The Impact of IT-based Cooperation on Industrial Relationship Management

More and more companies use information technology (IT) and especially the Internet to find, build, and maintain business relationships to their suppliers and/or customers. In recent years, the use of Business-to-Business (B2B) electronic platforms has increased dramatically. In the beginning, these platforms were mainly used as trading platforms, i.e. marketplaces, where buyers and sellers met to buy and sell their products. Between 1998 and 2001 more than 1500 such marketplaces were founded in Germany. Today, there are only around 150 active marketplaces left. However, these platforms are more successful than ever. An increasing number of industrial companies especially larger ones demand from their suppliers to interact electronically. Not only purchasing functions are fulfilled through these platforms but also in increasing amount of cooperative functions, e.g., project management, research and development, or supply chain management. Consequently, the management of inter-organizational cooperation and relationships has to meet new challenges. In this paper, the authors examine the current literature of the use of IT in business relationships. We will show that the deployment of IT in business relationships has different effects on relationship functions (i.e. purchasing, market information and product development functions). Drawing on an empirical base of 138 industrial customer questionnaires, the authors show that the use of IT in a buyer-seller relationship depends heavily on the IT know-how of both partners and their available IT resources. The findings are discussed and the authors provide managerial implications for decisions makers from both buyer and supplier organizations. Furthermore, the authors develop an outline for future empirical research on electronic interaction platforms. Introduction The purpose of this paper is to examine the impact of information technologies (IT) on relationships between suppliers and their business customers. It would seem logical that, as tasks and processes in a relationship are mediated by technology, the nature of a supplierbuyer relationship changes. However, research to date has not investigated these changes sufficiently (Carr and Smeltzer 2002). Moreover, previous research has shown that information technologies cannot only help to deepen existing relationships but also lead to maintain fewer relationships with suppliers (Bakos and Brynjolfsson 1993). Are these results still valid today with the nature of information technologies changing through new software applications? Wouldn’t one expect to have a higher number of partners involved if the Internet makes information access and connectivity easier? How does the interaction of partners in a relationship change by using technical means? Researchers in relationship management and marketing have intensively investigated, both theoretically and empirically, the principal characteristics of business relationships and relationship quality, such as satisfaction, trust, commitment and value (e.g. (Morgan and Hunt 1994), (Parasuraman 1997), (Anderson and Narus 1998), (Walter and Gemünden 2000), (Beutin 2001)). A growing body of research suggests that relationship functions have a strong impact on the characteristics of business relationships (e.g. (Hakansson and Johanson 1993), (Kumar et al. 1995), (Walter et al. 2003)). In this context, a central question remains without a clear answer: what does customers and suppliers enable to perform these relationship functions? In this paper we investigate the impact of IT-related aspects of relationship management on relationship functions in an industrial setting. We believe different variables, such as customer’s and supplier’s IT know-how, future IT orientation and IT-based cooperation to be influencing factors on relationship functions. The paper is organized as follows: First, we look at the existing literature on use of information technology (IT) in business relationships. We can show that although there is an extensive body of literature on the use of information technology in an organization, there hasn't been written much about how supplier-buyer relationships are influenced by the deployment of any kind of information technology. We give an overview on existing research by grouping the information technologies used between two or more organizations into three main areas. Building on these insights, we develop our conceptual model to show how the outcome of a relationship is influenced by the extent of IT-based cooperation in a given relationship. Moreover, we propose a direct link between the IT know-how on both customer's and supplier's side with the customer's intention to enhance the use of IT as well as the level of IT-based cooperation in this relationship. In the third part, we test our model with an empirical base of 138 cases form a survey of German and Britain companies. We can show that the Supplier's IT Know-How is of paramount influence on the IT-based cooperation and the future IT orientation of the relationship. Furthermore, IT-based cooperation has a strong effect on the product development functions of the relationship. The findings give new insights into the use of information technology in a suppliercustomer relationship. Managerial and research implications are given and the outline for future research building on our findings with respect to the use of electronic interaction platforms in business relationships is presented. I Use of Information Technology (IT) in business relationships In this paper, we define information technology along with Carr and Smeltzer (2002) as “the use of automated systems, supplier links via electronic data interchange, interorganizational information systems, and computer-to-computer links between firms” (Carr and Smeltzer 2002), p. 294. Information technology has a major influence on how business is done today, not only inside the organization but especially on the exchange of organizations with their partners. Consequently, IT has become a competitive advantage for the firm in the marketplace (e.g. (Clemons and Row 1991; Johnston and Vitale 1988; Rockart and Short 1989)). The spectrum of IT use in business relationships varies from simple information sharing via email to fully integrated computer-to-computer solutions to conduct transactions almost untouched by organizations’ staff. Additionally, we can distinguish three forms of information technologies used in relationships sorted by the increasing extent of flexibility: • interorganizational information systems (IOS) • Extranets • internet-based business-to-business electronic markets Interorganizational information systems (IOS) Since the early 1970s, computer-to-computer automated information systems shared by two or more organizations also called interorganizational information systems (IOS) have experienced a significant growth (Cash and Kosynski 1985). They are used explicitly for the exchange of documents across organizational boundaries (in contrast to internal information systems). Today, the most widely known IOS technologies are EDI (Electronic Data Interchange) for inventory management and control and UPC (Universal Product Code) for supply chain management. They usually do not support end-user applications. However, as internal systems (e.g., enterprise resource planning systems (ERP)) have started to be directly connected with the corresponding systems at the partner’s site, the importance of IOS is increasing dramatically (Archer and Yuan 2000). It is important to notice that interorganizational information systems are designated, proprietary systems that are used exclusively between two (and sometimes more) partners. They are usually initiated when a close relationship exists as they require significant investments on both sides of the relationship (O'Callaghan et al. 1992). Researchers have shown that IOS technology can be a tool for strategic advantage and value creation (e.g. (Bakos 1991);(Clemons and Row 1991)). However, the use of IOS technologies in business relationships can seriously disturb these relationships in the short term if partners’ expectations are not aligned. (Clemons and Row 1993); (Wilson and Vlosky 1998). Extranets Similar to IOS, Extranet are also not available to the public, but based on open Internettechnology. They connect multiple organizations in a closed-user group usually by opening up certain areas of a company’s Intranet to its partners (Greengard 1997). Although an Extranet is using Internet technologies, a sophisticated security system using firewalls prevent outsiders to access sensitive data (Radosevich 1997). Extranet use has significantly increased since the late Nineties (Vlosky et al. 2000). They are mainly established by supplier organizations in order to offer customers access to information about production status of products ordered, shipping information, etc. It has been shown that Extranets can improve business-to-business relationships by saving costs and improving service (Franklin 1997). Internet-based business-to-business electronic markets The most flexible technology concerning interorganizational coordination is provided by the Internet itself through internet-based business-to-business electronic markets (Grewal et al. 2001). Aspects as transparency, comparability of products, prices, suppliers, buyers and availability and efficient market and pricing mechanisms have lead to a significant cost reduction and a high acceptance within business relationships (Schneider and Schnetkamp 2000). As opposed to EDI, which mainly supports inventory control functions, electronic markets are much more flexible to support various levels of relationship involvement and functions. However, the research on the specific impact of Internet-based technologies on buyer-supplier relationships is, according to our knowledge, limited. An exemption is the study of (Carr and Smeltzer 2002) that analyzes four diffe