partnership versus transactional exchange …

Partnership versus Transactional Exchange Relationships: A Degrees of Freedom Analysis using Case Data

PARTNERSHIP VERSUS TRANSACTIONAL EXCHANGERELATIONSHIPS:

A DEGREES OF FREEDOM ANALYSIS USING CASE DATA

Elizabeth J. WilsonLouisiana State UniversityUnited States of America

Richard P. VloskyLouisiana State UniversityUnited States of America

Renee FontenotLouisiana State UniversityUnited States of America

ABSTRACT

There is growing realization that companies need to form cooperative relationships with other firms in order to assure their own competitiveness in an industry (e.g., Kalwani and Narayandas 1995; Morgan and Hunt 1994; Narus and Anderson 1987). Cooperation may be expressed in various ways (resource sharing, communication, flexibility, etc.) and the long-term outcome for a cooperative relationship is the endurance of a partnership or alliance between firms. Many firms (e.g., Xerox, Motorola, Ford) are realizing that partnerships with customers, suppliers, distributors, etc. are a means of establishing competitive advantage (Emshwiller 1991). An understanding of the specific activities associated with successful partnerships will advance our ability to cultivate, manage, and sustain these relationship forms and thus, to gain competitive advantage over the long-term.

Our purpose in this research is to explore specific elements and activities of successful partnerships. To accomplish this, we

12th IMP Conference 1505

Elizabeth J. Wilson, Richard P. Vlosky, and Renee Fontenot

explore, in-depth, both partnership and "traditional," or transactional, relationships for distributors and their manufacturing principals in the wood products industry. Using a "degrees of freedom" method (Campbell 1975), case data is examined to specify key partnership elements and contrast proactive partnering relationships with traditional relationships (which tend to be adversarial in nature).

The contributions of this research are twofold. First, we develop a grounded theory of partnership structure using case data. This theory is then empirically examined to determine commonalities and variances between partner and transactional relationships. Second, we offer detailed information about specific activities that contribute to successful partnerships between manufacturers and their distributors. An understanding of these activities may help practitioners facilitate the development and implementation of partnerships for competitive advantage.

At this time, data collection is completed; data analysis and manuscript preparation are in progress. In the remainder of this Abstract, details are provided on three topics: background information on partnerships from the literature; the "degrees of freedom" approach for developing a grounded theory of partnership structure; and our research method (sample, questionnaire development, validity, etc.).

BUSINESS-TO-BUSINESS PARTNERSHIPS

Partnerships are defined as purposive strategic relationships between independent firms who share compatible goals, strive for mutual benefit, and acknowledge a high level of mutual interdependence. Firms join into partnerships for the purpose of achieving goals that individually firms could not attain easily. These alliances and partnerships are motivated primarily to gain competitive advantage in the marketplace (Mohr and Spekman 1994).

Effort and commitment to the relationship are prerequisites to partnership success. Communication and coordination are also

1506 University of Karlsruhe


critical partnership elements. On the other side of the equation, alliance failure is often attributable to a partner's unconfirmed expectations of what the alliance was to accomplish or the requirements necessary to make the alliance work (Spekman and Sawhney 1990). Partnering requires flexibility and consideration must be given to both the form of the cooperative activities and the exchanges between firms (Stafford 1992). In addition, these activities are unique to each partnering experience.

Partnerships may be horizontal, i.e. between suppliers, or vertical (between suppliers and buyers). In this study, vertical partnerships between manufacturers and distributors, are examined. From the literature, we know that cooperative behaviors characteristic of partnerships include long-term purchasing agreements, joint marketing programs, shared research and development programs and equity-based relationships. The ultimate goal is to develop strategic advantage by pooling resources, gaining access to markets and/or technical information, leveraging of complementary strengths, and achieving economies of scale.

DEVELOPMENT OF A GROUNDED THEORY OF PARTNERSHIP STRUCTURE

Our research purpose is to identify the specific activities that are inherent in successful partnerships as opposed to transactional exchanges between firms. Much has been written on the constructs that are associated with cooperative behavior and partnership development (e.g., commitment, trust, power, communication, etc.). However, there is a lack of research to document specific activities that will, over time, foster these latent conditions. Thus, our study is inductive in nature and positioned at the "workbench" level. We do not seek to develop the "grand theory" of relational partnerships but we do hope to offer a modest contribution about activities that contribute to the presence unobservable theoretical constructs over time.

Development of grounded theory calls for an inductive approach



where researchers study a phenomenon in-depth in order to make generalizations. We use case data to establish patterns from which our theory development proceeds.

A DEGREES OF FREEDOM APPROACH

In statistics, "degrees of freedom" are related to the number of parameters being estimated for a test of a model. Campbell (1975) maintains that a researcher can test hypotheses about some phenomenon using observational (case) data by matching expectations (parameters) to the observed outcome. In the context of the present study, partnering relationships are necessarily associated with different types of activities between firms compared to traditional transactional relationships. Thus, we can say that different patterns of events occur and are associated with partnerships compared to transactional encounters between firms. We can construct an "expected" pattern of activities for partnerships and a second expected pattern of activities for transactional relationships.

In a case study done by an alert social scientist who has thorough local acquaintance, the theory he uses to explain the focal difference also generates predictions or expectations on dozens of other aspects of the culture, and he does not retain the theory unless most of these are also confirmed. In some sense, he has tested the theory with degrees of freedom [emphasis added] coming from the multiple implications of any one theory. The process is a kind of pattern-matching in which there are many aspects of the pattern demanded by theory that are available for matching with his observations on the local setting. (Campbell 1979, pp. 181-182).

So, by developing patterns (a prediction matrix), we are building competing explanations/models of buyer-seller behavior. A crucial test (Carlsmith, Ellsworth, and Aronson 1976) can be made by noting the relative "fit" of competing models using a simple chi-square comparison of hits and misses.

Campbell's (1975) "degrees of freedom" approach has been used



by Dean (1986) and Wilson and Wilson (1987). In both of these studies, case data were used to note the relative fits of four competing theories of organizational decision-making (the Rational Model; Bounded Rationality Model; Political Process Model; Garbage Can Model). Both found that the bounded rationality model tended to have a better fit to the data compared to the other theories. These two field research applications of theory testing using degrees of freedom and case data represent important steps in development of an applied epistemology -- an integration of qualitative and quantitative knowing.

The prediction matrix for a model of a partnering relationship and a transactional relationship are shown in the exhibit. Questions for each element in the matrix were included in the questionnaire so that we could obtain a pattern of results for each activity. Our predictions are in terms of the presence or absence of supplier-distributor activities in most cases. For example, we expect partnering firms to engage in joint planning and marketing programs. Firms in a transactional relationship are not expected to conduct these activities. We do not expect the case data to be "clean" in that all predictions are confirmed for each type of pattern. Some partnership relationships may contain activities that would be expected in the transaction relationship and vice-versa. However, we expect the partnership activities to be confirmed by the partnership supplier in more cases that one would expect by chance alone. Similarly, we expect the transactional activities to be present for transactional suppliers in more cases than would be expected by chance.


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METHOD

We examine both "partnership" and "transactional" relationships between distributors and manufacturing principals in the wood products industry. In this marketplace, the distribution intermediary has been often vilified as an unnecessary step in marketing channels that reduces profitability for manufacturers and retailers alike. One often hears of a corporate goal to "cut out the middleman" (Vlosky 1995). Thus, one source of competitive advantage for distribution intermediaries is the development of value-added partnerships with suppliers and customers (Vlosky 1995). A listing of the top 126 (by sales) building materials distributors in North America was used to recruit distributors for participation in the study.

Questionnaire Development. Based on the literature, an extensive list of topics and questions were generated by the authors. This list was reviewed and revised by the authors and a senior executive at a large wood products manufacturing firm. From this we developed the prediction matrix shown in the Exhibit. Questionnaire items to capture each element of the prediction matrix were formulated. Initial drafts of the questionnaire were reviewed by the authors and colleagues at the authors' university. The questionnaire was pretested by a group of wood products distributors attending a management development seminar given by the second author.

The final questionnaire booklet contained open-ended and scaled questions in two parts. First, distributor respondents were asked questions about a supplier they considered a partner. In the second section, the same questions were asked regarding a transactional/traditional supplier.

Data Collection. To collect the case data, six research teams were employed. All researchers are faculty members in Marketing or Forest Products Marketing Departments at universities in the United States. Each team was mailed a packet containing questionnaire booklets and a list of potential



distributor respondents in their local area. Researcher responsibilities included contacting particular wood products distributors, identifying the key informants (usually senior executives within the distributor firm), and visiting those individuals to conduct the interviews.

Each team transcribed the interviews and provided relevant data back to us, the project coordinators. Each team provided their interview data in return for publication of a case written based on their particular distributor-supplier interview information. Data for our degrees-of-freedom analysis is in the form of the prediction matrices (see the Exhibit) completed by all of the teams for their particular distributor respondent(s).

Each team was charged with developing a case study to address partnering activities. Although our standard questionnaire was administered, and guidelines for case structure and development were provided to research teams by the project coordinators, teams had some latitude in how their case was developed. For example, in some cases multiple respondents from one distributor were interviewed, while in one case four separate distributor companies were interviewed. Researchers may have also needed to contact and interview the other channel partner, i.e. the manufacturer (via telephone) to gain their perspective on the partnership.

PROJECT STATUS

Nine complete prediction matrices for both partnership and transactional relationships were obtained. This represents the work of five research teams; four completed the interviews with one focal distributor while the fifth research team obtained multiple observations(n = 5 different "data points"). The sixth team only discussed the partnership relationship with their focal distributor.

In our data analysis, currently in-progress, we use Campbell's (1975) pattern-matching techniques in order to note the structure of partnerships and transactional relationships based on the reported activities of the participating organizations. We



expect the partnership relationship to be comprised of more proactive marketing activities (joint programs for planning, training, evaluation, promotion, etc.) and a higher level of communication (by phone, fax, electronically, access to computers, and EDI). Conversely, in transactional relationships firms may engage in some of these activities, but probably not to the same extent as the in the partnering relationship.

In conclusion, on the completion of this research, we will have a grounded, inductive model of partnering relationships. Using Campbell's (1975) degrees-of-freedom approach, we can empirically examine our model to note overall patterns of activities for partnering relationships compared to traditional transactional relationships. While this research thesis may seem intuitively simple, findings on specific defining activities of partnerships is scant. Our grounded approach allows us to address the gap between the deductive models (e.g., Anderson and Narus 1990; Dwyer, Schurr, and Oh 1987; Morgan and Hunt 1994) and buyer-seller relationships in practice.

REFERENCES

Anderson, James C. and James A. Narus (1990), "A Model of Distributor Firm and Manufacturer Firm Working Partnerships," Journal of Marketing, 54 (January), 42-58.

Campbell, Donald W. (1975), " 'Degrees of Freedom' and the Case Study," Comparative Political Studies, 8 (July), 178- 193.

Carlsmith, J. P. Ellsworth, and Elliott Aronson (1976), Methods of Research in Social Psychology, Reading, MA: Addison- Wesley.

Dean, James W. (1986), "Decision Processes in the Adoption of Advanced Technology," unpublished manuscript, Pennsylvania State University, Department of Management.

Dwyer, F. Robert, Paull H. Schurr, and Sejo Oh (1987), "Developing Buyer-Seller Relationships," Journal of



Marketing, 51 (April), 11-27.

Emshwiller, John R. (1991), "Suppliers Struggle to Improve Quality as Big Firms Slash Their Vendor Rolls," Wall Street Journal, (August 16), B1-B2.

Kalwani, Manohar U. and Narakesari Narayandas (1995), "Long- Term Manufacturer-Supplier Relationships: Do They Pay Off for Supplier Firms?" Journal of Marketing, 59 (January), 1-16.

Mohr, Jakki and Robert Spekman (1994), "Characteristics of Partnership Success: Partnership Attributes, Communication Behavior, and Conflict Resolution Techniques," Strategic Management Journal, Vol. 15, 135- 152.

Morgan, Robert M. and Shelby D. Hunt, (1994), "The Commitment - Trust Theory of Relationship Marketing," Journal of Marketing. Vol. 58 (July), 20-38.

Narus, James A. and James C. Anderson (1987), "Distributor Contributions to Partnerships with Manufacturers," Business Horizons, (September-October), 34-42.

Spekman, Robert E. and Kirti Sawhney, (1990), "Toward a Conceptual Understanding of the Antecedents of Strategic Alliances," Report 90-114. Cambridge, MA: Marketing Science Institute.

Stafford, Edwin R., (1992), "Implications of Strategic Alliance Structure: A Cooperative Strategy/Relational Exchange Framework," American Marketing Association, Summer, 101-107.

Vlosky, Richard P. (1995), "Sources of Competitive Advantage for Wood Products Distribution Suppliers." Louisiana Forest Products Laboratory Working Paper 12, Louisiana State University Agricultural Center, Baton Rouge, LA.

Wilson, Elizabeth J. and David T. Wilson (1988), '"Degrees of Freedom' in Case Research of Behavioral Theories of Group Buying," in Advances in Consumer Research, 15, 587-594.


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