Industrial Marketing Management 36 (2007) 1068 – 1081

A professional services firm's competence development

Gabriel Baffour Awuah ⁎,1
School of Business and Engineering Halmstad University P O Box 823 SE - 301 18 Halmstad, Sweden
Received 8 February 2006; received in revised form 14 August 2006; accepted 26 August 2006
Available online 30 October 2006

Abstract

The conceptualization of a firm's competence development has undergone some developments, as seen from the extant literature. However,
studies or explanations of a firm's competence development over time seem to concentrate on firms that manufacture physical goods. The literature is
devoid of studies on the competence development of professional services firms (PSFs). With two in-depth case studies, this paper seeks to shed light
on factors that impinge on PSFs' competence development over time. An important finding of this study is that all the two PSFs' competence
development over time has been influenced, in large measure, by their close and regular interaction with their respective immediate customers as well
as with some significant third parties in their network of exchange relationships, where the actors mutually adapt to each other and also learn from
each other. Evidences in all the two cases show that each of the firms has won and kept important customers that give them the most and frequent
assignments per year, thanks to the factors that have affected their competence to meet customers' demand over time.
© 2006 Elsevier Inc. All rights reserved.

Keywords: Competence and competence development; PSFs; Network of exchange relationships

1. Introduction needs to develop and defend over time so as to be able to

The competence of an individual person or of an organization
is not a new phenomenon (Bandura, 1986; Dunphy, Turner, &
Crawford, 1997; Kloftsen, 1992; Ulvund, 1985). However, our
understanding of the concept of competence and, for that matter,
how that is developed over time, at the individual level or at the
organizational level, can differ from one researcher to another. In
the marketing literature and the strategy literature, for example,
researchers have over the years used all sorts of measures, such
as competitive position, competitive advantage, market shares,
profitability, core competences, competitive position, and
customer loyalty to describe and/or explain a business firm's
performance in the marketplace (Aaker, 2005; Bradley, 1995;
Doyle, 1994, 2002; Kotler, 1997, 2001; Porter, 1985). For some,
the firm's performance, the results of which can be any of the
above measures, are mostly internal strategies, which a firm
⁎ Tel.: +46 35 16 7704.
E-mail address: Gabriel.Awuah@set.hh.se.
1
He is a Senior Lecturer, School of Business and Engineering, Hamlstad
University. He researches on internationalization processes of firms, competence
development of organizations, and strategic alliances. His work has been
published in International Business Review, Industrial Marketing Management,
and Journal of Business and Industrial Marketing.
0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2006.08.006
outperform its competitors (Hamel & Prahalad, 1990; Hollen-
sen, 2001; Porter, 1985). To be able to effectively compete with
rivals and outperform them, a firm will need to develop its core
competence, for instance, by undertaking internal strategies that
will facilitate that effort (Hamel & Prahalad, 1990).
For some researchers, however, a firm's performance, no
matter what measures are used, will depend, in large measure, on
how well it handles its exchange relationships with other
significant actors in the marketplace (Gummesson, 2002;
Håkansson & Snehota, 1995). This position is a clear indication
that a firm's internal efforts to develop its competence, for
example, that will enable it meet demands put on it, might not be
adequate. Taking a firm's customer, for example, the firm's
strong relationship with the customer has been found to be very
important in services companies (Berry & Parasuraman, 1991).
This is because of their inherently interpersonal focus and the
relative lack of objective measures for evaluating service quality.
Forging important exchange relationships cannot be limited to a
firm's customers alone. As maintained elsewhere (Doyle, 2002;
Gummesson, 2002; Tzokas & Saren, 2004), a firm's close
exchange relationships with some important actors in the
focused firm's value chain, do help to provide the end product
(i.e. the service solution) that will be as good as possible (Doyle,
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
2002) for the end customer. Looking at a firm's competence and
how that is developed over time, studies or explanations to that
effect seem to concentrate on firms that manufacture physical
goods (Awuah, 2001; Hamel & Prahalad, 1990; Johnston,
Wilkinson, & Ritter, 2002; Prahalad & Ramaswamy, 2000).
In view of the above, the purpose of this study is to
systematically describe and analyze the factors that impact on a
services firm's competence development over time, thereby also
contributing to theory development in the subject area. The main
research question is as follows: How does a services firm's
network of exchange relationships affect the development of its
competence over time?
The rest of the paper will proceed as follows. In the next
section we discuss the concepts of competence and learning at the
organizational level, followed by a literature review and our
theoretical framework(s). The method employed for the data
collection follows the theoretical framework(s). This section is
then followed by a presentation and analysis of the case studies.
Finally, the last section will consist of conclusion and the
implication(s) of the study.
2. The concepts of competence and learning
2.1. Competence
Studying a concept such as competence is very complex, since
the meaning of the concept can be used differently by many
people. “The ability of a firm to develop and manage relations
with key suppliers, customers and other organizations and to deal
effectively with the interactions among these relations is a core
competence of a firm” (Johnston et al., 2002, p.119). “In this
paper, the term competence is used to mean not only having
knowledge or possessing skills and qualifications, but also using
those qualifications” (Ritter & Gemünde, 2004, p. 549). “Core
competencies are the collective learning in the organization,
especially how to coordinate diverse skills and integrate multiple
streams of technologies” (Hamel & Prahalad, 1990, p.82). For
Hamel and Prahalad, competence is the glue that binds existing
businesses. Others refer to a firm's competence as its ability to act
with effectiveness and efficiency when it comes to the call to
satisfy customer needs and wishes (Bjerkens, Dahlbohm, &
Mathiassen, 1990; Kloftsen, 1992). Kloftsen (1992, p. 30), for
example, contends that a firm's competence lies in its ability to
identify and satisfy the needs and wishes of customers and to
conduct gainful transactions with them. For Webster (1991),
emphasis should be put on a firm's distinctive competence. This
allows a firm to focus attention on the customers served, the nature
of the needs that are satisfied and the role of the firm's products or
services that are offered in satisfying that sets of needs. As Doyle
(2002) posits, a firm's competence lies in its use of suppliers and
subcontractors to facilitate customer needs' satisfaction.
In this study, we adopt Awuah's (1997, 2001) definition of a
firm's competence. According to Awuah, a firm's competence is
its ability to meet demands put on it by the actors with whom it
interacts, where that competence is developed as the result of
linking together its internal skills, activities, and resources to those
of external actors (Snehota, 1990, p. 203; Sadler-Smith, Chaston,
1069
& Badger, 2000). This competence development is often enhanced
by the mutual learning and experiences the firm engages in
through its interaction with other actors in a network context
(Awuah, 2001; Fruin, 2001; Snehota, 1990). In the final analysis, a
marketer's ultimate goal will be to seek an answer to the question
of how its customers' needs and wants can be satisfied (Doyle,
2002). For some researchers (Armstrong, Saunders, & Wong,
2002; Armstrong, Saunders, & Wong, 2005; Doyle, 2002), the
answer to this question is the same for both services and products.
While the definition of competence adopted for the present
study has much in common with some of the definitions above
(Bjerkens et al., 1990; Johnston et al., 2002; Kloftsen, 1992;
Webster, 1991), because it is the customer need satisfaction that is
in focus, we cast a wider net to see the extent to which a firm's
network of exchange relationships impinges on the firm's
competence development (see also Johnston et al., 2002,
p. 119). For Prahalad and Ramaswamy (2000, p. 80; Awuah,
2001), a firm's competence is a function of the collective knowl-
edge available to a whole system, an enhanced network of tradi-
tional suppliers, manufacturers, partners, investors and customers.
2.2. Learning
The concept of learning and its importance for competence
development is emphasized in the literature (Dunphy et al., 1997;
Hamel & Prahalad, 1990; Prahalad & Ramswamy, 2000, p. 81).
Organizations learn (Andersson, Forsgren, & Holm, 2002;
Dodgson, 1993; Dunphy et al., 1997), alone or in interaction
with other actors, in order to improve upon its performance.
Dunphy et al. (1997), for example, maintain that organizations are
concerned with learning if it helps them to perform better. And, for
Dunphy et al., learning which is valuable to organizations is
embodied in competencies to do things better or do different
things. In this study, a firm's internal capability to learn so as to
perform better (using whatever measure to describe that
performance, for e.g., competence, competitiveness or innova-
tiveness) is complemented by its capability to engage in mutual
learning with some actors, with whom the firm interacts. As stated
elsewhere (Andersson et al., 2002, p. 981; Ford et al., 1986;
Havila, Håkansson, & Pederson, 1999; Tzokas & Saren, 2004),
the interdependent relationships between most firms suggest that
a firm and its interacting partners engage in mutual learning.
Interacting parties mutually take measures to improve the uses of
their interrelated activities and, hence, their respective perfor-
mances. With this, we now review the existing literature.
3. Literature review
Studies of a firm's competence and how that is developed over
time, after the influential contribution of Hamel and Prahalad
(1990), have all concentrated on some internal strategies, which
the firm is supposed to undertake to develop its competence.
Since most studies consider a firm's competence to lie in its
personnel's collective knowledge, skills, qualification and also
their knowledge in the existing technologies and processes to
perform activities that will enable the firm to outperform its
competitors (Abell & Hammond, 1979; Hamel & Prahalad, 1990,
1070 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
1996; Kotler, 1997), constantly educating the staff and upgrading
other existing resources are a major means to develop
competence. The sources (e.g. collective knowledge and skills
in the firm) of a firm's core competence (Hamel & Prahalad, 1990,
1996), leading to diversifying a firm's activities into various
markets and provide value that customers would appreciate and
need, must be protected; it should be difficult for competitors to
copy. The personnel as well as business units are supposed to
learn from each other, collective learning. These efforts seem to be
undertaken only within the firm.
The above view, as many researchers see it, lacks the complete
picture of sources of a firm's competence and how that is deve-
loped over time. Hence, it is suggested that we complement the
existing knowledge by emphasizing that a firm's network of
exchange relationships can be an important source of its
competence, which can also affect the development of that
competence (Andersson et al., 2002; Davies & Brush, 1997;
Johnston et al., 2002; Prahalad & Ramaswamy, 2000; Ritter &
Gemünde, 2003). In the network literature Andersson et al. (2002)
shed light on the extent to which a subsidiary, a manufacturing
firm, within a multinational corporation develops and shares
competence in product and production development with other
sister companies. The study provided by Johnston et al. (2002), on
a more aggregated level, sheds light on the fact that a firm's
network competence impinges on its degree of technological
interweavement and its innovation success. The focus of this study
too was not on the extent to which a firm in a network meets
demands put on it by some other actors, especially customers.
Awuah's studies (1997, 2001) have made a contribution here, but
his studies concentrated on manufacturing firms. In this study, we
aim to describe factors that impact on a professional services
firm's (PSF, see Appendix B) competence development over time,
something which is lacking in the existing literature. Like Awuah's
studies, we also focus on the industrial marketing sector, but with
professional services firms as our focus of study and analysis.
A PSF's relationship to its customers, suppliers and other
parties are ‘connected’ in the sense that what is happening in
one relationship affects the interaction in others (Håkansson &
Snehota, 1995, p. 12). In this study, therefore, how a supplying
services firm's competence in meeting customers' demand is
developed cannot be decoupled from its network context.
Restricting the study to professional firms and how they meet
demands customers put on them has to do with the above
reasons. Also the delimitation by focusing on focal actors,
services supplying firms and their respective customers, is
arbitrary; it is just for analytical purposes (see also Johanson,
1989; Axelsson, 1996a,b, p.224). The impact of the focal
actors' exchange relationships with third parties are channeled
through the focal actors (Andersson, Håkansson, & Johanson
1994; Anderson & Narus, 2004; Håkansson & Snehota, 1995).
The performance of a firm, manifested, for example, in its
market share, profitability, sales growth and customer need
satisfaction, will depend upon a number of factors (Doyle &
Wong, 1998; Edvardsson & Larsson, 2004; Håkansson & Snehota,
1995; Hamel & Prahalad, 1990; Prahalad & Ramaswamy, 2000).
Some of the factors are the marketing orientation philosophy used
by a firm (Doyle & Wong, 1998; Jaworski & Kohli, 1990; Narver
& Slater, 1993), the competence a firm develops (Hamel &
Prahalad, 1990; Johnston et al., 2002), and the services concept
(Berry & Parasuraman, 1991; Edvardsson & Larsson, 2004) a firm
adopts. These are, for example, areas of interests that have
generated a lot of research. Many studies in the area of market
orientation build on Jaworski and Kohli's (1990) view of the extent
to which market orientation affects a firm's performance. Essential
for market orientation will be the organization-wide collection and
dissemination of information about current and future customer
needs and how the entire organization responds to the information.
It is beyond the scope of the present study to discuss the
relationship between market orientation and business performance
as studied elsewhere (Doyle & Wong, 1998; Dadzie & Winston,
2002; Jaworski & Kohli, 1990) and the extent to which a firm's
services concept affects its performance. The on-going research on
a firm's competence and how that is developed over time, as
reviewed above, is of special interest for our purpose. The next
section deals with our theoretical framework(s).
4. Theoretical framework(s)
4.1. The industrial network approach
The conceptual model in this study builds heavily on the
industrial network approach (for details see Axelsson, 1996a,b;
Håkansson, 1982, 1987, 1989; Håkansson & Snehota, 1995;
Hammarkvist, Håkansson, & Mattsson, 1982; Hägg & Johanson,
1982). The network approach suggests that specific actors such as
firms, organizations and individuals, possess specific resources
and perform specific activities which create exchange relation-
ships among them (Hägg & Johanson, 1982; Håkansson, 1982;
Håkansson & Snehota, 1995). This implies that the activities of
one actor are, for the most part, dependent on the outcome of those
of certain others. Hence a firm's competence and its development
over time will affect and be affected by specific actors with whom
it interacts in a network context (Fruin, 2001; Johnston et al.,
2002; Ritter & Gemünde, 2004). As the actors in interaction
complement each other, through the uses of their respective
resources and activities, they become interdependent, especially
when the interaction becomes much more frequent and is
mutually meaningful to the parties (Gummesson, 2002; Håkans-
son, 1982). An important effect of the actors' interdependence is
that they engage in mutual learning (Ford, Håkansson, &
Johanson, 1986; Havila et al., 1999) and mutual adaptations
(Ford, 1997; Hägg & Johanson, 1982; Håkansson, 1987).
As actors adapt their products/services, attitudes, and routines in
order to meet some demands put on them by their counterparts,
commitments and trust in their relationship increase (Hunt &
Morgan, 1994; Håkansson, 1982); the adaptations will also
strengthen the bonds, knowledge, technical, commercial, social
and administrative, between themselves. Interconnectedness of
exchange relationships (Cook & Emersson, 1978) between
interdependent actors in our industrial system has been found.
Thus, an actor's relationships with its focal partners, for instance,
are contingent, positively or negatively, upon exchange in other
relations. However, actors tend to develop their specific positions
relative to others in a network (Johanson & Mattsson, 1985). A
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
firm's position in a network gives it direct control over its own
resources and activities and indirect control over those of others. All
this will facilitate an actor's access to activities and resources that
will help it meet demands, its competence, put on it by other actors.
In this study a modified model (see below) of the industrial
network approach, a general one, developed by Awuah (1994,
1997, pp.78–79) has proved to be very useful. The modified
model has been developed inductively by eliciting insights from
the interplay between, for example, the industrial network model
and various empirical data (Awuah, 1997, 2001). Awuah's model,
our analytical tool, was developed for the purposes of studying the
extent to which an organization (including manufacturing and
services firms) utilizes its network of exchange relationships in
accomplishing (Ford, 1997; Håkansson, 1987) any task in the
industrial field. Hence, the special characteristics of services are
incorporated in the model discussion.
In Fig. 1, a firm's competence development is seen to be
affected by three interrelated variables, as the firm interacts with
other actors. The three basic factors are (a) the transfer of
elements of exchange, namely product/service, information,
financial and social exchange, between interacting parties, (b)
the mutual learning undertaken by the parties and (c) the mutual
adaptations the parties undertake. As a relational process, the
interplay between the above factors evolves over time.
As one actor's product/service becomes an input for another
actor, for instance, the activation and integration (Anderson &
Narus, 2004; Håkansson, 1987) of their interdependent resources
or activities cannot be done without engaging in effective
financial, information and social exchange (i.e. the elements of
exchange). The relationship between the elements of exchange
results in a number of benefits for the interacting parties. Through
the regular and effective transfer of such elements of exchange to
and from a counterpart, an actor's knowledge about the
characteristics and expectations of its counterpart(s) will be
enhanced. Moreover, the interacting parties will learn about how
to utilize each other's capabilities. With services' characteristics
(Berry & Parasuraman, 1991; Normann, 1991) such as intangi-
bility (e.g. can't be seen, felt, tasted and smelled), variability (e.g.
quality of service depends on who provides it at a certain time),
Fig. 1. Competence development through a network of exchange relationships
Source: Awuah, 1997, p. 78.
1071
perishability (can't be stored) and inseparability (production and
consumption at the same time), the simultaneous presence of a
seller and a buyer of a certain service, for example, will not only
be crucial, a relationship will also have to emerge (Gummesson,
1987; 2002; Ford, 1990; Grönroos, 1990; Mercer, 1993). For
Normann (1991), a direct contact between the seller and the buyer
might then be necessary, since production and consumption
might take place at the same time. All this will facilitate the
transfer of the elements of exchange between actors in interaction.
The importance of social relationship is recognized in the
network literature (Ford, 1997; Gummesson, 2002; Håkansson,
1982). On the one hand, it helps to increase the interacting actors'
knowledge of each other. On the other hand, it also contributes
greatly to the cooperation, understanding and trust (Hunt &
Morgan, 1994), which strengthen the various bonds (cf. Ham-
markvist et al., 1982; Hägg & Johanson, 1982; Pfeffer & Salancik,
1978) between the firms for which they work. Actors in interaction
may have their respective interests; they engage in exchange to
promote these interests (Burt, 1982). It is not uncommon to have a
simultaneous presence of common and conflicting interests (Hå-
kansson, 1987) in any exchange relationships; hence the exercise of
power by an actor in a relationship is not uncommon. But, in
exchange relationships where the interacting parties feel that they
are mutually dependent and are also willing to invest much in
relationship-specific transactions, when need be, any abuse of
power will endanger stability and long-term relationships.
The process of interaction denotes learning (Ford et al., 1986;
Havila et al., 1999). Principally, interacting parties strive after
knowledge (Tzokas & Saren, 2004) that helps them to take
advantage of opportunities or overcome constraints that might
inhibit their mutual exchange. Since the activities of actors in
interaction are interconnected (Cook & Emersson, 1978;
Holmlund, 2004), any actor's inability to meet its end customers'
demands will have a profound effect on the others with whom it
interacts, especially, its immediate trade partners. As the results of
the interdependent relationships between most firms, interacting
parties do engage in mutual learning; for the ability to meet
demands of others is often beyond the knowledge, skills and/or
resources of a single firm (Awuah, 2001; Fruin, 2001; Tzokas &
Saren, 2004). For Dunphy et al. (1997), the market-based
organizational learning and the internally focused learning rein-
force each other. Evidently, characteristics of interacting actors,
actors' expectations, the combination and uses of heterogeneous
resources, actions of the actors and so on may not be constant over
time. They change, and so do the knowledge of the actors.
Changes in the network, in whatever form they occur, may
demand that the interacting actors make mutual adaptations to meet
each other's needs. Adaptation, in turn, will influence the actors'
learning rate. One adapts to a counterpart or a situation which will
demand mutual action from interacting parties. Changes or
adaptations to meet the demands of a counterpart and the results
thereof will be a basis for future references in decision making. As
an actor adapts to match the needs or capabilities of other actors, the
former and the latter may become increasingly dependent on each
other (Hägg & Johanson, 1982; Håkansson & Snehota, 1995;
Turnbull & Brennan, 1999). All this suggests that exchange
relationships between certain actors have a history (Snehota, 1990).
1072 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
The interplay between the three basic factors discussed above
shows that as a firm's competence to meet its obligations
increases through time, its exchange relationships, characterized
by the transfer of elements of exchange, learning and adaptations,
with some significant actors will be positively affected (see
Fig. 1). This model therefore serves as our analytical tool for the
present study. Now, we dwell on the method used in this study.
5. Methodology
Since no effort is striven after to generalize the findings of this
study and/or to present an objective view of a services firm's
competence and how that is affected by its position within a
network of exchange relationships, a positivistic approach,
mostly prescribing quantitative methods (Hyde, 2000; Bryman,
1989; Ghauri & Gronhaug, 2002) was not chosen. Instead, a
non-positivistic approach, which will enable us to deeply
understand the complex nature of exchange relationships, how
these evolve over time and their effects, when studying an under-
researched area, such as the present study, case study method
was found to be appropriate (Yin, 1989, 1994; Bryman, 1989;
Ghauri & Gronhaug, 2002; Gummesson, 2003) and used as the
result. Once the decision to use the case study method for the
data collection was made, the firms included in this study were
identified and drawn from their respective Web pages.
We were looking for services firms that deliver no tangible
products but intangible ones. This criterion and the following
definition of a services firm helped us to select the firms we have in
our sample. “A service is any activity or benefit that one party can
offer to another which is essentially intangible and does not result
in the ownership of anything” (Armstrong et al., 2002, p. 535). As
the study focuses on professional services firms, we were also
looking for services firms that rely on highly professional staff,
people-based services (Armsrtong et al., 2002; see also Appendix
B for some characteristics of PSFs), and information intensive
ones (McCole & Ramsey, 2005, p. 38). All firms in this study
fitted well into our criteria. Also some assertions made in the
literature that (1) a firm's network of exchange relationships can
be an important source of its competence, which can affect the
development of that competence (Johnston et al., 2002; Prahalad
& Ramaswamy, 2000; Ritter & Gemünde, 2003) and (2) that a
firm's competence is a function of the collective knowledge
available to a whole system — an enhanced network of traditional
suppliers, manufacturers, partners, investors and customers
(Prahalad & Ramaswamy, 2000, p. 80) motivated us to undertake
the present study. This is because there is virtually no study that
has addressed the extent to which a PSF's competence is affected
by its network of exchange relationships.
After identifying the firms, the two in this study and several
others, we wrote to solicit for their participation in our research,
asking for their acceptance and whom to approach for personal
interviews at some appointed date. By this approach, we were
directed to arrange and hold interview (s) with some key
informant or respondent, who was judged to be knowledgeable
in his/her firm's exchange relationships with some significant
actors in their network of exchange relationships. The two firms
in this study are (1) HSTD, Halmstad, an advertising firm and (2)
Albihns AB, a legal firm. Table A1 presents the sample
characteristics of firms in this study (see Appendix A; Table A1).
The interviews were held with the various respondents at
their respective offices in September, 2005. Tape-recorded
interviews and some written notes taken, during the interviews,
have been kept, an attempt that speaks for the reliability and
validity of the report (Turnbull & Brennan, 1999). The average
time for an interview was 2 h. This contributed immensely to the
congenial atmosphere that prevailed, while the interviewer and
the interviewee ran through the loosely structured interview
guide; there was ample time to explain or correct misunder-
standings. In December 2005, all respondents were sent draft
copies of the interviews held with them for comments, asking
them to subtract and/or add additional information, as they
deemed appropriate. The aim was to secure the validity and
genuineness of the study (Bryman, 1989; Kidder & Judd, 1986).
One of the respondents did send in her feedback, with the
necessary adjustments made. The other respondent did not send
in any feedback. However, we assumed that the respondent that
did not send in any feedback might have been content with the
report, for respondents normally react to information that does
not reflect what they gave at an interview (Awuah, 1994). In the
next section we present the two cases.
6. The case of Halmstad Reklambyrå (HSTD)
Most of HSTD's services (see Appendix A, Table A1 for its
basic characteristics) are sold to non-business and business
organizations. HSTD principally provides advertising services,
which in turn are broken into three main areas: (1) Printing (e.g.
materials, brochures and graphical designs — packaging
designs, graphic profiles and logotypes), (2) Internet Services
(e.g. production of Web sites, portals and advertising) and (3)
Sending messages and pictures via film or radio. HSTD, in the
provision of the above services, is basically selling ideas, advice
and design of pictures and messages.
7. Interaction processes. The transfer of elements of exchanges
between the interacting parties
7.1. Product/service exchange
HSTD is a pure service provider, with a very high customer
contact. This high customer contact enables HSTD to provide
customized solutions to the various customers (e.g. Erostop,
Hallandsposten, Etac, Energieverken in Halmstad, Kraft, Land-
stinget Halland and Riskbyggen, all big firms). Any assignment
from a customer will bring about a close and continuous
interaction between the parties. Experts from HSTD, mostly the
managing director/project leader, and the two other co-owners, art
directors, will meet customers very regularly to discuss the latter's
needs and their market situation. With this knowledge about the
customer, HSTD then will provide reliable services to the various
customers, each depending upon the unique situation confronting
it. Mostly, customers will buy a whole package of services for an
advertising campaign. Thus, HSTD will be responsible for the
ideas, text, pictures and the entire production. Thus, on behalf of
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
the customer, HSTD contacts the media in order to publish in
various newspapers, professional newspapers, radio or direct
mails, and materials for trade fares. A customer that does not want
a whole package of services can just buy HSTD's advice, ideas,
design or suggestion of pictures and can get their own media or
printing press (with HSTD's advice also) to help them.
The most important customers, for HSTD, are those that buy
services amounting to about 500,000 Swedish kronor per year.
They buy continuously, co-operate very well and are trustful; and
many of them have been with HSTD since 1995/6 (the two firms
brought their customers with them after the merger). The average
age of the relationships between HSTD's and its customers is
6 years. For HSTD, an important customer is a security for the
firm's revenue. Most of them even have written and long-term
contracts with HSTD, mostly three years in a stretch, but HSTD
gets orders on the year's basis. However, other important customers
have verbal contracts, no written ones, with HSTD. For most
customers, delivery of services can be daily, even hourly, and so on.
7.2. Information exchange
According to HSTD, the production and consumption of
most of the services are inseparable so close and continuous
contacts (i.e. both non-personal and personal means of contacts)
are very crucial for the parties to meet each other's needs.
Through the close meetings, experts from HSTD and those from
the customer organizations (esp. the big ones have own expertise
in-house), work together, propose and suggest ideas, do some
sketches of designs, for example, and get immediate feedback
from the counterpart. Here, the process allows HSTD to know
the customer (s) best, their problems and interests. The same can
be said about customer's knowledge of HSTD's capabilities, and
above all their willingness to co-operate and to learn from each
other. To exemplify the joint discussion, the parties can discuss
and agree on the intended budget, sketching of the project by
HSTD (the seller) and the customer has to accept or reject or
modify those things. That done, the art directors (at HSTD) will
oversee the photographing work, the copywriter will conduct
interviews with people, for which the project is made, and the
project leader will oversee that the schedule time and the budget
for the entire project are followed. These preparations will have
to be accepted and signed by the customer, before HSTD can
produce the services for the customer.
7.3. Financial exchange
Customers' payment of services on time, just like the delivery
of services to them on time, is very important for HSTD. All
customers enjoy 30 days credit period, after the purchase of a
service. For most customers, price-value combination, when
buying services, is very crucial. Small firms or organizations, with
no expertise in-house, tend to be price-sensitive. They will always
compare HSTD prices to those of its competitors. The usual
question HSTD gets from some customers is as follows. “What
can I get from HSTD, but not from the competitors?” Buyers that
are not used to buy HSTD's services will be a little doubtful, at the
beginning, as to what they are buying. HSTD will invite such
1073
customers to their premises and show them how HSTD's
production and other activities are carried on. Through this,
most become convinced and accept the prices charged by HSTD
for some services. Very important customers that buy about
500,000 Swedish kronor services yearly are not price-sensitive.
These, especially those having contracts with HSTD, which is a
guarantee for assignments, can even enjoy discounts between 3–
10%. The longer the relationship between a customer and HSTD,
the more the parties stress value-added solution instead of price.
Hence, financial exchange between the parties is very crucial.
7.4. Social exchange
Many of HSTD personnel have forged personal friendships
with some representatives of their customer firms because they
have been doing business with each other for a long time. Some
do socialize, after work, with friends at customer firms; going
for lunch together is a common socializing aspect. For the
respondent at HSTD, such socialization helps them to build
more personal knowledge of each other, something they hope
might strengthen the confidence and the trust they have in doing
business with each other also.
8. The learning and adaptation inherent in interaction
8.1. The Learning process
HSTD has some customers that have difficulty in knowing
what they really want; lack of knowledge is very high among
some customers, small firms or organizations. As the parties
engage in dialogue and discussions about customers’ needs,
market situations, and trends in the environment, they mutually
learn and jointly agree on measures to be taken in order to
satisfy the needs of the customer. According to the respondent,
big customer firms do have competences in almost all areas, but
they may lack one essential thing, “creativity”. For example,
creating pictures and messages that are appealing to some target
groups make the big firms prefer to do business with HSTD. For
HSTD, the interaction with the big firms has been very useful in
that knowledge acquired during the process is often modified
and transferred to help many small firms, which lack expertise
in many areas. Some customer assignments have demanded that
HSTD will have to acquire special knowledge, where they
engage the services of independent experts to help them up-
grade their knowledge in some functional areas, example,
power point presentations and the use of some computer soft
wares to design and produce graphics.
8.2. The adaptation process
The close and regular interaction between HSTD and its
customers has one advantage that mistakes in projects do not
take long time to be detected by the parties. Any mistake
detected too late can have severe financial consequences. This is
because HSTD might have already bought and used some
services from its numerous suppliers; so pointing out a mistake
so late would demand that the project would have to, more or
1074 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
less, be started all over again. Hence, HSTD and its customers
try to voice any mistake out, as the customers help produce and
consume the services at the same time. However, some
customers may not have the time to read through some
messages and/or graphic designs and give the feedback on time.
This can lead to some accumulated mistakes. It becomes
expensive to rectify such mistakes, but HSTD will always adjust
to the customers and help solve the problem.
Sometimes two customers will want some services to be
delivered at the same time. Thus, HSTD cannot tell one cus-
tomer to wait, while it does the assignment for the other. Both
might be in dire need of some services, which will demand that
HSTD will have to cater to both customers' need at the same
time. HSTD adapts to the situation by letting its personnel work
overtime so that they can help both customers. For customers,
some adaptations can be in their routines and attitude. HSTD,
through discussions and demonstrations, can get some custo-
mers, with some specified needs and wants, to think about
alternative solutions because that is what HSTD thinks is
efficient and cost effective. A case in point is a small firm that
wanted to introduce customer cards. HSTD did help the firm to
do a third alternative. The firm did as advised by HSTD and the
former was very satisfied. As HSTD acquires new knowledge
(e.g. computer software use in graphics/design), their customers
do adapt to the new solutions offered by HSTD.
9. Interacting with third parties
For HSTD to be able to understand and appreciate the
demands its customers' customers make, HSTD has the practice
of evaluating or following up the effect of some assignments
done for a customer. To do this, HSTD will go to some
customers' customers to hold interviews with them. For
example, they can evaluate the effect of some advertisement
done for a customer by talking to customers' customers. Most of
the time, an independent research firm will be hired by HSTD to
do the market research, contacting customers' customers. To
better understand the demands of its customers, HSTD some-
times invites some focused groups comprising its customers'
customers to find out from them what their needs and
preferences are. This enables HSTD understand why their
customers make some demands and how HSTD can help them.
Concretely, Etac (customer to HSTD)'s customers, which are
mostly handicapped people, are visited by HSTD. The knowl-
edge acquired here enables HSTD to offer Etac messages and
pictures that are tailor-made for the handicapped people.
Satisfying the needs and wants of its customers, HSTD also
interacts with a number of suppliers, which complement the
former's resources and activities. Running advertising cam-
paign for a customer, HSTD contracts the services of suppliers
such as printing press firms, photographing firms, Translation
firms, Mass Media (professional and non-professional news-
papers, radio and television firms), Movie firms, and copy-
writers. These independent firms are contracted by HSTD to
assist in providing a total solution that helps meet HSTD's
customers' needs. For HSTD, it is important that each and every
one of their suppliers maintains consistency and reliability in
providing good quality job; the coordination and integration of
the heterogeneous services will demand HSTD's close and
regular interaction with all the suppliers. All this have enabled
HSTD to win and retain its present customers.
As a knowledge-intensive company, HSTD keeps abreast with
new knowledge. Taking part in relevant seminars, lectures at
universities and other conferences, participating in trade fares,
reading relevant literature and studying various Web sites bring
them into contacts, directly or indirectly, with many other actors.
Some experts are, periodically, invited to HSTD to have seminars
and run courses for the personnel. HSTD is an active member in
the “Sveriges Reklamförbund”, (Advertisers Union in Sweden)
and also a member in the 4th October Movement, an influencer
group, which undertakes lobby activities on behalf of its members.
It is important for HSTD to be a member of such unions because a
single firm, and most especially a small firm like HSTD, would not
be able to influence laws and regulations that might be
unfavourable for the conduct of business in their common industry.
10. The case of Albhin
Albihns (see Appendix A; Table A1 for its basic character-
istics) operates mostly in the business-to-business market,
offering customized solutions to most customers. A customized
solution for a customer will consist of a legal protection for a
customer's patent, trademark, design, copyrights, domain
names and giving advice on competition regulations and
commercial law to a customer in a particular market. Hence,
regular interaction with each customer assumes importance.
11. Interaction processes: the transfer of elements of
exchange between interacting parties
11.1. Product/service exchange
Albhins is a pure and people-base service provider, with a
very high-customer contact. “We live on our knowledge, which
is inside our brains”. Large customers do have patent
departments (protection of patent is a core service offered by
Albhins) in-house, yet they turn to Albhins for help in filing
applications and protecting applications that have been
approved. This is because customers may not have the time
and the timely knowledge that will enable them to address
certain problems. For small customer firms, with no in-house
patent department, helping them takes much time and other
resources. Mostly, Albhins' customers tend to buy a whole
package of services, namely applying for and the protection of
patent, the protection of a company's design, trademark, brand
and domain name. As part of the package, a customer, operating
in a foreign market, needs Albhins' help regarding how to, for
example, legally understand and/interpret laws and regulations
that affect the conduct of business in a particular market. Buying
a whole package of services from a local branch (e.g. at
Gothenburg), the branch may not have all the specialists in-
house to help the customer. But, they can draw on other
specialists at Albhins in other branches (see Appendix A) to
come down to help serve the customer. To be able to provide the
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
right services to a customer, Albhins and the customer will need
to collaborate closely with each other.
For the protection of a customer's patent, for example, the
customer will be offered a personal professional assistance from
an expert in Albhins. The expert, a generalist, will be sent to the
customer to study and assess the latter's need. Albhins will then
set up a team comprising different specialists (the firm has about
100 of them) that are judged to be competent and appropriate for
the assignment at hand. These experts from Albhins will have
regular and close discussions with their counterparts at the
customer firm in order to be able to, among other things, jointly
analyze and think out solutions to the customer's needs. Due to
the intense competition in the seller's market certain customers
opt for standardized solutions, some common procedure to apply
for a patent right. In this case, they ask several selling firms to
provide samples for study, evaluation and selection. Eventually,
they choose the service provider that can best satisfy their needs.
But, for customers buying a whole package of services and
unique solutions, long term-solutions are the essential issue for
them. Big or important customers such as Volvo, SCA, and
Ericsson, which have had more than 30 years business
relationships with Albhins, opt for customized solutions, for
their specific needs might differ from others as they operate in
Sweden, South Korea, Britain, Poland, U.S.A and the Middle
Ease, for example. Important customers give large assignments
per year and have also frequent exchanges with Albhins.
Still with the example of patent applications, on behalf of a
customer, to be sent to some authorities (e.g. Swedish Patent
Registration Office) certain requirements must be met. Thus,
the attorney (s) helping the customer must not only have
knowledge in areas that are patentable, he/she must also be a
qualified lawyer and an engineer in some field. All in all, an
application for a patent will require the following: (1) a
comprehensive description of the idea, concept or product, for
which patent is being sought, it should be new, unique and
useful for industrial application, (2) indicate precisely the
requirements for patent, (3) correct translation of the applica-
tion into English, and (4) proper editing to eliminate typing
errors. This brings about extensive information exchange
between the parties. Together, the customer and Albhins
mutually do the customer need analysis thoroughly before they
can jointly agree on what each party has to do for the ful-
fillment of the application requirements.
11.2. Information exchange
As the procedure to file an application for a patent right and
to protect that over time, for example, indicate, comprehensive
and extensive information input from the parties will be
needed. After the parties have discussed an idea or a product
that is deemed patentable, meeting the above requirements,
Albhins will, in turn, check with some Patent Registration
Office to find out whether there are changes in the
requirements or not and will get back to the customer with
that information too. When all the necessary information has
been gathered, Albhins will then write the application for a
patent protection, with all the necessary requirements met. The
1075
customer reads the application, gives some feedback, before
the entire application is submitted to some Patent Registration
Authorities for approval. For Albhins, customers are also co-
producers. This helps to avoid the accumulation of wrong
doing on the part of the seller and vice versa.
11.3. Financial exchange
For Albhins, knowledge and information acquisition, from
within and from external sources, their process and transfor-
mation into problem solving solution for a customer, make the
financial exchange between Albhins and its customers very
important. Much of Albhins' business is done with the
important or big customers; almost all of them need Albhins'
services in Sweden and in foreign markets. These big firms
give regular and large assignments to Albhins, for which
payments are made regularly. For the last 10 years, Albhins
has been having long-term contracts with some of them. The
contract is seen as a guarantee of assignments per year; the
contract is renewed every third year. While the big firms buy a
whole package of services and place emphasis on value-added
solutions, not price, most small firms may opt for simple
solutions (not a whole package) where price of the services
they buy play a major role. Albhins has to cater for these
different needs. Firms that buy many services, regularly and in
large volumes, do get some discounts (3–10%). All customers
enjoy a 30 day credit period, after a purchase of services, to
pay for Albhins' services. But, the customers, in whom
Albhins has not much trust, advanced payment will have to be
made before some services are delivered to them.
11.4. Social exchange
According to the informant, Albhins encourages its personnel
to have social interaction with their customers. Social relation-
ship is seen as part of the need to take care of customers. During
such interaction, according to the informant, it may not even be
necessary to discuss business at all, but just to get to know each
other better. At times some personnel at Albhins go to watch
hockey matches or go to some pubs with some personnel from
some customer firms (e.g. Volvo and Ericsson). Some effect of
the social exchange, as maintained by the informant, will be to
easily have contact with each other later on.
12. The learning and adaptation inherent in interaction
12.1. Learning
When Albhins and customers engage in need analysis, for
example, they learn about each other's capabilities. Buying
tailor-made services that are intangible, customers may want to
have some evidences that will bring to the fore what the
customer really need and what the seller can or cannot do for the
buyer, all judging from the circumstances facing the parties.
Usually Albhins organizes internal courses for its personnel,
where external experts from universities and consulting firms
(from Sweden and foreign markets) come to Albhins to give
1076 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
lectures on a number of issues, such as American laws and doing
business in that country. Personnel from Alhbins and some
personnel from customer firms do participate in such educational
activities. Interaction with most small firms demands much time
and explanations, since such firms may lack expertise in patent
issues, for example. Engaging such firms in regular and close
interaction, where the parties inform and be informed about
market developments, changes in regulations and whatever,
most small firms get to know, in the course of time, what their
needs are and how the seller can help meet that.
12.2. Adaptation
The exchange relationships between Albhins and some of the
important customers have lasted more than over 30 years. It was
only 10 years ago that most of them started to have written
contracts with Albhins. In the course of time, the parties have
mutually agreed and adapted to this new routine (having a written
contract) because it is a guarantee for the constant and regular
exchanges of services, information, and finances between the
parties. One area where Albhins has adapted to some customers
has to do with the translation of patent applications into English.
Some price-sensitive customers will want the cheapest means of
translation, which the computer translation mechanism allows.
Here, Albhins has invested in educating its personnel to muster
the software that allows the computer-aided translation. Hence,
those looking for some computer-aided translation, not so
advanced as the personal and thorough translation, do get help
from Albhins. With tangible reasons from Albhins, customers
accept late deliveries of services. When a buyer complaints about
a poor performance of an expert at Albhins and insists that he/she
should be replaced, Albhins does that.
However, a few customers that have not had long-term
relationship with Albhins will neither complain about a poor
performance experienced nor do a repeat purchase. It does not
take much time for Albhins to discover this defection, so they
call such customers to ask about their attitude and purchase
behaviour. The answer Albhins will get from such customers is
as follows: “We have changed the supplier”. With this negative
development, Albhins is seriously stressing the importance of
customer care. Customers that may have the difficulty to pay for
the services, at some agreed upon time period, will discuss their
problem with Albhins. Together, the parties will make payment
plans, after which the customer will pay accordingly. Admin-
istratively, Albhins and almost all its customers have adapted to
each other in the collection of some information via the Internet.
Through Albhins' Albnet, a portal in the net, customers can
obtain data on the supplier. Mutually, the supplier can also log in
into most of the customers' website and go into their portals for
information that concerns them. With time most small firms buy
a whole package of services, a change of attitude.
13. Interacting with third parties
Representing customers in different foreign markets (e.g. US
and Japan) Albhins, which cannot be in all places at the same
time, uses the services of local attorneys that know, for instance,
their countries' laws and regulations, and business cultures.
With its intensive interaction with independent attorneys in
different markets, Albhins is in regular touch with timely and
up-to-date information that help the parties to mutually learning
about the needs of Albhins and that of Albhins' customers. In
most cases Albhins will travel to a foreign market such as the
US to first study the country, with its customer's need in mind,
the competitive situation, the segment (s) targeted by the
customer, and conduct interviews with several actors (e.g. sub-
attorneys and market research firms in the US). With the inputs
from the external actors, Albhins will be in the position to come
back to help customers that will want to have something to do in
the US market. The same can be said about representing
customers in some other countries.
Interacting with institutions such as the Swedish Patent
Registration Office and the European Patent Convention helps
Albhins gain knowledge pertaining to laws and regulations on
patent, for example, and how they change over time. As a
knowledge-intensive firm, interaction with universities such as the
Stockholm School of Economics and the Chalmers Technical
University is going on constantly. Through such interaction with
these places of learning, Albhins gains up-to-date knowledge in
their areas of specialization, knowledge that it transfers to help
customers meet their needs. Albhins publishes and sends
information, to which customers have access, through the firm's
monthly magazine and brochures. Albhins' interaction with a
number of suppliers that supply some physical products such as
communication equipment (for seminars and lectures), papers,
and firms supplying information technology services and
advertising services (advertising in various media) is very
important. Albhin's active membership in some industry associa-
tions is very important because, together, the members can directly
or indirectly influence government policies and/or regulations
affecting their industry. The analysis of the cases comes next.
14. Analysis
This supplier – customer interface works effectively
(Awuah, 1997, 2001) when the parties regularly transfer
elements of exchange (i.e. services, information, finance and
social exchange) between themselves and also learn and adapt
to each other mutually. In Table 1a and b, we show some of the
similarities and differences between the two cases.
With the services characteristics depicted in Table 1a, the
simultaneous presence of the seller and the buyer (Berry &
Parasuraman, 1991; Edvardsson & Larsson, 2004; Normann,
1991) has been very crucial. This has, among other things,
enabled the service provider and the customer (in both cases) to
learn how to utilize each other's capabilities. HSTD, for ex-
ample, have important customers that also have advertising
expertise in-house, yet they engage the services of HSTD
because the latter's ‘creativity' in suggesting ideas or producing
solutions are valued by most customers. Analogously, Albhins'
customers, especially those with expertise in-house, buy
services because that enables them to exploit the unique
customized solutions (solutions that demand much time and
timely knowledge), which Albhins provides them. Besides the
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081 1077

Table 1 immediate customer, regular interaction with several other actors

HSTD Albhins in a firm's networks of exchange relationship (Awuah, 2001;
Professional services firm Professional services firm Anderson & Narus, 2004; Håkansson & Snehota, 1995) enables
a: A summary of the similarities between the two cases it to gain access to others' resources and activities, which
Core services (selling ideas, advice Core services (selling ideas, advice, become complementary to the firm's own and thereby making it
and design of pictures and and offering legal protection for, e.g., possible to meet its immediate customers' needs. In both cases,
messages) demand high customer patent, intellectual property rights and
the services suppliers have close and continuous exchange
contacts, mostly offering tailor- domain name) demand high customer
made services contacts, mostly offering tailor-made relationships with other actors, this playing a tremendous role in
services the focal companies' performance.
Core services are intangible, can vary Core services are intangible, can vary The ‘give and take exchange' relationships between the PSFs
according to who provides it and according to who provides it and who and all the other actors, including immediate customers, in their
who receives it at a particular time, receives it at a particular time,
network (see Figs. 1 and A1) have enabled the studied firms to
production and consumption are at production and consumption are at the
the same time, and are perishable same time, and are perishable (can't meet demands made on them by their customers and all the
(can't be stored) in most cases. be stored) in most cases. These have other actors they interact with in their network. This is
These have necessitated the necessitated the simultaneous consistent with the observation made by other researchers.
simultaneous presence of the seller presence of the seller and the buyer “The performance and effectiveness of organizations operating
and the buyer in most instances in most instances
in a network, by whatever criteria these are assessed, become
High customer involvement: joint High customer involvement: joint
need analysis and solution for need analysis and solution for the dependent not only on how well the organization itself performs
the customer customer in interaction with its direct counterparts, but also on how these
Regular and frequent transfer of Regular and frequent transfer of counterparts in turn manage their relationships with third
elements of exchange, high elements of exchange, high rate of parties” (Håkansson & Snehota, 1995, p. 191).
rate of mutual learning and mutual learning and adaptation
As the customers are involved in the production and con-
adaptation between seller between seller and customer
and customer sumption (Berry & Parasuraman, 1991; Normann, 1991) of
High and regular use of external High and regular use of external HSTD's services, their immediate feedback, and adaptation do
actors that provide supporting actors that provide supporting services have impact on HSTD's own learning and adaptation rate.
services (intangibles like (intangibles like education, HSTD's solutions learned from the interaction with some
education, information, consulting information, consulting and
important customers can, with some modifications, be used to
and marketing research) and marketing research) and
products (printing materials products (printing materials and help small customer firms that do lack expertise in advertising
and so on) to complement the so on) to complement the seller's work. HSTD's regular interaction with third parties (e.g. its own
seller's core services core services suppliers, places of learning such as universities, public seminars
Outcome: Has won and retained Outcome: Has won and retained and trade fares) has shown that what is happening in those
many important customers that many important customers that
give regular assignments, large give regular assignments,
relationships (e.g. knowledge sharing at the universities, internal
purchases. Long-term contracts large purchases. Long-term courses provided by third parties and the suppliers providing
with important customers as a contracts with important customers reliable and dependable services) does affect HSTD's ability to
guarantee or security for stable as a guarantee or security for stable satisfy its customers, for major relationships of a company are
exchange relationships; average exchange relationships; average age found to be ‘inter-connected' (Håkansson & Snehota, 1995,
age or relationship is 6 years of relationship is 30 years
p.12). Similarly, in Albhins' case, all customers are extensively
b: A summary of the differences between the two cases and closely engaged in dialogue and discussions, where Albhins
HSTD is an advertising firm, with 8 Albhins is a legal firm, with 200 and the customers learn from and adapt to each other. Albhins'
employees and an annual turnover employees and an annul turnover of case also demonstrates that gaining access to Albhins' activities
of 8 million Swedish kronor 400 million Swedish kronor and resources (including those from its wider network inter-
It is a relatively new company, It is an old company that was
connected relationships) a customer's needs' satisfaction would
founded in 2003, as a merger founded in 1891
between two companies that had be facilitated (Fig. A1, Appendix C shows how embedded any of
been in existence since 1995 and the studied firms is in a network of exchange relationships).
1996 respectively Albhins' access to knowledge and other resources of its partners
Operates mostly in Sweden, with Operates in many countries, with (marketing research firms and sub-attorneys in foreign markets)
Halmstad as headquarters headquarters in Stockholm and
and interaction with universities and independent consulting
branches in some European countries
No extended international network of Has extended international network firms have all contributed to Albhins' need and acquisition of
exchange relationships of exchange relationships better and timely knowledge or information that have helped
Close and regular interaction with, Close and regular interaction with, Albhins to advice and/or to meet the needs of its customers.
e.g., suppliers in order to coordinate e.g., suppliers in order to coordinate One important difference between the two cases, as the
and integrate the heterogeneous and integrate the heterogeneous
evidences show, is that Albhins has experienced some customer
services to assure consistency and services to assure consistency and
reliability of services to end- reliability of services to end- defection without some prior warnings or complaints. Often-
customers are restricted to actors in customers are carried on times, customer defection would be about the performance of
Sweden only. Has not experienced worldwide. Has experienced some some representatives of Albhins. The characteristics of those that
customer defection customer defection defect are that they have not had long-term relationships with
Albhins, do not normally buy customized solutions, and are
1078 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081
price-sensitive. The intense competition in the marketplace
seems to influence such buyers' expectations, changing to new
suppliers without any warning. But, all two cases have
demonstrated that having strong customer relationships, as a
services firm, is of particular importance (Berry & Parasuraman,
1991; Gummesson, 2002) because of their interpersonal focus
and the relative lack of objective measures for evaluating service
quality. Both HSTD and Albhins have succeeded to get many of
their small firm customers, with high expectations and lack of
expertise to judge quality of services obtained at the beginning of
their relationships, to through mutual learning and making
adaptations (e.g. in attitudes), to strive after regular, stable and
long-term relationships. Irrespective of the differences in size,
location, turnover and customer base, the two firms seem to act
quite similarly; the use of their own capacity (own core
expertise, knowledge and services) plus their use of external
capacity, due to exchange relationships with third parties, have
been very crucial for all of them to achieve their goals.
Social interaction facilitates the rate at which the interacting
parties increase their knowledge of and trust in each other (Ford,
1997; Gummesson, 2002; Huemer, 1988; Håkansson, 1982). In
all two cases, some personnel in the services firms socialize with
some personnel of their customers firms. For the services firms,
socializing with the customer firms has produced a number of
benefits, namely, it has been a way of taking care of the
customers and it has also been a medium to get to know one's
counterpart better, a knowledge upon which current and future
businesses can be facilitated between the parties and the firms for
which they work.
15. Conclusion
The purpose of this study has been to systematically shed
light on factors that impinge on a professional services firm's
competence development over time. This study has clearly
provided evidence that a services firm's ability to meet demand,
its competence (Awuah, 1997, 2001), put on it by its customers
(in this study), is very much affected by the firm's regular
interaction with its customers and other significant actors. This
is because the services firm's internal skills, activities and
resources, for example, are founded to be strongly linked
(Snehota, 1990) to those of all the other actors, with whom the
firms interact in this study. Consistent with Dunphy et al.'s
(1997) view, the firms' market-based learning and their
internally focused learning reinforce each other. By the regular
and effective interaction with actors in their respective network
of exchange relationships, the two firms are able to draw on
their complementary activities and resources so as to be able to
provide reliable and consistent services to their customers. Each
of the two services firms' total competence (Johnston et al.,
2002; Tzokas & Saren, 2004; Fruin, 2001) is to be seen in their
own internal skills, knowledge and activities plus their access to
external skills, knowledge and activities of their customers,
suppliers, and universities for example. Having been able to win
and retained, for example, important customers that give regular
and large assignments, the two firms have demonstrated their
abilities to meet their respective customers' demands over time.
One important way to measure a firm's success, according to
Doyle (2002; Armstong et al., 2005; Edvardsson & Larsson, 2004),
is the measuring of its results in customer satisfaction. Satisfied
customers, for example, are a valuable asset for a firm (Awuah,
2001; Anderson & Narus, 2004; Doyle, 2002). The important
customers in this study do not only give regular assignments to their
respective service providers, they engage in dialogue and mutual
learning (Prahalad & Ramaswamy, 2000), undertaking mutual
adaptations as well; they also recommend their respective suppliers,
through positive word of mouth, to other potential customers. Each
of the firms has won most customers through recommendations. In
spite of some differences between the two firms (see Table 1b) they
have shown that ability to meet customers' needs, a measure of
their competence, produces satisfied customers that opt for long-
term business relationships with the respective service providers.
HSTD have customers, important ones, with whom it has had
regular business relationships since 1996. Similarly, Albhins'
business relationships with satisfied customers, also the important
ones, have been going on for more than 30 years.
In both cases, many of the important customers and their
respective service providers have chosen to strength the bonds
between themselves by agreeing to have written contracts, for
example. As they have had regular interaction over the years,
learning how to mutually use their resources and activities and
undertaking mutual adaptations (Ford et al., 1986; Havila et al.,
1999), the trust the parties have in each other has not only
increased, they have all become increasingly committed (Hunt &
Morgan, 1994; Håkansson, 1982) to the relationship that seems
to pay off for each of them (Anderson & Narus, 2004). For
Anderson and Narus (2004), when interacting parties mutually
create value sharable among them, they are apt to continue to
have relationships, as this study has shown. A number of
empirical and theoretical implications can be drawn from this
study; below are examples.
16. Implications of the study
Since there is no coherent definition of the concept of com-
petence and hence no standard pattern of competence develop-
ment over time, various researchers have concentrated on
different characteristics of the concept of competence that are in
line with their view of reality (Andersson et al., 2002; Hamel &
Prahalad, 1990, 1996; Johnston et al., 2002; Webster, 1991).
Some have looked at, for example, a firm's core competence
(Hamel & Prahalad, 1990, 1996) that will enable it to diversify its
activities into two or more markets to exploit that competence.
The products/services that are generated from the use of the core
competences should be valued by the target customers and the
core competences should be difficult to imitate by competitors.
These are internal activities that need be developed or upgraded
because consumers' needs change and competitors get better
over time; so for the attainment of a sustainable competitive
advantage, the firm needs to develop its core competences all the
time. Proponents of the network view of the world (Snehota,
1990; Awuah, 2001; Johnston et al., 2002; Andersson et al.,
2002) on the other hand, shift emphasis to the complementary
relationships, which in turn, are the result of the interdependent
 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081 1079

exchange relationships between most of our firms and/or
organizations, when explaining one of the main sources of a
firm's competence. The present study sheds light on that too.
As this study has shown, each of the firms' competence,
ability to meet customer demands, is developed over time by
linking together its internal skills, knowledge, and activities to
those of the significant actors identified and analyzed in this
study. The two firms have mostly intangible core services, the
production of which demands the simultaneous presence of the
buyer and the seller (Normann, 1991). The core services and
most of the support services are difficult to value before purchase
and can also be difficult to store. Unlike, physical products,
selling professional services, with the above characteristics, will
be difficult for the buyer to know what it is buying in advance; it
is also difficult for the seller to demonstrate which attributes of
the services and service quality will drive customer value
(Edvardsson & Larsson, 2004). The two firms have shown that
to be able to satisfy customers' need better than competitors can
do, much time and resources should be invested in the regular
interaction (regularity and frequency in relationships are
emphasized by Gummesson, 2002; Håkansson & Snehota,
1995) with own customers and with others whose resources and
activities complement theirs. For Anderson and Narus (2004),
goods and services are created, designed and delivered by
sharing knowledge and experience with others. All the cases in
this study show how well the sellers of services have involved
their immediate customers in the creation, design and delivery of
services to them. As observed elsewhere, (Mercer, 1993, Ford,
1990) providing business services will require greater specia-
lization and customization, where customer–supplier interaction
is intense, in order for the seller to be able to meet the buyers'
needs. The sellers of services in this study draw heavily, for
example, on joint learning that occurs in interaction with third
parties (Ford et al., 1986). Relationship with third parties, in any
attempt to meet customers' demand, is worth the investment, for
the market-based organizational learning and the internally
focused learning reinforce (Dunphy et al., 1997) each other.
Since customers can defect, in spite of their active involve-
ment in production and consumption of services, as one of the
cases shows, the relative lack of objectivity in measuring service
quality (Berry & Parasuraman, 1991), for example, is an
important issue to be addressed by a services firm. A major
thought which has been followed throughout the present study
relates to the extent to which a company's competence develop-
ment over time can be influenced, in large, by its interaction with
some significant actors in its network of exchange relationships.
It has not been possible to examine all the exchange relationships
in which the focal actors, Albhins and HSTD and their respective
customers, might engage. Our model, with its roots in the net-
work perspective, has served its purpose by aiding our under-
standing of how the PSFs through actions and interactions with
some significant actors in their network describe and/or interpret
the extent to which their exchange relationships with some
significant others enable them to satisfy demands made on them.
Some suggestions (see above) have been provided regarding
how firms or researchers can address the distinctive character-
istics of professional services firms when using the applied
model in this study to investigate factors that impinge on a firm's
competence development over time. By the study of a firm's
competence development over time, future research should
investigate whether other factors, other than those in our model,
are possible to describe the effects of a network (s) of exchange
relationships when services firms, owing to their distinctive
characteristics, are involved than manufacturing firms.

Appendix A
Table A1
Sample characteristics of the firms studied
Company Industry Turnover and Services provided
number of employees
Halmstad Reklam (HSTD), Advertising 8 million Swedish kronor Advertising services: Printing, Internet services
operates mostly in Sweden, with Usual approach to win customers 8 employees and sending messages and pictures via films
Halmsatd as headquarters and assignments: and radio. The provision of the above
Was established in 2003, a merger (a) Reactive: customers seek services is about basically offering ideas, advice
between “The One” (established in 1995 HSTD on their own because of and design of pictures or images
and “Kerg Kirtley” recommendations, word-of-mouth. Provides services to mostly business and
(established in 1996) This seems to be the most non-business organizations as customers.
The respondent at HSTD was important for HSTD Customers are mostly in Sweden
the Managing Director; interview (b) Proactive: customers and
on 5-10-2005 assignments are won through own
active promotion
Albhins AB, one of the leading firms of Legal services 400 million Swedish kronor Services: Providing legal protection for a
patent and trademark attorneys in Europe. Usual approach to win 210 employees customer's patent, trademark, design, copy
customers and assignments: right, domain names and providing advice
Was founded in 1891, with its main (c) Reactive: customers come to on competition regulation and commercial law
headquarters in Stockholm. Has also Albhins on their own because of in a particular market.
branches in Gothenburg, Malmö, all in recommendations, word-of-mouth. Customers: mostly business companies, small
Sweden, Copenhagen, (Denmark) This seems to be the most and large. Most customers operate in Sweden
and (Munich) Germany important for Albhins and in foreign markets
The respondent at Albhins in Gothenburg (d) Proactive: customers and
was the patent manager; interview on assignments are won through
12-09-2005 own active promotion
1080 G.B. Awuah / Industrial Marketing Management 36 (2007) 1068–1081

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