Visiting lecture. Jari Salo. University of Bergamo. Italty. Digital relationships. Digital networks. Professional services. Network theory

1. 1
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Digital relationships and network theory: a
focus on professional service firms
Jari Salo,
Professor of Marketing
Adjunct Professor (Aalto School of Economics)
Founding editor of Journal of Digital Marketing
Associate Editor of Journal of Information Technology Research
Oulu Business School
University of Oulu
Department of Marketing
Objective
• To shed some light on the complexity of
business relationships and business networks
• To prepare students to understand the
challenges related to networked collaboration
• To give some conceptual tools for analyzing
business relationships and networks
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

2. 2
Digital economy cube: Choi et al 1997
modified
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Physical – Digital (Value delivery)
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

3. 3
”Range of marketing relationships”
Marketing mix management
• Transactional relationship
• Focus on short-term
exchange
• Basic products
• Highly competitive market
Interaction/Network approach
and Services and Relationship
Marketing
• Collaborative relatioship
• Strong social,economic,
technical and legal bonds
• Long-term perspective
• Aim to achieve mutual benefit
Alajoutsijärvi, Mannermaa & Tikkanen 1999
Information & Management
Why networks are important
nowadays?
• Pressure of global competition
• Need to move ”lazy capitals” , focusing on core
competences, more complex offerings, possibilities of
information technology
• Not only production-related cooperation, but R&D
cooperation, new technologies and innovations.
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4. 4
Why networks are important
nowadays?
• Capability to work in networks and to build new ones
important
• Industries as networks vs. networks build for some strategic
aim.
• In brief, to innovate and commercialize more quickly by
cooperating with customers, suppliers and competitors to
learn faster and deeper in order to achieve cost advantage
and benefit advantage that creates superior value.
7
Outcomes of business relationships and
networking
• Cost efficiency
• High quality
• Shorter delivery times
• Producing offers
• New products
• New technologies
• New markets
• Competitive advantage

5. 5
Connectedness of business
relationships
Other
Supplier
Unit
Other
Ancillary
Firms
Third
Parties in
Common
Other
Ancillary
Firms
Supplementary
Supplier
Customer’s
Customer
Supplier’s
Supplier
Competing
Supplier
Other Units in
Focal
Supplier Firm
Other
Customers
Other Units in
Focal
Customer Firm
?
Supplier
Business
Unit
Customer
Business
Unit
Focal Relationship
Anderson et al. 1994
9
Network perspective
• No relationship between two firms exist in a vacuum - independent of others
• A network is made up of inter-coupled connections
- a change in one relationship will affect other relationships(+/-)
- firms can affect each other indirectly
- one area can be used to affect another area
• A large part of any firm’s behavior must be seen
as reactions to the behavior of others
• Conflict and co-operation can exist simultaneously
• Networks are never entirely stable
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

6. 6
Network perspective
• A network models consists of three components:
• 1) Actors, 2) Activities and 3) Resources
• Actors perform activities and own resources
• Activities are carried out by actors, they “consume” resources
and aim at adding value to other resources
• Resources are controlled by actors, their value is determined by
activities in which they are used
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
See also Anderson & Narus 2004, 30-
or Ford et al. 1998, 44-
Actors
Resources ActivitiesNetwork
Example of Mobile marketing network
(Salo et al 2008, JBIM)
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

7. 7
Network perspective
Resources:
• Although we say that resources are specific to a company for e.g.
accounting purposes, they may be also interdependent
• Some resources are only activated through interaction with others.
They acquire their value when they become useful to others
• “know-how”, “know-what”, “know-why”, either general or specific to
relationships
• Examples of resources: technical know-how, equipment, personnel,
capital that a firm can use to generate greater value for themselves
and others.
• Companies seek to activate this value potential through
relationships to other companies
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Network perspective
Resources:
• Resources are difficult to change in the short term
• Technical equipment
• Skills of staff
• Restrictions on what a company can do. A
company must be production oriented to be
market oriented
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

8. 8
Network perspective: Resource
interfaces
The interface between companies must be organised
1. What resources are required?
• Example: Access to aluminium supplies,
components, assistance in designing aluminium
cars, access to process technologies or designing
manufacturing plant
2. How to manage the way resources are related to
each other?
• Co-operation or developing own resources
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Network perspective: Resource
adaptation
Adapted resources are often a part of a specific
long-term relationship
Companies use own resources as well as those
owned and controlled by other companies
Once adapted, resources often have little use
elsewhere - This force goes in the direction of
further strengthening a relationship and also
underlines the importance of understanding
business partner needs correctly. Thus, are the
resources transferable or not?
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9. 9
Network perspective: A firm’s network
position
• Made up of a firm’s portfolio of relationships,
including activity links, resource ties, and actor bonds
• The position is the basis of a company’s reputation,
rights, limitations on behaviour, and obligations in the
network
• Different counterparts, different expectation
• Position partially created by counterparts
• Positions of two companies can be directly bonded
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Note: Large corporations are hubs and participants in all kinds of nets
Stable, well- defined
value system
Established value system,
incremental improvements
Emerging value system,
radical changes
Describes ideal types of the value systems and their overlapping characteristics
Value-system characteristics
- Well-known and specified
value activities
- Well-known actors
- Well known technologies
- Well-known business
processes
- Stable value-systems
- Emerging new value-systems
- Old and new actors
- Radical changes in old value
activities
- Creation of new value activities
- Uncertainty about both value
activities and actors
- Radical system-wide change
- Well-known value-systems
- Change through: local and
incremental modifications
within the existing value-
system
Value System Continuum

10. 10
Value system continuum with example nets (Möller & al. 2005)
Stable, well-defined
value system
Established value system,
incremental improvements
Emerging value system,
radical changes
NMP´s
supply system
Benetton
IKEA
Internet portals
”Future Home”
concept
Puustelli
Note: Large corporations are hubs and participants in all kinds of nets
Nokia orchestrating
Mobile services
Nokia´s
R&D nets
Lead supplier & Pilot customer
related development nets
Toyota
Nike
New products,
business concepts,
radical changes in
the value system.
Often crosses the
borders of traditional
industries
”weak ties”
Development projects
related to
production, logistics,
management or
products
Efficiencyof the
established value system
Möller, Rajala and Svahn 2005:
Journal of Business Research 58, 1274-1284
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Conclusive remarks on Network
perspective
1) Firms operate in certain contexts in which their behaviour is
affected by a limited number of other organizations (actors,
activities, resources = network)
2) Using and exploiting other firms’ resources and linking activities
with them is made possible through relationships
3) Firms build their capabilities through interactions in different
relationships. These interactions give the firm its identity
4) A firm’s performance is conditioned by the whole network
interdependency
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

11. 11
Conclusive remarks on Network
perspective
• How can the network perspective change the way we think about
business strategy and strategic management?
• Traditionally a distinction between internal/external resources
• From network perspective organizational relationships in the network
are the most valuable resources of firms - a way to acquire other
resource
• Difficult to define where one company ends and another begins,
“boundaries blurred”
• No more internal/external resources and activities - rather make a
distinction between controllable and non-controllable variables
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Conclusive remarks on Network
perspective
Organizational effectiveness:
• Before effectiveness was determined based on how well a
firm could adapt to its environment: acquire resources
(exploit its environment) through exchange processes
• Network effectiveness is determined by how well a company
relates to its context - how well it acquires resources by
using its relationships with others
Managing the effectiveness:
• Before: The adaptation to the external environment secured
efficiency (planning approach)
• In networks companies have to create distinctive strategic
identity ( = a company’s position in the total network)
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

12. 12
Conclusive remarks on Network
perspective
• Strategic identity is achieved by interaction
behavior of individuals in relationships -
linking activities and resources within a
network
• Emphasis is not on production, but on
managing relationships!
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Learning outcomes
• Business networks are important
• Business networks can be conceptualized & evaluated
• Business networks or at least some of the relationships can be
managed to some extent under specific conditions
• Understanding value creation mechanisms is the key to network
management
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi

13. 13
P.O. BOX 4600, 90014 University of Oulu • tel. (08) 553 2905, fax (08) 553 2906 • www.oulubusinessschool.fi
Digital relationships and network theory: a
focus on professional service firms
Jari Salo,
Professor of Marketing
Adjunct Professor (Aalto School of Economics)
Founding editor of Journal of Digital Marketing
Associate Editor of Journal of Information Technology Research
Oulu Business School
University of Oulu
Department of Marketing
THANK YOU !