship. Different quality failure costswere also revealed and considered substantial even if the firms did not have anycalculations on them. Aspects of quality failure costs identified in the empirical dataincluded, for example, scrap, over-time, worrying, repair, reproduction, and uncleardivision of the responsibility for these issues. Indirect relationship costs were alsoidentifiable. These concerned handling end-customer complaints and delayed receipt ofpayment because of complaints. BuyOff intended to hire an assistant for general tasks,which can be assumed to be the result of the need to spend more time withcounterparts. Capital costs and organisational cost efficiency can also be consideredaspects of indirect relationship cost. Another aspect referred to temporal projects thatwere mentioned as a means to develop manufacturing both in general and inconnection with products.

Latent relationship costs, in turn, were reflected in, for example, the product thathad been notably delayed in the design process. This was interpreted as an example ofun-determinedness and misdirected actions, because the delay resulted in lostopportunities, as the interest in the particular product on the end-product market wasconsiderable. Idleness and unclear task division were other aspects ofun-determinedness. Resource commitment on the other hand was illustrated withinitial uncertainty and the need to invest in inventory facilities. How control may belost was illustrated with aspects of how suppliers have to be prepared to makeadjustments in production.

A summary of the quality dimensions and domains in the studied dyadFigure 2 summarises the content of quality perceptions in the studied dyad by using thesuggested two quality perception types: quality dimensions and quality domains. Thetechnical dimension consists of both the core interaction process and the outcome, i.e. theresult of that process. Hence, technical does not refer to merely materialistic andtechnical issues, but more generally to the offering in the value creation process, i.e. thebasis for the two companies doing business with each other. In fact, the term technicalmay be misleading, but it is used because it has been used in service quality studies todenote the corresponding core of exchange. The second dimension, i.e. the social, refersto human interactions; their importance is heavily stressed in both service managementliterature and in the IMP approach. Many studies show that constructs concerning socialinteractions are interrelated. The third dimension, which is the economic dimension, isnew to perceived quality models. This dimension has been included because economicissues are vital in a business relationship and a part of how the quality of it is perceived.In this study, the term economic dimension has been chosen instead of financialdimension, because it is used in both service quality models and the IMP approach.

Interaction levelsThe informants provided information that reflected different types of interaction,which resulted in a new notion of different interaction levels as proposed in the PRQmodel. Although not systematically generated on different levels, the empirical data


relationship

49


Figure 2.Content of qualitydimensions and domainsin the studied dyad

Process Domain Outcome Domain

TechnicalDimension

concerns the offering atthe core in the

relationship consisting oftangibles and intangibles

The composition process typesin the relationship where theoffering is composed:DesignProductionInventoryDeliveryRecovery

each of them characterised by:ReliabilityInnovativenessUse of competenceSpeedUse of physical resourcesFlexibilitySecurity

The technical composition as thetechnical outcome of the compositionprocesses in terms of:ReliabilityInnovationConformanceAestheticsEndurability

SocialDimension

concerns the socialinteraction on the

individual and companylevel.

The social interaction processtaking place over time in therelationship in terms of:AppealTrustAcquaintanceRespectCongenialityPleasure

The result of social interactions,on the individual level:AppealTrustAcquaintanceRespectCongenialityPleasure

on the company level:Inter-firm cohesionAttractionTrust

EconomicDimension

concerns the economicbenefits and costs of the

relationship.

Running economic issues inthe relationship:PricingCostingProductivity

The results of the economicprocesses,Relationship benefits:Competitive price levelVolumeProfit marginProductivity enhancementLatent relationship rewards

Relationship costs:Direct relationship costsIndirect relationship costsLatent relationship costs

IJSIM19,1

50


contained examples of perceptions pertaining to interaction with a different time span.That one of the firms thought that they were not tied to each other represents aperception on the relationship level. An example of how a relationship-level perceptionimpacted a narrower interaction type was that having a relationship affected thedevelopment of new products, as it was considered to improve the prerequisites andincrease expectations. Compared to a perception that concerns the entire relationship, aperception on the sequence level represents another type, concerning interactions thatare more limited in scope, and with regard to a natural entity, which the firms evaluatewithin the relationship. In the studied relationship a natural entity was a productwhich was represented with different versions which slightly differed from each otherin terms of technical features. Most of the data concerned the product which had beenin production since the relationship started. Empirical statements about this productseemed to constitute a set of perceptions which formed a natural entity and whichcould be distinguished from the perceptions of the second product. That products canbe considered sequences in this particular case can be attributed to both the nature ofthe offering and the types of firms studied. The offering concerned was an end product,which was relatively easy to evaluate. Products were significant to both firms: BuyOffwanted competitive products to sell to end-customers, and SelMet was a traditionalmanufacturing-oriented supplier to whom products were the main focus.

Products were the core of the studied relationship. The tools were expensive andbecause of this it was important that the products stayed in production long enough tomake the tool investment pay off. Tools therefore simultaneously defined a naturalentity, i.e. a product, within the relationship. The end of a sequence also defines avulnerable point in time for the whole relationship; a new product may imply that thesupplier is replaced. This illustrates a type of time-framed commitment anchored inproducts instead of being the traditional general relationship-level type ofcommitment. However, supplier changes were not considered for existing productsbut, regarding the future, new products may imply changes. Because the first productdeveloped together with SelMet was in a high demand on the end market, BuyOffconsidered the relationship as important. This illustrates how perception on thesequence level influences perception on the relationship level.

A sequence is thus an entity that is more limited in scope than the relationship. Within asequence, perceptions could be identified that concerned, for example, a price negotiation,design process and recovery process, which were interpreted as episodes. The parties canevaluate a price negotiation, for instance, in terms of both how the price discussions go andthe outcome of that process, such as terms in a price list. Episodes had also impacted asequence, since being unable to reach an agreement on price had postponed new products.Delays had similarly in the design stage postponed a product, an example of howepisode-level aspects affect sequence-level aspects. The smallest element of therelationship, namely the action-level aspects, was illustrated for instance withperceptions of individual contacts, and how these had facilitated, for instance, design.

A dyadic analysis of relationship qualityThis study uses a dyadic approach which means that both counterparts views are relevant.Even though dyadic studies are quite common, especially in the IMP approach, there doesnot at the present exist a way in which to effectively analyse and illustrate this. This studytherefore developed a configuration map (Holmlund and Strandvik, 1999) that shows the


relationship

51


combination of two parties paired perceptions. The perceptions of the buyer and the sellerare depicted in the map on the horizontal and vertical axes, respectively, which representthe relative perception frame of each firm. For quality perceptions in a qualitative study it iscommon and appropriate to use a scale of positive ( ), neutral (0), negative (2 ). No data as acategory are added lest views from both sides on a particular aspect do not exit. The mapstructures perceptions and reveals the nature and spread of paired quality perceptions. Incontrast to previous studies that usually assume that two companies have concordantviews of their relationship, the map allows conflicting views in the dyad to be revealed anddescribed. Another feature of the map is the possibility to describe indifference zones,where one or both parties are neutral and perceive this as normal and acceptable.

BuyOffs and SelMets perceptions of the three quality dimensions and two qualitydomains were interpreted according to whether they were positive, negative or neutral,and thereafter matched on the dyad level. Perceptions were interpreted based on how theinformants described what was going on in the relationship and the spontaneousevaluations they made of their business. Descriptions and evaluations of negative andpositive critical incidents also affected the interpretation. Describing in detail how eachaspect was evaluated is outside the scope of this paper, but it can be concluded that thecompanies seemed to relate and compare the performance in the dyad with differentcomparison standards (see section below). The result is shown in the configuration map inTable II which contains sixteen cells categorising and configuring the two firmsperceptions.

Some sub-types of processes and outcomes appear in several cells, becauseperceptions of aspects within them differed. Another reason for assigning aspects inseveral cells was that many aspects had improved over time, such as keepingtimetables and generating ideas. In addition to aspects issues that both firms evaluatedand had positive, neutral or negative perceptions of, the analysis also revealed thatsome issues were firm specific. For example, SelMet described more aspects ofproduction than BuyOff did, while BuyOff on the other hand focused more on theproducts and their features. As the processes and outcomes contain many several typesand features, and as perceptions of these tend to differ, each process type and outcomehas been interpreted and assigned to several cells.

Design and manufacturing were at the core and they contained many aspects, ofwhich some, e.g. idea generation and adjustable specifications, were perceived as goodby both firms. Also, despite some initial problems, both companies perceived recoveryas good. One of BuyOffs concerns was therefore the assurance of defect-free andinnovative products. It was therefore mainly BuyOff that made evaluations of theproducts features, and these were mostly positive. Achieving defect-free andinnovative products was so essential that BuyOff would seriously have questioned thecontinuation of the relationship if the technical outcome in the relationship had not metwith the end-customers approval. This illustrates how third parties have an impact onhow quality is perceived in the focal relationship. Several technical aspects wereconsidered as rather neutral, which meant that they were not considered as particularlygood or poor, but instead in line with common business practice. There were alsoaspects of which there were opposite perceptions, i.e. both positive and negative. Forexample, SelMet were involved in generating product ideas together with BuyOff. Thiswas considered positive by SelMet as they thereby were able to affect subsequentmanufacturing, but simultaneously it was negative since it demanded resources.

IJSIM19,1

52


Bu

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ff

Pos

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0N

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N

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ension

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typ

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Pro

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Pro

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Pro

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ension

Pro

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typ

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Socialdim

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Pro

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Pro

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(continued

)

Table II.Dyadic perception of

relationship quality in thestudied relationship


relationship

53


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Pos

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uy

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Technicaldim

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Pro

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Res

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Econom

icdim

ension

Ru

nn

a definition model and empirical analysis of business to business

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