Procurement  in  Business   Service  Triads:  From  

UNIVERSITY  OF  GRONINGEN  

Procurement  in  Business   Service  Triads:  From  

Insights  to  Control  

ƒ•–‡”ǯ•thesis  

Supply  Chain  Management    

University  of  Groningen,  Faculty  of  Economics  and  Business    

January  24,  2014    

By   R.L.  Hodenpijl   Student  number:  1904051   E-­‐mail:  R.L.Hodenpijl@student.rug.nl  

 Supervisor:  Dr.  H.  Broekhuis   Second  assessor:  Dr.  K.  Scholten  

2 Acknowledgements  

I  would  like  to  thank  everyone  that  has  contributed  to  the  successful  completion  of  this   thesis.    

First  of  all,  I  would  like  to  thank  both  of  my  supervisors  Dr.  Manda  Broekhuis  and  Dr.  

Kirstin   Scholten   for   their   continuous   enthusiasm,   suggestions   and   guidance   while   writing  this  thesis.    

Secondly,  I  would  like  to  thank  Houtbrox  for  providing  me  the  opportunity  to  conduct   research  at  their  company.  In  particular  Peter  Seemann  and  Wendy  Hoogenboom  for   their  time  and  effort  to  enable  this  research.    

Also,   I   would   like   to   thank   all   my   interviewees   for   their   enthusiasm,   time   and   effort   during  my  data  collection.  

Finally,   I   would   like   to   thank   all   of   my   friends   and   family   who   supported   and   encouraged  me  during  the  process  of  writing  my  thesis.  Special  thanks  go  out  to  Erik,   Karen,  Yentl  &  Maikel  for  always  believing  in  me.    

Thank  you  all  very  much!  

Rachel  Hodenpijl    

Groningen,  2014      

3 Abstract  

Keywords:  procurement,  business  service  triads,  power-­‐relationships      

Topic(s):  purchasing  and  procurement,  managing  inter-­‐firm  relationships  in  supply   chains,  service  operations  management  

Purpose:  Many  organizations  face  substantial  problems  in  effectively  managing  the   transactions  and  relations  involved  in  purchasing  services  (Ellram  et  al.,  2007,  2008;  

Van  der  Valk  &  Rozemeijer,  2009).  As  services  and  goods  from  suppliers  are  often   directly  delivered  to  the  end-­‐customers  of  the  service  provider,  it  is  crucial  to  create   (Peng,  Lin,  Martinez  &  Yu,  2010.;  Holma  2012)  trust  and  collaboration  within  these   triadic   relationships,   i.e.   service   provider,   suppliers   and   end-­‐customers   (Van   der   Valk   &   Van   Iwaarden   2011).   Purchasing   services   requires   an   ongoing   purchasing   process,   which   should   be   built   on   adequate   agreements   and   interactions   between   service  provider  and  supplier  (Van  der  Valk  &  Van  Weele,  2011).  However,  triadic   relationships  are  also  characterized  by  power  and  (mutual)  dependability  (Van  der   Valk   &Van   Iwaarden,   2011)   and   service   providers   may   experience   some   loss   of   control  over  service  delivery  due  to  the  direct  delivery  by  suppliers.  It  is  assumed   that   the   dependencies   between   service   provider   and   suppliers   significantly   influence  the  way  service  provider  and  supplier  try  to  manage  the  business  service   triad   (van   der   Valk   &   van   Iwaarden,   2011).   This   study   contributes   to   the   current   body   of   knowledge   by   empirically   examining   how   dependencies   and   power   cause   variation   in   the   way   how   purchase   activities   in   service   triads   are   managed   and   organized  and  how  this  affects  the  satisfaction  of  both  service  provider  and  supplier   in  the  ongoing  service  exchange  relationship.    

Design/Methodology/Approach:  Four  case  studies  involving  four  business  service   triads   in   the   Dutch   retail   sector   were   conducted.   The   cases   involve   all   triads   in   a   shop-­‐in-­‐shop   concept   in   which   procurement   is   based   on   concession,   i.e.,   a   kind   of   vendor-­‐managed   inventory.   Two   cases   were   selected   with   a   high   mutual   dependability,   i.e.   a   balanced   relationship,   between   service   provider   and   supplier   and   two   with   a   low   dependability,   i.e.   the   service   provider   is   more   powerful.  

Dependability   was   measured   based   on   (1)  the   amount   of   profit   that  was   made   by  

the  supplier  for  the  service  provider  company  and  (2)  how  easily  a  supplier  could  be  

substituted  by  another  according  to  the  service  provider.  First,  it  was  investigated  in  

each   case   how   the   purchasing   contract   was   established   and   the   kind   of   relevant  

contractual  agreements  that  were  involved.  Variables  included  were  the  intensity  of  

cooperation,   the   flexibility   in   adjusting   contractual   agreements   the   contract  

completeness,   the   level   of   detail   and   the   contractual   safeguards.   Secondly,   it   was  

4 investigated  how  daily  purchasing  operations  and  control  activities  were  executed   between   service   provider   and   the   retail   supplier.   In   this   the   focus   was   on   the   knowledge  on  both  sides  about  the  contractual  agreements  and  if  these  agreements   were  met  in  daily  practice.  Purchasing  office”•ǡǯ•ƒ†ƒ……‘—–ƒƒ‰‡”•‘ˆ„‘–Š

service   provider   and   supplier   were   interviewed   on   all   variables.   Besides   this,   Contractual   agreements   were   analyzed.   Per   case   it   was   analyzed   how   the   purchasing   is   managed   and   organized   between   service   provider   and   supplier   (within-­‐case   analysis).   Cross-­‐case   analysis   is   performed   to   find   patterns   among   similar   cases   and   to   detect   variation   among   cases   caused   by   dependability   and   perhaps  additional  factors.      

Findings:  Case  A  and  B,  with  a  balanced  relationship,  are  characterized  by  a  smooth   contracting  phase  and    in  these  cases  service  provider  and  supplier  are  much  more   satisfied   about   their   purchasing   relationship   compared   to   case   C   with   a   low   dependability.  Case  C  reflects  a  relationship  in  which  both  are  satisfied  and  willing   to  cooperate  due  to  mutual  interest.  The  supplier  in  case  C  was  much  more  powerful   some   years   ago.   In   cases   A   and   B   both   parties   experience   the   contract   as   very   complete   and   detailed   although   the   actual   contracts   reflect   significantly   less   agreements  compared  to  the  contracts  in  cases  C  and  D.  Also,  in  cases  A  and  B  the   supplier  was  inflexible  while  in  cases  C  and  D  the  service  provider  was  in  the  lead.  In   daily   practice,   cases   A   and   B   state   that   what   is   included   in   –Š‡ …‘–”ƒ…–• Ǯ™‘”•ǯ

adequately,   but   still   many   issues   are   not   elaborated   and   require   intensive   daily   communication.   Furthermore,   theses   suppliers   show   a   more   pro-­‐active   role   in   provisioning   and   presenting   their   services   in   the   shop.   In   case   C   the   service   providers  supervises  and  guides  more  the  activities  of  the  supplier  while  in  case  D   the  service  provider  is  very  prescriptive  and  dominant  towards  their  supplier.        

Contributions:   This   paper   expands   the   theoretical   knowledge   of   how   power   relationships  influence  the  management  in  a  business  service  triad.  It  is  one  of  the   first  research  papers  which  describes  how  the  purchasing  function  is  managed  and   organized  in  business  service  triads  and  how  power  and  dependability  influence  the   management  and  organization  of  the  purchasing  function  in  such  setting.  This  paper   particularly   contributes   to   the   limited   knowledge   on   the   ongoing   management   of   purchasing   relationships   and   contracts   after   their   establishment   and   how   this   influences  daily  practices.    

5

Table  of  Contents  

1.  Introduction  ...  6  

2.  Theoretical  Background  ...  9  

2.1  Sourcing  Business  Services  ...  9  

2.2  Relationships  in  Business  Service  Triads  ...  10  

2.3  Purchasing  in  Business  Service  Triads  ...  12  

2.4  Contracting  &  Contract  Management  ...  13  

2.5  Power,  Contracting  &  Contract  Management  ...  15  

2.6  Satisfaction  in  Business  Service  Triads  ...  16  

2.7  Research  Questions  ...  17  

3.  Methodology  ...  18  

3.1  Research  Context  and  Unit  of  analysis  ...  18  

3.2  Case  Selection  ...  19  

3.3  Variables  ...  21  

3.4  Data  Collection  ...  22  

3.5  Data  Analysis  ...  23  

3.6  Quality  of  Research  ...  25  

4.  Findings  ...  26  

4.1  Within-­‐case  Analysis  ...  26  

4.1.1  Case  A  ...  26  

4.1.2  Case  B  ...  30  

4.1.3  Case  C  ...  33  

4.1.4  Case  D  ...  37  

4.2  Cross-­‐case  Analysis  ...  41  

5.  Discussion  &  Conclusion  ...  47  

6.  References  ...  51  

Appendix  A  Ȃ  Contractual  Agreements...  54  

Appendix  B  Ȃ  Interview  Protocol  ...  54  

Appendix  C  Ȃ  Questionnaire  Protocol  ...  60  

Appendix  D  Ȃ  Documentation  Protocol  ...  63  

Appendix  E  Ȃ  Case  selection  Protocol  ...  64    

6 1.  Introduction  

Sourcing   business   services   has   become   increasingly   important   to   firms.   The   purchase   of   these   services   has   „‡…‘‡ ƒ •—„•–ƒ–‹ƒŽ ‡Ž‡‡– ‹ ƒ ˆ‹”ǯ• –‘–ƒŽ

acquisition  of  external  resources  (Axelsson  &  Wynstra,  2002.,  Van  Weele,  2005)  and   several  authors  acknowledge  the  opportunities  for  increasing  profits  through  more   effective   service   purchases   (Fearon   &   Bales,   1995,   Stradford   &   Tiura,   2003).  

However,   the   purchasing   process   of   services   has   proven   to   be   more   difficult   and   complex   than   the   purchase   of   goods   (Smeltzer   &   Ogden,   2002).   Reasons   for   this   complexity   are   the   intangible   nature   of   services   and   the   fact   that   services   are   activities   or   processes,   produced   in   interaction   between   buyer   and   seller.  

Furthermore,   purchasing   services   requires   an   ongoing   purchasing   process,   which   should  be  built  on  good  interaction  between  buyer  and  seller  (van  der  Valk  &  van   Weele,  2011).  Due  to  this  complexity  many  organizations  face  substantial  problems   in   effectively   managing   the   transactions   and   relations   involved   in   purchasing   services  (Ellram,  et  al.,  2007,  Ellram,  et  al.,  2008,  Van  der  Valk  &  Rozemeijer,  2009).  

It   is   insufficiently   clear   how   buying   organizations   should   manage   and   contract   services  and  outsourced  service  delivery  (Van  der  Valk  &  van  Weele,  2011).  This  is   highly  problematic  since  the  performance  of  the  service  provider  directly  affects  the   performance   of   the   buying   company   and   vice   versa.   (Van   der   Valk   &   van   Weele,   2011).    

Besides  gaining  insights  in  the  complexity  of  buying  services,  the  question  of  how  to   manage   service   outsourcing   becomes   even   more   important   because   the   increased   outsourcing  activity  of  organizations  to  specialist  subcontractors  causes  buyers  (B),   subcontractors  (S)  and  end  customers  (E)  to  operate  in  a  triadic  service  relationship   (Van   der   Valk   &   Van   Iwaarden,   2011).   In   order   to   be   successful,   a   triadic   relationship   should   be   characterized   by   cooperation   and   ongoing   interaction.  

Within  business  service  triads,  the  purchase  of  services  has  proven  to  be  of  strategic   importance.   The   services   outsourced   are   usually   direct   services.   These   direct   services   are   part   of   the   buyers   final   offering   to   end   customers   and   profit   can   be  

•‹‰‹ˆ‹…ƒ–Ž›‹’ƒ…–‡†‹ˆ–Š‡•—„…‘–”ƒ…–‘”ˆƒ‹Ž•–‘…‘’Ž›™‹–Š–Š‡„—›‡”ǯ•™‹•Š‡•  

(Holma,  2012).  This  enhances  the  dependence  between  the  two  parties.    

Because   of   the   strategic   importance   of   services   in   triads   it   is   assumed   that   the  

purchase  of  services  follows  the  strategic  purchasing  process  as  introduced  by  Van  

Weele   (2005).   Since   business   service   triads   require   cooperation   and   ongoing  

interaction,   relationship   establishment   becomes   a   central   element   in   the   strategic  

purchasing   process.   This   ongoing   interaction   implies   that   the   buyer   and   the  

subcontractor   are   in   a   continuing   relationship   that   does   not   end   when   the  

purchasing   process   is   finished,   but   continues   to   exist   until   further   notice.   This  

7 continuing  relationship  is  required  due  to  the  fact  that  the  services  purchased  will   sell  out  at  a  certain  moment  in  time  and  new  and  additional  purchases  are  required   to   keep   the   service   of   the   subcontractor   running.   So,   several   authors   (Peng,   Lin,   Martinez   &   Yu,   2010.;   Holma   2012)   have   proven   the   importance   of   trust   and   collaboration   within   triadic   relationships.   However,   triadic   relationships   are   also   characterized  by  differences  in  power  and  dependency  between  the  actors.  (Van  der   Valk  &   van  Iwaarden,  2011).  These  power  and   interdependence   issues  are  caused   by  the  loss  of  control  over  direct  service  delivery  for  the  buyer  and  the  dependence   of  the  buyer  on  the  subcontractor  and  vice  versa.    

Authors   have   acknowledged   the   importance   of   power   in   business   relationships   (Pfeffer,  1981.,  Benton  &  Maloni,  2005).  Power  negatively  influences  commitment,   trust   and   satisfaction   within   relationships   (Benton   &   Maloni,   2005)   and   power   affects   the   expectations   of   parties   and   their   willingness   to   invest   in   future   collaborative   activities   (Cox,   et   al.,   2003).   Until   now,   power   has   solely   been   investigated  in  business  to  business  and  dyadic  relationships,  whereby  the  concept   of  power  is  rarely  discussed  in  service  supply  chains  (Cox,  1999).  This  is  remarkable   since   services   become   increasingly   important   to   firms   and   a   thorough   understanding  of  how  to  manage  service  purchasing  is  required.    Van  der  Valk  and   Van  Iwaarden  (2011)  acknowledged  that  the   position  of  each  party  in  the  triad  in   terms   of   power   and   dependence   could   siginificantly   influence   the   way   each   party   tries  to  manage  the  triad.  For  example  when  a  subcontractor  enjoys  higher  power,   they  could  try  to  defeat  the  role  of  the  buyer  (Li  &  Choi,  2009)  and  when  the  buyer   enjoys  higher  power,  they  could  try  to  exploit  the  subcontractor.    

Therefore,   this   research   examines   how   power-­‐relationships   influence   the   management   of   the   service   purchasing   process   in   business   service   triads.   It   investigates   how   the   power-­‐relationship   between   buyers   and   subcontractors   in   service  triads  relate  to  the  purchasing  process  activities,  supplier  selection,  contract   development   and   contract   management.   Furthermore,   it   investigates   what   implications   the   purchasing   process   has   for   the   relationship   satisfaction.   Gaining   insight  in  these  issues  makes  the  outsourcing  of  services  more  manageable.  This  is   in   line   with   Ellram,   et   al.,   (2004)   who   argue   that   the   purchasing   process   can   be   utilized  to  improve  the  delivery  and  control  of  the  service  process.    

Secondly,   this   study   contributes   to   the   current   body   of   knowledge   by   examining   how   the   purchasing   function   is   managed   and   organized   in   business   service   triads   and   how   power   and   dependability   influence   the   management   and   organization   of   the  purchasing  function  in  such  setting.    

8 This   research   is   organized   as   follows.   First,   chapter   2   sets   out   the   theoretical   background   by   discussing   the   purchasing   process   of   business   services,   the   triadic   relationships   and   the   influence   of   power   on   the   purchasing   process   in   triadic   settings.  Chapter  3  explains  the  research  method  and  the  research  context.  Section  4   presents   the   findings   of   this   study   both,   per   case   (within-­‐case)   and   cross-­‐case.  

Finally,   chapter   5   discusses   the   findings   of   this   study,   concludes   the   research   and   presents  its  limitations  and  implications  for  future  research.    

9 2.  Theoretical  Background  

This   section   sets   out   the   theoretical   framework   in   order   to   examine   how   power   relationships   between   buyer   and   subcontractor   influence   the   management   of   the   service  purchasing  process  in  business  service  triads.    

2.1  Sourcing  Business  Services  

From   the   introduction,   it   becomes   clear   that   sourcing   business   services   becomes   increasingly   important   to   companies   as   the   purchase   of   services   has   become   a   substantial  element  in  a  …‘’ƒ›ǯ•total  acquisition  of  external  resources  (Axelsson  

&  Wynstra,  2002,  van  Weele,  2005).  This  increasing  importance  of  services  in  many   industries   has   evoked   a   new   interest   in   service   purchasing   (Lindberg   &   Nordin,   2008).   As   explained   in   the   introduction,   the   process   of   purchasing   services   has   proven  to  be  more  difficult  and  complex  than  the  purchase  of  goods.  For  example,   buying   services   can   have   a   significant   impact   on   the   fuctioning   of   organsations,   since   poor   purchase   decisions   can   lead   to   poor   performance   and   like   wise,   good   decisions  to  good  performance  (Soriano,  2001).    

In  business  service  triads,  the  services  purchased  are  usually  not  further  processed   by  the  buyer  and  are  therefore  ’ƒ”–‘ˆ–Š‡„—›‡”ǯ•ˆ‹ƒŽ‘ˆˆ‡”‹‰–‘‡†…—•–‘‡”•Ǥ

Therefore,   the   strategic   importance   of   the   purchase   is   high   and   profit   can   be   significantly  impac–‡†‹ˆ–Š‡•—„…‘–”ƒ…–‘”ˆƒ‹Ž•–‘…‘’Ž›™‹–Š–Š‡„—›‡”ǯ•™‹•Š‡•.  

Besides  this,  profit  can  be  increased  if  the  subcontractor  delivers  services  that  seem   to   be   very   attractive   to   end-­‐customers   and   increase   the   competitiveness   of   the   buyer  (van  der  Valk  &  van  Weele,  2011).    

The   above   described   characteristics   of   buying   business   services   imply   that   the   purchasing   process   of   services   is   of   strategic   importance.   According   to   Kraljic   (1983),   this   means   that   (1)   the   degree   of   difficulty   associated   with   sourcing   a   service   and   the   vulnerability   of   the   buyer   organization   associated   with   failure   in   service  delivery  is  high.  And  (2)  the  profit  potential  or  profit  impact  of  the  services   is  high.  The  management  of  the  strategic  purchasing  situation  consists  of  a  sequence   of  steps,  proposed  by  van  Weele,  (2005).  These  steps  are  visualized  in  figure  1.  

Figure  1.  The  strategic  purchasing  process  (adopted  from  van  Weele,  2005)  

10 In  order  to  clarify  what  the  steps  in  the  strategic  purchasing  process  include,  a  short   and  general  explanation  per  step  is  given  in  table  1.    

Step  in  the  process   Definition  

Specification   Specification   of   what   should   be   purchased  

and  what  is  required  from  the  subcontractor   (van  Weele,  2010)  

Selection   Selecting  potential  subcontractors  that  fulfill  

the  requirements  (van  Weele,  2010)  

Contracting   Phase   in   which   the   relationship   and   the  

contract   between   buyer   and   subcontractor   is  established  (van  Weele,  2010)  

Ordering   Execution   of   the   contract.   The   service   is  

outsourced   and   subjected   to   the  

•—„…‘–”ƒ…–‘”ǯ•”‡•’‘•‹„‹Ž‹–›  

Expediting   Managing   the   contract   and   monitoring   the  

contracted  party  

Evaluating   Evaluation   of   performance   and   the  

relationship  with  the  contracted  party   Table  1.  Description  of  the  strategic  purchasing  process.    

The  steps  in  the  strategic  purchasing  process  are  closely  related.  Deficiencies  in  one   step  will  lead  to  problems  in  the  next  steps  (Van  Weele,  2010)  and  therefore,  each   party  should  carefully  assess  whether  they  are  satisfied  with  the  steps  taken,  or  that   further  deliberation  or  changing  affairs  in  previous  steps  is  needed.    

2.2  Relationships  in  Business  Service  Triads  

Business   service   triads   are   characterized   by   relationships   among   three   different   actors   (See   figure   2).   What   is   unique   in   business   service   triads   is   that   a   direct   relationship   also   exists   between   the   service   provider   (subcontractor)   and   end   customer,   making   relationship   management   extremely   important   (Van   der   Valk   &  

van   Iwaarden,   2011).   Relationship   management   can   be   defined   as   all   the   models,   theories,   concepts,   activities   and   procedures   that   are   used   to   manage,   improve   or   facilitate  interaction  with  customers,  prospects  or  partners  (Davenport,  et  al.,  2001).  

11 Figure  2.  Business  service  triad  (Adopted  from  van  der  Valk  &  van  Iwaarden,  2011)        

Several  models,  concepts  and  theories  from  different  disciplines  have  been  used  to   gain   more   insight   in   how   relationships   in   business   service   triads   should   be   managed.   Li   &   Choi,   (2009)   provided   insight   in   how   relational   structures   (i.e.   the   relationships   between   the   three   actors   in   the   triad)   evolve   during   the   service   outsourcing   process   and   which   position   the   buyer   occupies   during   this   process.  

According   to   them,   the   relationship   between   buyer   and   subcontractor   within   service  triads  is  temporarily,  when  no  control  mechanisms  are  put  in  place.  Once  the   subcontractor   and   the   end   customer   have   been   connected,   the   central   role   of   the   buyer   is   defeated.   In   order   to   overcome   this,   the   buying   firms   must   engage   in   collaborative   supplier   relationships   to   mitigate   the   risk   of   opportunistic   behavior.    

However,  in  many  business  service  triads  the  buyer  connects  the  different  elements   of   the   subcontractor   in   the   overall   service   package   that   is   delivered   to   the   end   customer.  In  these  relationships,  buying  business  services  is  an  ongoing  interaction   process  (Wynstra,  Axelsson  &  Van  der  Valk,  2006;  2009).  Studies  by  (Wynstra,  et  al.,   2006;  2009)  indicate  that  services  require  different  interaction  between  buyer  and   supplier.   Such   an   interaction   requirement   is   for   example   involving   different   representatives   in   the   buying   process.   In   their   later   study,   effectiveness   of   the   interaction   in   an   ongoing   service   exchange   setting   is   examined.   This   study   found   that   deviation   from   the   ƒ—–Š‘”ǯ•   proposed   effective   interaction   pattern   for   buying   services   was   found   to   impact   the   success   in   the   ongoing   service   exchange.  

Therefore,   in   conclusion   of   their   study,   –Š‡ ƒ—–Š‘”ǯ• •—‰‰‡•– –Šƒ–   services   should  

follow  their  proposed  interaction  pattern  in  order  to  generate  a  successful  service  

exchange.  Research  by  Holma,  (2012)  and  Peng,  et  al.,  (2010)  extent  the  knowledge  

on   managing   successful   ongoing   relationships   in   business   service   triads.   These  

authors   acknowledge   the   importance   of   trust   and   interpersonal   interaction   in  

relationships.  Establishing  relationships  between  buyer  and  subcontractor  build  on  

trust   and   interpersonal   interaction   reduce   opportunism   and   costly   monitoring  

processes.   Van   Iwaarden   and   Van   der   Valk   (2011   &   2013)   however,   acknowledge  

the   need   for   contracts   and   monitoring   procedures   to   guide   the   behavior   of   the  

actors   in   the   service   triad.   Using   contracts   and   monitoring   procedures   minimize  

opportunistic  behavior  and  assure  compliance  with  the  agreements.    

12  

From  the  previous  described  studies,  it  can  be  concluded  that  collaboration  between   buyer  and  subcontractor  and  developing  close  and  reliant  relationships  is  crucial  in   managing   business   service   triads.   Several   authors   have   acknowledged   that   the   relationship   between   buyer   and   subcontractor   is   of   an   ongoing   nature.   (Holma,   2012;   Wynstra,   et   al.,   2009;   Van   der   Valk   &   van   Iwaarden,   2011).   These   authors   however   fall   short   in   recognizing   that   the   relationship   establishment   starts   at   the   purchasing   process,   as   is   proposed   by   Van   Weele   (2005,   2010).   No   attention   has   been   paid   on   how   the   relationships   developed   in   the   procurement   process,   influence   the   further   and   continuing   relationship   (van   Weele,   2010).   Gaining   insights   in   this   development   could   make   the   relationships   and   the   purchasing   process   within   triads  more   manageable   and  it   could   improve   service   delivery   and   performance   of   both   buyer  and   subcontractor   (Ellram,   et   al.,   2004).   This   research   therefore,   focuses   on   the   purchasing   process   in   business   service   triads   and   more   specifically  on  those  phases  of  the  process  where  buyer  and  subcontractor  interact   most.   The   following   section   discusses   the   purchasing   process   in   business   service   triads  in  more  detail.    

2.3  Purchasing  in  Business  Service  Triads  

The  process  of  purchasing  strategic  services  follows  a  sequence  of  steps  that  were  

proposed  by  Van  Weele  (2010).  At  every  step  in  the  process,  the  purchase  and  the  

conditions   of   the   purchase   between   buyer   and   subcontractor   become   specified   in  

more   detail.   This   affects   the   relationship   establishment   between   buyer   and  

subcontractor   (van   Weele,   2010).   In   order   to   examine   at   which   steps   the  

relationship   becomes   more   specified   in   detail,   one   needs   to   consider   the   whole  

strategic  purchasing  process.  The  first  step  in  the  strategic  purchasing  process  is  the  

specification   stage.   In   this   stage,   the   buyer   needs   to   specify   what   should   be  

purchased  and  what  is  required  from  the  subcontractor.  Within  this  stage  the  buyer  

is   confronted   with   a   make   or   buy   decision.   The   make   or   buy   question   considers  

whether   to   make   the   required   products   and   services   in-­‐house   or   buy   outside  

(Bryntse,  1996).  Once  the  decision  to  buy  outside  is  made,  but  prior  to  the  supplier  

selection,   it   is   difficult   for   a   buyer   to   determine   what   the   subcontractor   exactly  

should  accomplish  (van  Weele,  2010).  According  to  Axelsson  &  Wynstra  (2002)  the  

buyer  has  to  further  specify  the  service  in  three  ways,  namely;  (1)  a  specification  of  

the  inputs  (i.e.  what  needs  to  be  supplied  by  the  subcontractor)  that  will  be  used  by  

the  service  provider  (2)  a  specification  of  the  processes  that  needed  to  be  in  place  in  

order  to   produce   the   requested   service   and   (3)  a   specification   of   the   outputs   that  

need  to  be  generated  by  the  supplier  (Axelsson  &  Wynstra,  2002).  Once  the  buyer  

has  completed  the  specification  phase,  he  has  a  clear  view  of  what  to  seek  for  in  a  

subcontractor  and  the  selection  stage  commences.  In  the  selection  stage,  the  buyer  

13

•‡‡•ˆ‘”•—„…‘–”ƒ…–‘”•–Šƒ–•ƒ–‹•ˆ›–Š‡„—›‡”ǯ••’‡…‹ˆ‹…ƒ–‹‘•ǤŠ‡„—›‡”…Š‡…•–Š‡

reputation,   references   and   experiences   of   potential   subcontractors   and   compares   the   different   candidates   (van   Weele,   2010).   When   the   buyer   selected   the   suitable   subcontractors,   the   contracting   for   services   begins.   In   this   stage   the   buyer   and   subcontractor   interact   about   their   demands   and   interests   and   the   relationship   between  both  parties  becomes  specified.  In  other  words,  it  becomes  clear  what  both   parties  demand  from  each  other  and  how  they  wish  to  cooperate  (van  Weele,  2010).  

The  result  of  this  interaction  is  a  contract  (van  Weele,  2010).  Once  the  contract  is   established,   the   contract   management   with   phases   order,   expedite   and   evaluating   starts.  In  the  context  of  business  service  triads  these  stages  ensure  that  the  contract   is   carried   out   as   agreed   upon   by   both   the   buyer   and   the   subcontractor.   Since   services   is   an   ongoing   process,   the   steps   require   ongoing   attention.   From   the   decription   above,   once   can   conclude   that   the   most   interaction   between   buyer  and   subcontractor  takes  place  in  the  contracting  and  contract  management  phase.  The   next  paragraph  elaborates  on  these  phases  and  explains  how  these  phases  influence   the  relationship  between  buyer  and  subcontractor  and  vice  versa.    

2.4  Contracting  &  Contract  Management  

Business   service   triads   are   most   likely   to   appear   more   and   more   in   the   business   world.  There  is  however  a  lack  of  thorough  understanding  of  the  questions  raised  by   this  phenomena  and  how  to  deal  with  them.  The  appropriate  design  of  contracts  and   managing   contracts   is   a   good   example   one   of   such  questions   (Van   der  Valk   &   van   Iwaarden,  2011).  Contracts  are  unique  for  individual  businesses  since  they  specify   the  different  aspects  of  the  buyer-­‐subcontractor  relationship,  which  are  reflected  in  

–Š‡Dz‰‘ƒŽdz‘ˆ–Š‡…‘–”ƒ…–ǤAs  was  discussed  in  section  2.2  the  relationship  between  

buyer  and  subcontractor  and  the  value  exchange  is  of  an  ongoing  nature  and  starts  

at   the   very   beginning   of   the   purchasing   process.   This   relationship   will   develop   at  

multiple   levels   between   the   organizations   involved;   at   the   operational   level    

between   individuals   or   teams   that   are   involved   in   the   actual   service   delivery   or  

execution   of   the   contract   (the   contract   management),  but   also   at   the   management  

level,   where   the   relationship   and   contractual   agreements   will   be   made   and  

periodically  be  reviewed  (the  contracting  phase)  (van  Weele,  2010).  The  contracting  

phase   is   the   phase   in   which   the   relationship   and   the   contract   between   buyer   and  

subcontractor   is   established   (van   Weele,   2010).   Activities   in   this   phase   can   for  

example   include   the   first   meeting,   the   negotiation   phase   and   all   other   phases   that  

might  be  necessary  to   establish  the  contract  and  to  specify  the  further  interaction  

between  both  parties.  (Baily,  et  al.,  2008)  The  contracting  phase  can  be  divided  into  

two  parts,  the  contract  content  and  the  contracting  process.    

14 The  contract  content  can  be  described  and  characterized  in  parameters  or  variables;  

contract  completeness,  level  of  detail  and  contractual  safeguards  (Lusch  &   Brown,   1996).  These  variables  can  be  defined  as  follows;    

-­‐ Contract  completenessǢƒ…‘–”ƒ…–‹•…‘•‹†‡”‡†–‘„‡‘”‡Dz…‘’Ž‡–‡dz™Š‡

it   includes   an   extensive   overview   of   what   is   required   from   both   parties.  

(Klein  Woolthuis,  Hillebrand  &  Nooteboom,  2005)    

-­‐ Level   of   detail;   the   level   of   detail   implies  to   which   extend   the   clauses,   rules   and   regulations   included   in   the   contract   are   specified   in   detail.   (Klein   Woolthuis,  et  al.,  2005)  

-­‐ Contractual   safeguards;   defines   the   degree   to   which   protective   clauses   are   included  in  the  contract  and  the  d‡‰”‡‡–‘™Š‹…Š’ƒ”–‹‡•ƒ”‡ƒ„Ž‡–‘Dz‡•…ƒ’‡dz

the  contract  (Lusch  &  Brown,  1996).    

The  content  of  the  contract  is  an  outcome  of  the  contracting  process.  As  van  Weele   (2010)   proposed,   all   steps   in   the   purchasing   process   are   interrelated   and   any   misconception  in  the  previous  step  has  effect  on  the  later  step  (van  Weele,  2010).  

Therefore,  the  contracting  process  is  built  from  the  previous  steps  in  the  purchasing   process.   One   of   these   steps   is   the   specification   phase   (van   Weele,   2010).   In   the   specification   phase   the   buyer   specifies   what   exactly   is   required   from   the   subcontractor,  how  the  subcontractor  is  to  perform  and  what  the  subcontractor  can   expect  from  the  buyer  in  return.  The  more  specifications  are  included  and  the  more   these   specifications   are   not   or   hardly   negotiable,   the   less   room   there   is   for   the   subcontractor  to  insert  their  own  requirements  (van  Weele,  2010).  Another  variable   that  was  considered  to  be  of  influence  in  the  purchasing  process  according  to  van   Weele  (2010)  is  the  intensity  of  cooperation.  Intensity  of  cooperation  is  the  degree   to   which   the   buyer   is   willing   to   cooperate   and   to   ƒ……‡’– –Š‡ •—„…‘–”ƒ…–‘”ǯ•

suggestions   (Wong,   2000).   An   additional   variable   that   can   be   of   influence   in   the   contracting   process   is   flexibility,   according   to   Macneil   (2000).   Flexibility   is   the   degree  to  which  the  party  is  willing  to  be  flexible  about  their  contractual  terms  and   clauses   (Macneil,   2000).   The   above   mentioned   variables   together   determine   the   contracting  process.    

After   the   contract   is   established,   the  purchasing  process   continues  with;   ordering,  

expediting   and   evaluating.   These   phases   together   make   up   the   contract  

management   practices.   Contract   management   can   be   defined   as   the   activities   of   a  

buyer  and  subcontractor  during  a  contract  period  to  execute  the  activities  specified  

and   to   ensure   that   all   parties   to   the   contract   fulfill   their   contractual   obligations  

(Baily,   et   al.,   2008).   Contract   management   can   be   considered   as   a   downstream  

acitivtiy,  yet  it  can  only  be  carried  out  if  the  upstream  activities  are  properly  carried  

out  (i.e.  the  contract  specifcies  clearly  what  needs  to  be  done  and  accomplished  at  

each   organizational   level)   (Baily,   et   al.,   2008).   Contract   management   is   crucial   for  

15 both   parties.   If   the   agreement   is   not   properly   carried   out   and   regularly   reviewed   then  the  true  benefits  and  improvements  contained  in  the  contract  will  not  be  fully   realised  (Baily,  et  al.,  2008).  In  other  words,  the  contract  management  should  be  a   logical  extension  of  the  contract.  Creating  a  solid  link  between  the  initial  contracting   phase   and   the   operational   contract   management   phase   is   therefore   extremely   important.   It   means   that   operational   staff   (the   staff   that   manages   the   daily   acitivities)  need  to  be  consulted  at  an  early  stage  about  how  activities  are  required   to   take   place   (van   Weele,   2010).   Untill   now,   little   is   known   about   the   interrelationships  between  contracting  and  contract  management  and  what  aspects   essentially  determine  long-­‐term  success  in  service  relationships  (van  Weele,  2010).  

Therefore,   besides   providing   insights   into   how   power-­‐relationships   influence   the   management  of  the  purchasing  prrocess  in  business  service  triads,  this  research  also   provides   insights   into   the   gap   of   contracting   and   contract   management   by   examining   how   the   contracting   phase   influences   the   contract   management.  

Furthermore,   this   research   continues   by   looking   at   how   contracting   and   contractmanagement   influences   the   level   of   satisfaction   of   both   parties.   This   provides   insights   in   the   aspects   that   could   determine   long   term   successful   relationships.    This  is  elaborated  on  in  section  2.6  

2.5  Power,  Contracting  &  Contract  Management    

From   the   previous   paragraphs,   it   has   become   clear   that   collaboration   between  

buyer  and  subcontractor  and  developing  close  and  reliant  relationships  is  crucial  in  

managing  purchasing  in  business  service  triads.  Especially  since  the  relationship  is  

of  an  ongoing  nature  and  deterioration  of  the  relationship  can  ultimately  result  into  

termination   of   the   outsourcing   agreement.   Trust   and   interpersonal   interaction  

(Holma,   2012;   Peng,   et   al.,   2010)   have   been   recognized   as   drivers   for   successful  

ongoing   relationships.   Van   der   Valk   &   van   Iwaarden,   (2011)   argue   that   business  

triads  cause  the  buyer  and  the  supplier  to  cooperate  in  relationships  that  are  also  

characterized  by  enhanced  power  and  dependability  issues.  Power  can  be  defined  as  

the  ability  of  one  party  to  influence  decision  making  and  actions  of  the  other  party  

(Kähkönen  &  Virolainen,  2011).  According  to  Maloni  &  Benton,  (2000)  power  plays  

significant   roles   in   the   supply   chain   and   the   different   sources   of   power   have  

contrasting  effects  on  inter-­‐firm  relationships.  French    &  Raven  (1959)  were  among  

the   first   authors   to   investigate   the   bases   of   power.   In   their   book   they   make   a  

distinction  between  five  sources  of  power;  legitimate,  expert,  referent,  coercive  and  

reward   power.   A   considerable   amount   of   additional   authors   have   investigated   the  

sources   of   power   (Among   others;   Pfeffer,   1981.,   van   Weele   &   Rozemeijer,   1999.,  

Maloni   &   Benton,   2000,   2005).   Comparing  the   results   of   their   study   has   indicated  

that   power  is   generally   highly   related   to   interdependence.  Pfeffer  (1981)  uses   the  

definition  that  the  relative  power  of  an  organization  over  another  is  the  result  of  the  

16 net  dependence  of  the  one  on  the  other.  Therefore,  interdependence  can  be  seen  as   a  strong  source  of  power.    

As   stipulated   in   the   introduction,   power   influences   commitment,   trust   and   satisfaction   within   relationships   (Benton   &   Maloni,   2005)   and   it   affects   the   expectations   of   parties   and   their   willingness   to   invest   in   future   collaborative   activities  (Cox,  et  al.,  2003).  Despite  the  extensive  research  on  sources  of  power,  to   our  best  knowledge,  there  is  no  analysis  of  how  power  affects  the  management  in   business  service  triads.  Current  literature  on  supply  chain  management  makes  the   ambitious   assumption   that   the   parties   in   a   relationship   are   willing   and   able   to   develop   mutual   beneficial   relationships   (Benton,   Maloni,   2005).   However,   firms   with  high  sources  of  power  have  little  if  any  reason  to  yield  control  or  to  withhold   exercise   of   their   power   (Benton   &   Maloni,   2005).   Therefore,   it   is   crucial   to   understand  the  influences  of  power  on  the  ongoing  relationship  between  buyer  and   their   subcontractors   and   what   that   implies   for   the   contracting   and   contract   management  phase.    

Based  on  findings  by  Lusch  &  Brown  (1996)  the  power  relationship  between  buyer   and  subcontractor  is  embedded  in  the  contract.  A  more  complete/explicit  contract,  a   higher  level  of  detail  and  a  lower  level  of  contractual  safeguards  is  associated  with   an  increased  skewed  relationship  (Lusch  &  Brown,  1996).  This  skewed  relationship   implies   that   either   the   buyer   or   the   subcontractor   has   superior   power   over   the   other   party   (Lusch   &   Brown,   1996).   In   order   to   assess   which   party   holds   the   superior   power   and   as   such   is   able   to   determine   how   complete   and   detailed   the   contract  will  be,  it  is  essential  to  determine  who  has  the  upper  hand  in  writing  the   contract  (Lusch  &  Brown,  1996).  This  is  reflected  in  the  contracting  process  and  the   source  of  this  power  is  classified  as  the  interdependence  of  both  parties.  Power  can   have  a  high  influence  on  the  content  of  the  contract,  which  in  turn  can  have  effects   on  the  contract  management.    

2.6  Satisfaction  in  Business  Service  Triads  

The   outcome   of   the   purchasing   process   determines   the   contract   and   other   agreements   that   have   been   made   between   the   buyer  and   the   subcontractor.   Since   triadic   business   exchanges   require   ongoing   relationships   (Holma,   2012)   it   is   important  to  assess  whether  the  parties  are  satisfied  with  the  relationship  and  the   outcomes   of   the   purchasing   process.     Especially   for   the   buyer,   it   is  important   that  

–Š‡ ”‡Žƒ–‹‘•Š‹’ ™‹–Š –Š‡ •—„…‘–”ƒ…–‘” ‹• •‘Ž‹† ƒ† ”‡Ž‹ƒ„Ž‡ǡ •‹…‡ –Š‡ „—›‡”ǯ•

performance  is  partially  dependent  on  the  performance  of  the  subcontractor  (Van    

 der  Valk  &  van  Weele,  2011).  The  subcontractor  should  therefore  be  treated  as  an  

important   asset.   In   this   research   satisfaction   is   defined   as;   the   •—„…‘–”ƒ…–‘”ǯ•   or  

buyers   feeling   of   fairness   with   regard   to   „—›‡”ǯ•/subcontractors   incentives   and  

subcontractors/buyers   contributions   within   a   buyerȂsubcontractor   relationship.  

17 (Essig  &  Amann,  2009).  Since  this  research  focuses  on  the  contracting  phase  and  the   contract   management,   the   satisfaction   of   both   parties   on   these   aspects   of   the   purchasing  process  is  measured.    

2.7  Research  Questions  

After   discussing   the   main   variables   and   relationships   on   procurement   in   business   service  triads,  it  can  be  concluded  that  little  is  known  about  the  actual   purchasing   process.   Until   now,   it   is   unclear   how   to   manage   the   purchasing   process   and   specifically  how  the  steps  in  the  contracting  phase  influence  contract  management   and   in   turn   the   satisfaction   of   both   buyers   and   subcontractors   in   the   triad.  

Furthermore,   it   is   unclear   how   power   influences   the   contracting   phase   in   the   purchasing  process  and  what  implications  this  has  for  the  contract  management.    

These  conclusions  lead  to  the  following  main  research  question:    

How   does   the   power   relationship   between   buyer   and   subcontractor   influence   the   contracting  and  contract  management  phases  of  the  purchasing  process  and  how  does   this   influence   the   satisfaction   of   both   buyer   and   subcontractor   in   business   service   triads?    

Sub-­‐questions  that  could  help  in  finding  an  answer  for  the  main  research  questions   are;  

In  a  business  service  triad:  

1.   A.  How  does  the  contract  completeness  influences  the  contract  management?  

  B.  How  does  the  level  of  detail  influences  the  contract  management?  

  C.  How  do  the  contractual  safeguards  influence  the  contract  management?    

2.     How  is  the  contracting  phase  and  the  contract  management  influenced  by  the   power  relationship  between  buyer  and  subcontractor?    

3.     How  do  the  contracting  phase  and  the  contract  management  phase    influence     the  statisfaction  about  the  relationship  of  both  parties?      

The  conceptual  model  that  can  be  derived  from  the  above  is  shown  in  figure  3.  

18 Figure  3.  Conceptual  model    

This   model   provides   an   overview   of   the   relationships   to   be   investigated;   the   numbers  in  figure  3  refer  to  the  research  questions  presented  above.    

 3.  Methodology    

A  thorough  understanding  of   purchasing  in  business  service  triads  is   still  missing.  

Theory  about  the  purchasing  process  has  not  been  applied  in  a  triadic  setting  and   theory   about   power   relationships   is   limited   to   dyadic   relationships.     Therefore,   theory-­‐refining   opportunities   exist   of   the   power   relationship   between   buyers   and   subcontractors   on   the   purchasing   process   in   business   service   triads.   Eisenhardt   (1989)  suggests  that  using  case  study  research  is  most  appropriate  when  an  existing   perspective  seems  not  suitable  for  a  new  context.  The  advantages  of  case  studies  for   this   purpose   have   been   illustrated   by   previous   research   stemming   primarily   from   their   information   richness   and   the   ability   to   answer   how   and   why   questions   (Eisenhardt,   1989;   Ellram,   1996;   Yin,   2009).   Besides   this,   the   following   reasons   show   why   case   study   is   most   appropriate   in   this   research.   First,   knowledge   on   service  triads  is  in  an  exploratory  phase  (van  Iwaarden  &  Van  der  Valk,  2013)  and   even  less  is  known  about  the  effects  of  the  power  relationship  between  buyer  and   subcontractor  on  the  purchasing  process.  Furthermore,  this  research  is  considered   to   be   complex   due   to   underlying   and   unclear   relationships   between   the   to   be   investigated  variables  in  a  business  service  triad.  Case  study  research  is  considered   to  be  appropriate  for  the  investigation  of  these  kind  of  complex  phenomena  because   of  information-­‐rich  cases,  which  would  be  too  complex  for  surveys  (Yin,  2009).    

3.1  Research  Context  and  Unit  of  analysis  

The   buyer-­‐subcontractor   relationship   will   be   investigated   in   a   shop-­‐in-­‐shop   environment.   Shop-­‐in-­‐shop   concepts   are   increasingly   popular   in   the   retail  

2 _1A

1B 1C

3

19 environment  and  especially  in  department  stores  or  malls.  Shop-­‐in-­‐shops  are  a  form   of  business  triads  in  which  the  department  stores  or  malls  (=  Buyers  (B))  subletting   retail   services   to   brands   (=   Subcontractors   (s))   which   deliver   service   to   the   end   customers   (E)   (Jerath   &   Zhang,   2010).   Within   these   shop-­‐in-­‐shop   settings,   procurement  is  based  on  concession,  i.e.,  a  kind  of  vendor-­‐managed  inventory.  The   selected  fashion  warehouse  currently  operates  in  shop-­‐in-­‐shop  settings  and  aims  to   expand   this   in   the   near  future.   However,   before   doing   so,   the   buyer   would   like   to   gain  more  insights  in  how  to  manage  the  purchasing  process  and  relationships  with   their   subcontractors.   Management   of   these   relationships   has   not   always   been   successful.  According  to  the  buyer,  in  some  relationships  the  buyer  experienced  loss   of   control   when   expanding   the   autonomy   granted   to   brands,   while   in   others   the   relationship   actually   improved.   Furthermore,   the   buyer   experiences   that   some   subcontractors  are  highly  satisfied  with  the  manner  of  cooperation,  while  others  are   extremely  dissatisfied  and  intend  to  end  the  cooperation.  This  research  contributes   to  this  problem  faced  by  the  buyer  by  giving  insights  in  how  to  operate  and  manage   these  relationships  with  different  subcontractors  more  effectively.    

The  unit  of  analysis  in  this  case  study  is  the  (power)  relationship  between  the  buyer   and  the  subcontractor  and  the  purchasing  process  in  which  they  cooperate.  This  is   in   line   with   the   main   research   question,   which   focuses   on   how   the   power   relationship  between  buyer  and  subcontractor  influences  the  purchasing  process  in   which  they  are  embedded.    

3.2  Case  Selection  

The   power   relationship   is   defined   as   the   buyer's   relative   power   over   the   subcontractor  as  a  result  of  the  subcontractor's  net  dependence  on  the  buyer.    The  

†‡‰”‡‡‘ˆ–Š‡„—›‡”ǯ•’‡”…‡‹˜‡†’‘™‡”™ƒ•—•‡†  to  select  cases.  As  such  it  could  be   investigated   if   the   dependency   relationship   between   the   buyer   and   subcontractor   affects  the  way  how  the  contracting  and  contract  management  are  implemented  and   how  these  purchasing  activities  and  relationship  affect  the  satisfaction.    

ƒ•‡•™‡”‡•‡Ž‡…–‡†„ƒ•‡†‘–Š‡„—›‡”ǯ•˜‹‡™‘ˆ”‡Ž‡˜ƒ…‡ƒ†•—„•–‹–—–ƒ„‹Ž‹–›‘ˆ

the   brands   (figure   4).   This   was   operationaliz‡† ƒ• –Š‡ „—›‡”ǯ• ’‡”…‡’–‹‘ ‘ˆ Š‘™

‹’‘”–ƒ– –Š‡ „”ƒ† ‹• ˆ‘” –Š‡ „—›‡”ǯ• „—•‹‡•• ƒ† Š‘™ ‡ƒ•‹Ž› –Š‡ „”ƒ† …ƒn   be   substituted  by  another  brand.  This  conceptualization  of  power  and  dependency  was   explained   in   section   2.5.   A   short   questionnaire   in   the   first   two   exploratory   interviews  with  the  buyer  was  used  to  assess  4  subcontractors  on  these  two  criteria.  

Relevance   of   the   brand   was   assessed   based   on   the   profit   the   brand   generates   per  

month  (̀)  for  the  focal  company  and  substitutability  was  measured  as  how  easily  

replaceable   the   focal   company   considers   the   brand   to   be,   i.e.   how   easily   the   focal