Collaboration: When, Why and How

Judith M. Whipple, Ph.D.Department of Marketing and Supply Chain ManagementMichigan State University325 North Business Complexwhipple@bus.msu.edu517-432-6407 Collaboration: When, Why and How July 31, 2007 – Foundation For Strategic Sourcing

Spectrum of Customer-Supplier Relationships Transactional Arm’s LengthRelationship Acceptance ofMutual Goals Relationship/Alliance Traditional Role New Relationship ConfrontationSuspicion Explicit Knowledge Cooperation/TrustCollaborative Value Tacit Knowledge

Why Collaborate? • Strategic decisions are bigger and more complex • Globalization • Consolidation • Increase competition from old/new players • New forms of competition • Time is the critical factor – first mover advantages • Environment is less certain • Preventable “glitches” are excessive and costly No one individual or company has the information, time, credibility, and/or capability needed to make and implement this level of decision-making successfully

Current Research • On-line survey sent to customers and suppliers • Asked to evaluate various constructs for both collaborative and transactional relationships • Relationship management • Communication and information sharing • Satisfaction • Performance • Objective: to compare how relationships are managed and to determine if collaboration is a worthwhile endeavor

Survey Definitions • A collaborative relationship is a long-term relationship where participants generally cooperate, share information, and work together to plan and even modify their business practices to improve joint performance (may also be considered as an alliance, partnership or focus on a specific program such as VMI, JIT, CPFR). • A transactional relationship is a buying-selling agreement where participants conduct business for a specific time period according to terms generally outlined in a standard contract (may also be considered as an “arm’s length” or “transactional” relationship). This research was supported by the Innovation and Organizational Change (IOC) Program of the National Science Foundation, Grant Number 0122173

Who Participated in the Research? • Customers • 544 completed surveys (13% response rate) • F4SS – 38 of 71 completed (54% response rate) • Majority worked for a manufacturer/distributor (73%) • 462 collaborative responses (85%) • 418 transactional responses (77%) • Suppliers • 256 completed surveys (7% response rate) • F4SS – 62 of 100 completed (62% response rate) • 56% manufacturer/distributor and 30% 3PL/transportation provider • 219 collaborative responses (86%) • 203 transactional responses (80%)

Do Respondents Manage Collaborative and Transactional Relationships Differently? • Relationship activities • Long-term commitment • Trust • Dedicated investments Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

Customer Responses: Relationship Management Scale: 1 = strongly disagree; 7 = strongly agree

Supplier Responses: Relationship Management Scale: 1 = strongly disagree; 7 = strongly agree

Do Respondents Communicate Differently in Collaborative and Transactional Relationships? • Communication • Information sharing Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

Customer Responses: Communication Scale: 1 = strongly disagree; 7 = strongly agree

Supplier Responses: Communication Scale: 1 = strongly disagree; 7 = strongly agree

Do Respondents Evaluate Collaborative and Transactional Relationships Differently? • Performance • Satisfaction Mean responses comparing collaborative and transactional relationships were statistically different from each other for both customers and suppliers.

Customer Reponses: Evaluation Scale: 1 = strongly disagree; 7 = strongly agree

Customer Responses: Evaluation Scale: 1 = strongly disagree; 7 = strongly agree

Supplier Responses: Evaluation Scale: 1 = strongly disagree; 7 = strongly agree

F4SS Responses – Comparing Customers and Suppliers * Indicated statistically significant difference in mean response

Which Factors Contribute Most to Performance? Predictors of Performance - Customers Collaborative Relationships Transactional Relationships Trust Trust Relationship Activities Relationship Activities Performance Long-term Commitment Communication Communication Dedicated Investments (negative) Dedicated Investments Information (negative)

Which Factors Contribute Most to Performance? Predictors of Performance - Suppliers Collaborative Relationships Transactional Relationships Relationship Activities Trust Trust Performance Relationship Activities Dedicated Investments Dedicated Investments Commitment (negative)

Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Relationship - Customers Collaborative Relationships Transactional Relationships Trust Trust Relationship Activities Performance Satisfaction with Relationship Relationship Activities Performance Dedicated Investments (negative) Commitment

Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Relationship - Suppliers Collaborative Relationships Transactional Relationships Trust Trust Relationship Activities Satisfaction with Relationship Relationship Activities Performance Performance Commitment

Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Customers Collaborative Relationships Transactional Relationships Trust Trust Satisfaction with Results Performance Commitment Performance

Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Suppliers Collaborative Relationships Transactional Relationships Trust Trust Performance Relationship Activities Satisfaction with Results Information Sharing (negative) Performance Commitment

Which Factors Contribute Most to Performance for F4SS Only? Predictors of Performance - Customers Collaborative Relationships Transactional Relationships Long-term Commitment Performance Trust Trust

Which Factors Contribute Most to Performance for F4SS Only? Predictors of Performance - Suppliers Collaborative Relationships Transactional Relationships Relationship Activities Trust Performance Trust Dedicated Investments

Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Relationship - Customers Collaborative Relationships Transactional Relationships Relationship Activities Satisfaction with Relationship Performance Trust

Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Relationship - Suppliers Collaborative Relationships Transactional Relationships Trust Relationship Activities Satisfaction with Relationship Trust Dedicated Investments (negative)

Which Factors Contribute Most to Satisfaction for F4SS Only? Predictors of Satisfaction with Results - Customers Collaborative Relationships Transactional Relationships Trust Performance Dedicated Investments (negative) Satisfaction with Results Commitment Dedicated Investments (negative) Commitment

Which Factors Contribute Most to Satisfaction? Predictors of Satisfaction with Results - Suppliers Collaborative Relationships Transactional Relationships Performance Relationship Activities Satisfaction with Results Trust Performance Communication (negative)

Initial Research Conclusions • Collaborative relationship offer more value than transactional relationships • Collaborative relationships provide higher levels of performance and satisfaction than transactional relationships

Customer Conclusions: F4SS • Customers who want to improve performance • Collaborative Relationships • Focus on improving trust • Transactional Relationships • Focus on long-term commitment and trust • Customers who want to improve satisfaction • Collaborative Relationships • Focus on improving trust, relationship activities, and commitment • Transactional Relationships • Focus on performance and commitment

Supplier Conclusions: F4SS • Suppliers who want to improve performance • Collaborative Relationships • Focus on improving relationship activities and trust • Transactional Relationships • Focus on trust and dedicated investments • Suppliers who want to improve satisfaction • Collaborative Relationships • Focus on improving trust, relationship activities, and performance • Transactional Relationships • Focus on improving trust, relationship activities, and performance

F4SS Additional Considerations • Dedicated investments • Customers perceive the dedicated investments they make to have a negative impact on satisfaction with results for both collaborative and transactional relationships • Suppliers perceive the dedicated investments they make to have a negative impact on satisfaction with the relationship for collaborative relationships • Communication • Suppliers perceive the relatively weak level of communication in transactional relationships to negatively impact satisfaction with results

Conclusions • Collaboration offers the potential for creating a sustainable value chain • It’s not always going to be easy, but it pays to be a collaborator • Step ZERO – internal buy-in is often overlooked and underestimated • Early and consistent wins provide momentum for larger, more important wins • TRUST

Dimensions of Trust Competence-Based Trust: Examines specific operational behavior and performance • Specific competence in knowledge/skills • Interpersonal competence • Competence in business sense • Judgment Gabarro (1978, 1987)

Dimensions of Trust (continued) Character-Based Trust: Examines the qualities or characteristics inherent in philosophies/culture • Integrity • Identification of motives • Consistency of behavior • Openness • Discreteness Gabarro (1978, 1987)

Trust – How it Looks Elements of Trust Character-Based Competence-Based Interorganizational Character-Based Trust Interorganizational Competence-Based Trust Levels of Trust Interpersonal Interorganizational Interpersonal Character-Based Trust Interpersonal Competence-Based Trust

Collaboration: When, Why and How