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Doctoral Seminars in English

Ralf Berckhan

Abstract of Ph.D. Thesis

THE INFLUENCE OF BUSINESS NETWORKS ON THE COMPANY PERFORMANCE

IN THE AUTOMOTIVE INDUSTRY

Faculty of International Business and Economics Department of International Marketing

Supervisor: prof. dr hab. Krzysztof Fonfara, prof. zw. UEP Auxiliary supervisor: dr Łukasz Małys

Poznań 2015

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Justification of the chosen topic

When it comes to business networks and business relationships, most of the literature

and authors focus on the classical relationship between purchaser and supplier in a business-

to-business (B2B) environment. Pioneers in this field were researchers within the Industrial

Marketing and Purchasing Group (IMP Group) – to the extent that business networks and

business relationships were accepted as the relevant parameters in the marketing field as well

as factors that determine the success of a company. The first IMP Group’s study took place

between 1975 and 1982 and its main aim was to learn more about the purchaser-supplier

relationships. It was a study of the relationships between buying and selling companies in five

European countries (Håkansson 1982). The study showed that relationships matter for the

involved parties as they are both assets and liabilities (Snehota 2013). A second IMP Group

study took place between 1985 and 1995, including the network and company focused

approach, analysing the single relationship with data collected from 3 continents. Results

were published in 1995 (Håkansson and Snehota 1995). The ARA model (actors, resources

and activities) was also applied to describe the business relationship context (Snehota 2013).

The focus of IMP Group studies was initially on industrial business relationships. Yet,

most of the researches are concentrated on classical purchaser-supplier relationships in

manufacturing (see Håkansson, Johanson, Wootz 1976, p. 319-332; Ford 1984, p. 101-113;

Gadde, Snehota 2000, p. 305-316; Hollensen, 2003, p. 197-254; Golicic 2007, p. 719-739;

Barry, Dion, Johnson 2008, p. 114-135). However, as a business practitioner working in the

sales and marketing area in the automotive industry for more than 28 years, one can say that

business networks and business relationships are no less, perhaps even more important when

it comes to the next step of business activity of a company – sales and marketing. Once the

design, technical development, supply, production and quality assurance phase is completed

and the product is forwarded to the sales and marketing division, a completely new creation

and management of business networks and business relationships begins.

Traditionally, the value of the exchange in sales and marketing, especially of

consumer product, was considered from the point of view of the tangible elements like

product, price, distribution, promotional activities etc., which were regarded as the most

important driver for a company’s success. It can be assumed that the close competitors have

similar offers in these areas. What can decide and determine their competitive advantage are

business relationships. However, so far little attention has been paid to the business networks

and business relationships in the sales and distribution channel. This is somehow surprising,

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as the sales and distribution channel, which originates in the automotive industry with the

Original Equipment Manufacturer (OEM) Headquarter, is a business network and relationship

chain down to the final customer with wholesaler (also referred to as importer or distributor),

regional offices and dealers (retailers) as the main level before reaching the final customer.

Within these types of market channels, different business relationships can be observed: while

the OEM is embedded in a B2B relationships, the wholesaler already has – although very

few– Business-to-consumer (B2C) relationships while the dealer mainly works in B2C

environment (with the exception of the relationship with the wholesaler, which continuous to

be a B2B relationship).

Research gap, hypothesis and research framework

The influence of business relationships on company performance is neglected in the

literature. The authors usually highlight the influence that business relationships have on

transaction facilitation, product development, knowledge transfer, technological development,

etc. (see Małys 2013, p. 38). At the same time, they acknowledge that business relationships

and the characteristics of business relationships vary from one to another and that these

differences may influence the outcome of the cooperation (see Hausman 2001, p. 601). The

direct influence of business relationship on company performance is difficult to determine.

However, business relationships may be described with specific characteristics described in

the literature (e.g. trust, commitment and mutuality). The influence of these characteristics on

the company performance is a research gap covered in the following thesis.

Based on literature studies and empirical research two types of business relationship

characteristics were identified: those that can be shaped by the company to a large extent

(trust, respect, openness, commitment, mutuality) and those that can only be shaped by the

company to a limited extent (dependence and scope of formalisation). Only those which can

be shaped by a company to a large extent were further analysed. A focus study conducted

among representatives of the automotive industry companies proved that trust, respect,

openness, commitment – in the following referred to as T.R.O.C. – are the business

relationship characteristics of upmost importance in the industry. For that reason they were

analysed in detail. In practice they can represent a different level (between high and low) in

any business relationship. Extensive research has been conducted to verify the following

hypothesis:

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The higher the level of business relationship characteristics in the business relationships

between car dealers and automotive wholesalers,

the better the performance of the companies.

Since the focus of the thesis is on the influence of business relationship characteristics

on company performance, the company performance is another issue, which requires

additional examination. In specific, the approach to measuring company performance in the

automotive industry was analysed. The research framework presented in figure 1 takes into

account the above elaborations.

Figure 1. The research framework of the thesis

Source: own work.

As business networks and business relationships play an important role in the sales

and marketing process of an automotive company, this thesis tries to answer the following

research questions:

Determination of key actors in the sales and distribution

business network of automotive wholesaler

Evaluation of the character of business relationships in the analysed business

network

Analysis of approaches to company performance

measurement

Determination of company performance measurement in the automotive industry

The influence of business relationships characteristics on automotive wholesaler

performance

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1. How can business relationships in the sales and distribution area of the company be

characterised?

2. How can the performance of an automotive company be measured?

3. How do business relationship characteristics influence the company performance?

Composition and content of the thesis

To answer these questions appropriately, the thesis has been structured in three main

chapters. The first chapter describes the concepts and characteristics of business networks and

analyses of their major characteristics. Different views and approaches of different authors,

also concerning the stages in the development of relationships are described and analysed. A

comparison is made between the traditional IMP Group approach (assuming a business

network is created as a result of interaction between independent entities in an evolutionary

and unplanned way), and the strategic business network approach (which is created

intentionally and has a network leader).

In the second part of chapter 1, the characteristics of business relationships are

presented as follows. Trust and commitment are the most relevant characteristics to describe

and evaluate relationships in all the industries. Trust is mainly understood as reliability

(confidence that the other party is able to fulfil its obligations) and integrity (a belief, that the

other party will not jeopardize the existing relationship); but also further views and definitions

are discussed. A deeper attention is paid to commitment, defined as a willingness to continue

an existing bond. In the automotive industry respect and openness were also identified as the

most important characteristics. The chapters also discuss mutuality, interdependence and

scope of formalization.

Chapter 2 deals with company performance. In order to measure effectiveness, four

major approaches are described: the goal approach (efficient and effective achievement of

goals), the system resource approach (correspondence of the available resources of the

company with the results of activities), the stakeholder approach (correspondence of the

expectation of the stakeholders of the company with the performance) and the competitive

value approach (effectiveness to build own competitive advantage and absorb rare resources).

In the sales and marketing area of the automotive industry, the goal approach is the most

relevant and common approach. Goals are in general clearly defined and agreed through

Management by Objectives (MbO). Major goals are sales volume (measured by units), market

share, customer satisfaction and return on sales (ROS). Obviously within the sales and

distribution chain from OEM to customer, increasingly more Key Performance Indicators

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(KPI) are being measured as later shown in the thesis. Within the goal approach, the achieved

results by the company are compared with the results assumed in the strategy and budget

targets of the company. In general, the main goals of a company should be understandable,

transparent and known to the whole organization. For this purpose, the automotive

wholesalers use the concept of a balanced scorecard, where not only the vision and mission

statement are taken into consideration but also every single goal dimension relevant for a

wholesaler is reflected: quantitative sales goals, qualitative customer satisfaction goals,

economic goals as well as goals for the organization itself (referring e.g. to employees and

processes). Based on the wholesaler’s balanced scorecard, the quantitative sales goals are

broken down to every sales region and further to every dealer, also taking into account the

time aspect: based on the yearly (budgeted) goals, quarterly goals as well as monthly goals

agreed with dealers, being the important base for the paid bonuses. Since companies in the

automotive industry act as economic organizations, the goal approach also includes

economical aims to be achieved. In the further work of the thesis, however, the goal approach

refers to five major KPI’s to be measured throughout the whole dealer network: sales volume,

market share, customer satisfaction in sales process, customer satisfaction in after sales

services and ROS. All KPI’s are measured at the dealer level, with the difference between

desired value to achieve and actually achieved result being the indicator for the car dealers’

effectiveness. It is assumed that the automotive wholesaler’s performance is a reflection of

performances of separate dealers (with constrains concerning ROS).

The third chapter is building a bridge between relationships in business networks on

one hand and the company performance on the other hand, realising an empirical analysis

within the sales channel of the automotive industry and trying to fill the existing research gap.

This sales channel in general consists of three levels: Original Equipment Manufacturer

(OEM), wholesaler and car dealers (see figure 2). Every level has its specific functions and

responsibilities, which are described in detail in this thesis. The structure and features of the

sales channel of the automotive industry are not restricted to Poland or a specific brand within

the automotive industry. Based on the broad experience of the author, having worked in

different countries, cultures as well as for different brands in the automotive industry, it can

be stated, that these features and the findings of the thesis are valid beyond the borders of the

Polish automotive industry.

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Figure 2. Structure of distribution and sales channel in the automobile industry

Source: own work.

Research method and findings

The key cognitive finding concerns the characteristics of business relationships. It was

noticed that they may be present with a determined intensity in every analysed connection,

e.g. we can say about a high or low level of trust that characterizes a given bond. It seems that

some characteristics of business relations may be developed and shaped consciously and

purposefully by enterprises, and the level of others may be influenced and shaped by the

company only to a limited extent (see classification in table 1).

Table 1. Classification of characteristics of business relationships

Characteristics of business relationships subjected to shaping by a company

to a high extent

Characteristics of business relationships subjected to shaping by a company

to a limited extent Trust

Commitment Mutuality Openness Respect

Dependence (interdependence) Scope of formalization

Source: Own work.

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Level of such characteristics as trust, respect, openness, commitment and mutuality

depends on attempts and skills of the engaged parties, and in almost every relation it may be

present at a lower or at a higher level. Companies may consciously and purposefully build a

desired level of those characteristics. Moreover, the companies may select certain types of

business partners with whom they wish to develop strong links and increase the level of

characteristics only with these partners. It is, thus, assumed that the character of business

relationships is depended on the actions taken by the companies concerning these

characteristics. Dependence and a scope of formalization are determined to a high extent in

business relationships, and they are not subjected to development as a result of interactions.

Informal connections that accompany formal agreements may be of course developed and the

level of dependency may be modified in a particular range. However, by definition, it will not

be possible to such a high extent as in case of earlier mentioned characteristics.

The research described in the thesis were executed in the automotive industry in

Poland, covering most of the market and brands (for details concerning conducted research

see appendix 1). The research was based on the primary as well as secondary study types.

Primary research was conducted based on surveys and focus studies. Surveys were conducted

among Presidents and Managing Directors of enterprises in the automotive industry operating

in Poland, as well as dealerships of selected brands. The focus of the final research was on the

two leading brands: Škoda and Volkswagen, both in the passenger car segment. During the

time of the research Škoda had the highest market share in the Polish market with

approximately 13%, Volkswagen was the second brand in terms of market share with

approximately 9%. Škoda and Volkswagen were also among companies with the largest

networks of dealers, with 92 Škoda dealers and 64 Volkswagen dealers.

The initial research was to define the most important entities of cooperation with

influence on the company performance in the automotive industry. Results of the performed

analysis suggested that relationships that tie automotive wholesalers and car dealers are of

crucial significance (see table 2). They constitute a bridge that combines B2B and B2C areas

present in the industry. Moreover, market results of automotive wholesalers are a reflection of

the results achieved by all car dealers. At the same time, from the group of actors selected by

automotive wholesalers as the most important entities of cooperation, only car dealers were

external entities, not associated with automotive wholesalers with hierarchic connections

(apart from cooperation with the dealers, also relationships with employees of automotive

wholesalers, international headquarters and banks, which usually belong to the international

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headquarters - e.g. Volkswagen bank - were perceived as crucial). Hence, the thesis focused

on the analysis of relationships between automotive wholesaler and car dealers.

Table 2. The importance of automotive wholesalers’ cooperation with specified entities

Entities

Average importance of cooperation nowadays

Average importance of

cooperation in 5 years

Dealers (as companies) 4,9 4,9

Employees 4,9 5,0

Banks and other financial institutions 4,3 4,6

International headquarters, regional sales office or other superordinate unit

4,3 4,5

Press (automotive journals, internet portals, etc.) 3,8 4,0

Marketing agencies, promotional agencies, media agencies, etc.

3,7 3,7

Service suppliers (logistic companies, consulting companies, legal companies, recruitment agencies, IT agencies, etc.)

3,3 3,4

Influential organisations (PZPM, SAMAR, central or/and local authorities, etc.)

3,0 3,2

Trade unions, employee councils 2,6 2,7

Competitors 2,4 2,7 Weight: 1 - Cooperation least important, 2 - Cooperation less important, 3 - Medium importance of cooperation, 4 - Cooperation more important, 5 - Cooperation most important. Source: own work.

For the car dealers the most important entities are the individual (private) purchasers,

dealer’s employees and the institutional (fleet/commercial) purchasers (see table 3). In the

further research, however, only the external entities/actors were considered, as it was not the

subject of the thesis to investigate the importance of employees for the company success.

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Table 3. The importance of car dealer’s cooperation with specified entities for the

performance of the automotive wholesaler

Entities

Average importance of cooperation nowadays

Average importance of cooperation in 5 years

Individual (private) purchasers 4,8 4,6

Dealer’s employees 4,5 5,0

Institutional (fleet) purchasers 4,3 4,9

Banks and other financial institutions 4,1 4,5

Referral organisations (local newspapers, etc.) 3,4 3,8

Marketing agencies, promotional agencies, media agencies, etc.

2,7 3,1

Influential organisations (local authorities, sport clubs and other organisations, etc.)

2,7 3,0

Competitors (dealers of other brands) 2,3 2,7 Weight: 1 - Cooperation least important, 2 - Cooperation less important, 3 - Medium importance of cooperation, 4 - Cooperation more important, 5 - Cooperation most important. Source: own work.

Characteristics of business relationships that connect automotive wholesalers and car

dealers, which may exert important influence on enterprise's performance, embrace trust,

respect, openness and commitment. The aggregated measurement of the relationships

characteristics, which was applied in the thesis was specified as T.R.O.C. (from the first letter

of identified characteristics). The conducted empirical analysis demonstrated that growth in

the aggregated T.R.O.C. indicator and in all of its components in relationships that connect

automotive wholesalers and car dealers, supports improvement of company's performance.

Hence, the hypothesis put forward in the thesis was verified positively. Therefore, it may be

concluded that characteristics of business relationships, similarly to the product, price, place,

promotional actions etc., decide about market performance of an enterprise.

Subsequent figures demonstrate a graphic presentation of correlations in the form of so

called scatter charts, where evaluation of characteristics of the relationships (T.R.O.C.) is

marked in x-axis, and y-axis represents the results achieved by a car dealers (expressed via an

aggregated weighted indicator).

Figure 3 shows the dependence between evaluations of characteristics of relationships

(measured by T.R.O.C.), performed by Škoda dealers, and results achieved by those dealers,

with trend line marked. The presented data point to a positive trend between the

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characteristics of relationships (in case of the aggregated T.R.O.C indicator) and the achieved

results. Therefore, this graphic presentation also confirms the hypothesis assumed in the work.

Figure 3. The dependence between the level of T.R.O.C in relationships of Škoda dealers

with the wholesaler, and the results achieved by the dealers (T.R.O.C. evaluation

performed by the dealers)

Source: own work

Figure 4 shows the dependence between evaluations of characteristics of relationships,

performed by Škoda wholesaler’s representatives, and results achieved by Škoda dealers, with

trend line marked. Also this data point to a positive trend between the characteristics of

relationships (T.R.O.C indicator) and the achieved results. Hence, also this data confirm the

hypothesis assumed in the work.

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Figure 4. The dependence between the level of T.R.O.C in relationships of Škoda dealers

with the wholesaler, and the results achieved by the dealers (T.R.O.C. evaluation

performed by representatives of the wholesaler)

Source: own work.

Similarly, a dependence between evaluations of characteristics of relationships

(T.R.O.C.), performed by Volkswagen dealers, and results achieved by those dealers, with

trend line marked, is presented in figure 5.

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Figure 5. The dependence between the level of T.R.O.C in relationships of Volkswagen

dealers with the wholesaler, and the results achieved by the dealers (T.R.O.C. evaluation

performed by the dealers)

Source: own work

The trend line is positive, so the graphic presentation in form of the scatter chart

supports the hypothesis also in case of the analysed relationships. However, the trend line in

this case is flatter compared to charts 3 and 4. Nevertheless, the results are acceptable and

support the hypothesis.

In turn, figure 6 shows the dependence between evaluations of characteristics of

relationships (measured by aggregated T.R.O.C.), performed by representatives of

Volkswagen wholesaler, and results achieved by Volkswagen dealers, with trend lines

marked. Again, the graphic presentation supports the hypothesis stated, as the trend line is

clearly positive.

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Figure 6. The dependence between the level of T.R.O.C in relationships of Volkswagen

dealers with the wholesaler, and the results achieved by the dealers (T.R.O.C. evaluation

performed by representatives of the wholesaler)

Source: own work

Author of the thesis took an attempt to perform in 2014 the similar analysis within the

Brazilian market. Detailed studies were applied in case of relationships between Volkswagen

do Brasil (brand's factory and wholesaler on the local market) and car dealers of Volkswagen

in Brasil. Regarding the time scope of the research, and the necessity to classify the detailed

performance, their full presentation within the thesis is impossible. However, it may be

certainly stated that the obtained results remain close to performance recorded within the

Polish market. Average evaluation of T.R.O.C and all of its components (trust, respect,

openness and commitment) on the Brazilian market is much lower than in case of the Polish

market. At the same time, the analysed Brazilian wholesaler and car dealers record drops

within the scope of all indicators of companies' performance, identified in the thesis. In recent

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years, those indicators have improved within the Polish market1. There was also a difference

observed, between T.R.O.C. evaluation (the Brazilian market was divided into seven sales

regions) and the achieved performance - usually, the higher the T.R.O.C. evaluation in the

region, the better the performance of dealers that operate within it.

Initial results of studies within the Brazilian market were presented during a

conference with participation of all VW car dealers, together with a proposal of changes in the

manner of cooperation. Figure 7 shows a photography from the discussed presentation.

Figure 7. Presentation of initial results of T.R.O.C. research on relationships that

connects Volkswagen do Brasil and car dealers of Volkswagen in Brasil

Source: Volkswagen do Brasil

On the basis of theoretical deliberations performed in the thesis and empirical studies,

there is a possibility to propose a scheme of conduct for enterprises that are interested in

1 Regarding the history of Volkswagen Poland and Volskwagen do Brasil operation,

comparison of absolute values of the discussed indicators is not justified.

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development of business relationships directed towards achievement of the greatest long-

standing benefits. It should be composed of three stages:

1. Determination of key actors, with whom the relationships should be developed with –

significant meaning may be ascribed to both determination of certain types of

cooperation entities (e.g. customers, commercial agents, opinion-forming subjects)

and to particular actors within specified types (e.g. a selected group of customers,

chosen opinion-forming entities). Its purpose is to direct actions of enterprises only

towards those actors that exert crucial influence on the achieved market performance.

This complies with an assumption of effectiveness and efficiency in the discussed

chapter 2.

2. Determination of a set of characteristics of business relationships with key actors that

may exert the greatest influence on the companies' performance. T.R.O.C. components

(trust, respect, openness and commitment) discussed in the thesis, were selected as a

result of research focused on the automotive industry. However, it is possible that in

case of other industries and/or relationships with other types of entities, the set of the

most significant characteristics of business relationships might be different.

3. Planning and taking actions that aim at developing a desired level of chosen

characteristics of business relationships with key actors.

It needs to be emphasized that the third of the mentioned points did not pose a subject

of research within the presented thesis. Although, it provides a possibility to continue the

deliberations, which would bring additional valuable practical conclusions. It is certainly also

worth performing similar studies in other industries and within other areas of companies'

operations.

A growth in significance of cooperation and network connections both in the

economic practice and cognitive layer may be expected in the future. This thesis deepens and

widens the notions raised in literature. However, the existing state of knowledge requires

constant development.

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Appendix 1. Research areas and studies conducted within the frameworks

of empirical analysis

Research area Type of studies Sources

Characteristic features of

automotive industry

Secondary 1. Practical experience and the

Author's knowledge.

Determination of approach to

measurement of results of an

enterprise in the automotive

industry, and specification of

the meaning of particular

indicators

Secondary (within a

scope of approach to

results/performance

measurement) and

primary (within a

scope of the

indicators' meaning)

1. Practical experience and

knowledge of the Author,

arising from preparation and

acceptance of reports on

various levels of hierarchy

in enterprises of the

automotive industry

(secondary research).

2. Research in a survey form,

conducted among Presidents

and Managing Directors of

enterprises in the automotive

industry, operating in Poland

(primary research).

Determination of the most

significant entities/actors of

cooperation in the

automotive industry.

Primary Research in a survey form,

conducted among Presidents and

Managing Directors of enterprises

in the automotive industry,

operating in Poland.

Determination of nature of

influence of established

business relationships with

specific entities, on operation

and results achieved by

enterprises.

Primary 1. Focus studies, conducted

among Presidents and

Managing Directors of

enterprises in the automotive

industry, operating in

Poland.

2. Focus studies with part of

selected car dealers from

Poland.

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Determination of a set of

characteristics of business

relationships, which have the

biggest influence on

performance of enterprises in

the automotive industry.

Primary 1. Focus studies with

participation of Directors of

Volkswagen passenger cars

and Škoda brand as well as

Group Dealer Network

Development Director

Volkswagen Group Poland.

2. Survey studies conducted

among Presidents and

Managing Directors of

enterprises from the

automotive industry,

operating in Poland, which

aims at quantitative

verification of conclusions

from discussion in a focus

group.

Determination of

characteristics of business

relationships on results of

enterprises from automotive

industry.

Primary and secondary 1. Survey studies conducted

among Directors of

Volkswagen passenger cars

and Škoda brand (primary

studies).

2. Survey studies conducted

among dealers of

Volkswagen passenger cars

and Škoda brands (primary

studies).

3. Data of the Volkswagen

Group Polska (VGP)

company regarding

results/performance of the

dealers (secondary

research).