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Supplier adaptation in business relationships: does power matter?

Conference Paper · September 2014

DOI: 10.13140/2.1.1548.5446

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Marek Zieliński Grzegorz Leszczynski

Poznan University of Economics Poznan University of Economics and Business
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 Supplier adaptation in business relationships: does power matter?
 
 
MAREK ZIELI SKI (POZNAN UNIVERSITY OF ECONOMICS)
 
 
Co-author(s): Grzegorz Leszczy ski (Poznań University of Economics)

Access to this paper is restricted to registered delegates of the EMAC 2013 Regional Conference.
 
 
 Supplier adaptation in business relationships: does power matter?

Abstract:
One of the dimensions of relationship atmosphere is power and dependency that results in a
non-symmetric nature of the relationship. Since each relationship is characterised by some
imbalance, adaptation is classified as a major relationship process. The aim of the paper is to
answer the question: what is the adaptation like when customer’s position is not dominant?
The conducted research shows that the highest adaptation is registered in a technical area and
the lowest – in finance. Research also confirmed that a strong position in the relationship can
make the other partner to adapt or the unwillingness to adapt, when adaptation is not
necessary.

Keywords: power, dependency, adaptation, relationships, business-to-business, construction

industry
1. Introduction1
The business-to-business marketing literature leads one to the conclusion that relationship
atmosphere is a key or central factor in developing the relationship between companies and in
shaping the characteristics of that relationship over time. One of the dimensions proposed by
IMP Group (2009) of relationship atmosphere is power and dependency that results in a non-
symmetric nature of the relationship. Since each relationship is characterised by some
imbalance, adaptation is classified as a major relationship process.
The paper describes the phenomenon of power in business relationships as exemplified by
construction industry. Thompson, Cox and Aderson (1998) claim that market-based
interactions in construction industry are standard, and little attention is paid to relationship
development. Constructing companies are often accused of taking on a short-term
perspective, refusing to introduce innovations (Dubois & Gadde, 2002). On the whole, these
companies are not convinced that they should develop long-term supplier-customer
relationships thus they do not make use of their potential (Anvuur & Kumaraswamy, 2007).
According to Signetzki (2012), a similar situation is taking place in Poland – construction
industry representatives are mainly focused on transaction. The relationships that they make
last mainly for the duration of a particular project and the subcontractors are usually
dependent on their customer (investor, general contractor), who is usually in stronger
position, so he or she expects their partners to adapt to his or her needs.
It can be inferred from the remarks presented above that companies operating in construction
industry are customer-oriented and are able to fit in with their customer’s needs, if the
customer imposes his or her own solutions and forces a particular company to take action that
will bring him or her benefits. Therefore one question seems to be valid here: what is the
adaptation like when customer’s position is not dominant? This paper is divided into four
sections; the first revises the literature on business adaptation, power and dependence in
relations. The second describes research outlines, whereas the third part discusses research
conducted into construction companies. The last section contains conclusions.

2. Nature and motives of business-to-business adaptation

Adaptation in the relationship between companies means introducing changes at the
individual, group or corporate level in order to meet the expectations of another company,
taking into account new circumstances (Brennan, Turnbull, & Wilson, 2003). Hallén and
Sandström (1991) distinguish unilateral adaptation in the relationships of asymmetrical
dependence or reciprocal adaptation in the relationships based on trust. Johanson and Mattson
(1987) make a distinction between five different kinds of adaptation: technical, logistical,
administrative, knowledge-sharing and financial. There are two trends in management
concerning the reasons for adaptation: active and reactive. The former stems from the
contingency theory, which says that it is possible to optimise efficiency by matching strategic
assumptions and action with conditions specific for a particular environment, including
relations with customers (Donaldson, 2006). That means that adaptation in a relationship with
the customer results from a decision regarding market orientation taken by a particular
company. Studies reveal a variety of internal reasons for making adaptations: companies
decide to adapt in order to increase sales and reduce costs (Hagberg-Andersson, 2006), to
meet the expectations of customers occurring at the end of the value chain (Schmidt, Tyler, &
Brennan, 2007) and to improve the relationships between companies and benefit from the
relationship (Ford, Gadde, Hakansson, & Snehota, 2003).

                                                        
1 Project granted by the Polish National Science Centre (NCN) DEC-2011/01/B/HS4/02747
According to the latter approach, adaptation is reactive and is a response to what is happening
in a particular relationship. Brennan and Turnbull (1999) link the adaptive behavior with the
level of trust and antagonism in the relationship. With higher trust and lower antagonism, the
parties are more likely to consider the effort of adaptation "worthwhile". It appears that
opportunism and enforcement of dominant position become strong external motivators. If
possible, companies tend to achieve their own goals by imposing their will on others in order
to gain access to the necessary resources. This concept derives from the resource dependence
theory (Pfeffer & Salancik, 2003) and explains both motivating factors to adapt, and the ones
opposing it. Adaptation is not a consequence of independent decisions regarding goals and
strategies, but rather the partner’s power or dependency on other’s resources.
In construction industry adaptations require time and greater certainty that the invested effort
will bring the expected result. Adaptations generate more dependence among the
relationship’s entities, which is why construction companies avoid adapting to a single
customer. They appreciate the benefits from avoiding dependence and not having to adapt to a
particular customer (Love, Li, & Mandal, 1999). The necessity of adaptation raises concerns
about levels of dependence of the supplier and customer and a potential lack of flexibility.
Therefore construction companies consider standardisation to be more effective than
customisation (Sundquist, Hulthen, & Gadde, 2012).

3. Power and dependence

Power and dependency can be perceived as two extremes on one continuum. Pfeffer and
Salancik (2003) suggest that organisations respond to the demands of the ones controlling
critical resources. In any business relationship the balance of power and the degree of
dependence or interdependence will help shape the atmosphere of the exchange process and
the relationship. Anderson and Narus (1999) see power as the ability to get the partner to
undertake activities that the partner organisation would not do on its own. Henneberg,
Mouzas, and Naudé (2006) state that the degree of power between the companies in a network
is important as it indicates the extent to which they are dependent or independent on others in
the network. Power can be discussed in terms of actors‘ perceived dependence or
independence in relation to other actors within the network of relationships as well as in terms
of strength of the relationships. The perceived balance of power is what becomes important,
since it is not the use/exercise of the power within the relationship but the knowledge that it
exists, which can change the actions of the parties (Sutton-Brady, 2000). The relative
dependence between the parties in the relationship determines their relative power. The
dependence in business relationships may result from several factors – both positive (DEP1):
the profitability of cooperation and obtaining exceptional benefits and negative (DEP2): the
lack of alternatives (suppliers or customers), the extent of loss after terminating a relationship.
Research carried out so far shows that power and independence are not spread equally in
supplier-buyer relationships. The supplier is in weaker position than his or her customer, and
the customer uses his or her power. For this reason suppliers adapt to their customers and the
reverse seldom occurs. Schmidt et al. show that suppliers tend to adapt more often and in
bigger scale, while adaptation on the customer’s side are rare (Schmidt et al., 2007). Those
responsible for purchasing have a claimable approach to adjustment, believing that suppliers
are responsible for compatibility in relationships (Leszczyński, 2012). It is exemplified by the
European construction market, where it is difficult to develop long-term relationships with
customers. Following from this, adversarial arms-length relationships are common (Crespin-
Mazet & Portier, 2010). Similarly, in Poland, the concept of relationship marketing is very
limited in construction industry, in which companies tend to adopt mainly opportunistic
approaches. However, it is often the case that the stronger partner imposes his or her own
behaviours and attitudes on the supplier (Signetzki, 2012).
4. Power/dependency impact on adaptation
According to marketing principles, a customer’s needs and expectations should be the centre
of attention of his or her supplier, which means that adaptation in the relation with the
customer stems from the supplier’s assumptions. However, such a situation may not often be
the case considering the features of the industry described earlier. Since buyers in
construction industry often tend to use power and relations to attain their goals, it may be
considered standard that the strong customer forces his or her supplier to take action
beneficial for the customer. However, it has not been identified yet how a supplier behaves
when his or her customer’s power and dependence on the supplier is not big. To what extent
can one say about a marketing orientation that translates into adaptation to a customer’s
needs? On the other hand, the occurrence of adaptation in relations, which are not based on a
supplier’s dependence, would show a strategic approach to the nature of marketing. For this
reason we assume that dependence and power in relations is an independent variable, whereas
adaptation is a dependent one. In order to operationalize adaptation, we used dimensions
specified by Johanson and Mattsson (1987). As for dependency, we used the scale proposed
by Marchington and Vincent (2004) and when it comes to power, we considered elements of
the scale tested by Fiske and Haslam (2005).

Picture 1. Research scheme

Dependency
DEP1: Positive Supplier adaptation to customer
DEP2: Negative Financial  
  Technical  
  Logistical
Administrative
Power Knowledge
 
POW: Customer power vs. supplier
   
 

5. Research outline
The study focuses on supplier-customer relationships. As in most business-to-business cases,
in which it is a supplier who adjusts to a buyer’s needs, we adopt a sales manager perspective
on relationship in our research. In a survey method, the sales manager was asked to respond
regarding a specific key customer, in order to avoid too general considerations. We asked
sales managers to choose a key customer, assuming that such a relationship could be seen as
important enough to trigger adaptation by the supplier (Gosselin & Bauwen, 2006). To collect
data, we prepared a questionnaire, which included questions about adaptation activities, level
of dependency and details of the examined companies. Data was collected during the Budma
2013 trade fair show – the biggest Central and Eastern European event in construction
industry. 734 trade fair exhibitors took part in the drop and collect survey. The final sample
consisted of 286 returned questionnaires with a response rate of 39.3%. The test group
consisted of key account managers, sales managers and trading directors. Respondents can be
described as experienced, as half of them have been in work for 8 or more years. Half of the
companies dealt with commerce, while one third dealt with manufacturing. The majority of
the examined companies represented SME (Me=30 persons).

6. Data analysis and results

First, we assessed the reliability of the DEP1, DEP2 and POW (α-Cronbach: 0.61, 0.79, 0.83).
Basing on the DEP1, DEP2 and POW indexes, the sample was divided into three clusters
(cluster analysis, grouping, clustering by k-means). The clusters were compared according to
the number of employees (test t, p<0,05) and business profile (U-Mann-Whitney test,
p<0.05). In both cases there were no significant differences (Table 1). We also examined
whether clusters differed from each other in respect to adaptive activities. As a result, the
profile of adaptation level in each segment was identified. Then the adaptation levels were
compared to verify the hypothesis (Table 2).

Table 1. Characteristics of clusters

clusters A B C
no. of companies 59 93 103
% of sample 23.1% 36.5% 40.4%
DEP1 4.40 3.92 3.70
DEP2 2.15 4.53 3.04
POW 4.18 3.42 3.20
financial 4.21 3.77 3.71
technical 4.34 4.19 4.01
adaptation logistical 4.25 4.10 3.85
administrative 4.21 3.87 3.70
knowledge 4.35 4.09 3.78

Group A includes respondents claiming that their companies were dependent on their key
customer to a large extent, which was related to benefits obtained from this relationship
(DEP1), but they also showed little concern about the consequences of losing the dependence
(DEP2). Respondents in the segment declared the greatest power of their key customer
(POW). It is the relationships of these companies that are described in literature on relations
in construction industry. These are relationships with stronger customers on whom suppliers
depend and to whose needs they adapt in all researched areas. As declared by two other
groups of respondents, relationships with key customers were different from what could be
gathered from the literature review. Group B has companies with relationships based on
considerable dependence on their key customer resulting mainly from their concerns of losing
the customer (DEP2). The concern was stronger than in the other groups. Despite the
concerns, however, the level of adaptation in the relationship was relatively low. Group C
comprises those who declared the average degree of their dependence on the key customer
(DEP1, DEP2) and they claimed that the customer’s power is average, too (POW). The Group
included respondents with a lower degree of dependence than those in Group A. They thought
the key customer’s power was lower and they showed a lower degree of adaptation to his or
her needs. Analysis showed a higher level of adaptation in Group A than Group B in all
studied areas. When we compare the extent of adaptation of companies in Group A from
those in Group C, we can observe a lower degree of adaptation in Group C only in “soft”
areas (knowledge, administration) and finance.

Table 2. Comparison of adaptation in clusters

comparison of clusters
adaptation C vs. A B vs. A
financial C<A* B<A*
technical no differences B<A*
logistical no differences B<A*
administrative C<A* B<A*
knowledge C<A* B<A*
significance at p<0.5
7. Conclusions
Research shows that regardless of the characteristics of the analysed relations features (DEP,
POW) in three groups of companies, the highest adaptation is registered in a technical area
and the lowest – in finance. This stands in contrast with the dominance of standardisation in
construction industry as portrayed in the literature. Research shows that companies operating
in the industry in Poland have low margins and because of payment backlogs they are less
flexible as for financial adaptation. The situation of Group A companies, whose relationships
with key customers base on dependency and power and which simultaneously have a high
degree of adaptation can be treated as the one that we expected to obtain as a result of
research into construction industry. At least this is how the situation is presented in the
literature. It turns out, however, that the group is relatively small in number in the studied
sample. Group A companies adapt to their customers’ needs and expectations to a large
degree, but there may be doubts whether this stems from a marketing orientation or solely
from the imbalance of power between a supplier and his or her customer.
The other 75% of respondents believed that their relationship was not characterised by the
dominant position of their key customer (DEP1, DEP2), which was accompanied by smaller
adaptation. This can confirm that a strong position in the relationship can make the other
partner to adapt or the unwillingness to adapt, when adaptation is not necessary.
The situation in Group B deserves particular attention. The respondents mentioned a high
degree of dependence on their key customer, which in that case resulted from the fear of
losing him or her (DEP2). Despite the situation in the group the level of adaptation in all areas
was lower than in Group A. This bears out suggestions by Love et al. (1999), who shows that
standardisation is a more common strategy than customisation in construction industry. Our
research shows that construction industry buyers may make their suppliers adapt to their
requirements thus building their strong position in the eyes of the supplier and showing
benefits from the cooperation. However, when the supplier is afraid of losing his or her
customer, and the customer is not perceived as strong, adaptation will be smaller.

8. Limitations
Research was carried out during a fair. Fair exhibitors are mostly innovative companies in
good financial condition (participation in the fair is associated with considerable expenses).
One can assume that companies taking part in the trade fairs, as exhibitors are not
representative for the whole branch. Respondents answered questions regarding a relationship
with their key customer. We decided on this research method, because it was difficult to
collect data on relationships with various customers using a quantitative survey
method. Extending the study to include other customers could contribute to a deeper
understanding of the essence of relations in the construction market. On the other hand, the
notion of “key customer” could be operationalized in detail. The perception of the key
customer may in fact have multiple dimensions. We are aware that it can restrict the result
received from the research.

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