mapping the values in b2b relationships

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Mapping the values in B2B relationships: A systemic, knowledge-based perspective

J.H. Powella,, J. Swart b

a Cardiff University Business School, Colum Drive, Cardiff, CF2 3SX, UKb School of Management, University of Bath, Bath, BA2 7AY, UK

a b s t r a c ta r t i c l e i n f o

Article history:

Received 1 March 2006

Received in revised form 1 May 2007

Accepted 1 November 2008Available online 12 June 2009

Keywords:

Marketing

Systems thinking

Knowledge management

Co-production

The management of an enduring relationship between provider and supplier has at its heart an implicit

interaction between the valuation systems of the counterparts. We take the view that this interaction is

conveniently understood through the lens of knowledge management. Knowledge management informs

our treatment of business to business relationships through two mechanisms. It helps us manage better the

dissemination and co-creation of knowledge in an organisation and new work in the mapping of knowledge

allows us to represent the knowledge aspects of a relationship in a way which allows us to manage it better.

We present, therefore, an approach to allow the specific representation of these valuation systems and their

interaction, using a case study of the marketing of a nuclear submarine programme to a government. A

conclusion is that structures which support the co-creation of knowledge between the companies is critical

to winning the contract and we indicate how this co-creation can be engendered.

2009 Elsevier Inc. All rights reserved.

1. Introduction and perspective

Marketing is a member of a large class of human activities which

seek to match the output of a provider with a predicted, perceiveddemand. Business-to-business (from now on B2B) marketing has, in

particular, the characteristic that, with few exceptions, the provider

seeks to establish an enduring relationship with the buyer (Ford,

1997; Hkansson, Johanson, & Wootz, 1976; Turnbull & Valla, 1986).

Certainly it imbues more cooperation and collaboration than the more

general B2C case and hence we adhere to the term provider as more

accurate here than customer (Ritter & Ford, 2004). Marketing then

becomes very distinct from the act of selling (Gummesson, 2002),

since its focus of attention is on the satisfaction felt by the buyer (and

indeed by the provider) in continuing and enacting the relationship

(Vargo & Lusch, 2004).

Within this almost ubiquitous framing of B2B marketing as a

relationship issue, this paper assumes, specifically, the network under-

standing of marketing where the effects and implications of dyadic

company-to-company relationships (for example technologyexchange)

occurs in a distributed, wider multi-agent structure characterised as a

network. These dyadic relationships between firms, then, expressed

within the wider network are characterised by being multi-agent,

episodic in nature, interactive,not standardisedand distributed in nature

(Ford, Gadde, Hkansson, & Snehota, 2003 pp 6 and 227228). It

will be seen later that these characteristics place particular demands

upon the supporting tools and schemata used by managers of these

networks. It is the purpose of this paper to present a practical way of

representing, and hence aiding the understanding of the specific rela-

tionship of afirmwith itsencompassing network in order to satisfy these

particular demands.The second assumption made in this paper is that the emergent

behaviour of the network as a whole (as a result of management

within it, particularly of the constituent inter-firm dyads), is a matter

of and the outcome of knowledge management (hereafter KM). This

does not imply that no other lens is valid; merely that such a per-

spective, whereby the relationship is conveniently and effectively

understood to be enacted andreified by theknowledge conveyed in its

discourse, is an important, unifying and productive one. When firms

interact in an attempt to reconcile, jointly and severally, the needs

implied by their valuation systems, knowledge is exchanged and,

indeed co-created about the other's valuations. Moreover, particularly

in a technological industry, the exchange of knowledge is the most

significant bearer of the commitment so central to the social network

model whichinforms our understanding of B2B network relationships

(Cook & Emerson, 1978).

The view taken here is that the act of marketing is, at heart, the

interaction between twovaluation systems. Wemean by this theset of

attributes emergent from the relationship which are valued by each

party and the nature of the mutual interaction of these attributes.

For example, one firm may value greatly the transfer or co-creation

of technical knowledge relevant to a developing product line while

the dyadic partner may value short term cash flow and reflected

reputation gained by working with a more strongly branded partner.

This is in contradistinction with a second, common interpretation of

value system as the totality of the inherent, underlying values of

the firm and its constituents. We make no claim to throw light on

Industrial Marketing Management 39 (2010) 437449

Corresponding author.

E-mail addresses: [email protected] (J.H. Powell), [email protected] (J. Swart).

0019-8501/$ see front matter 2009 Elsevier Inc. All rights reserved.

doi:10.1016/j.indmarman.2008.11.011

Contents lists available at ScienceDirect

Industrial Marketing Management
mailto:[email protected]:[email protected]://dx.doi.org/10.1016/j.indmarman.2008.11.011http://www.sciencedirect.com/science/journal/00198501http://www.sciencedirect.com/science/journal/00198501http://dx.doi.org/10.1016/j.indmarman.2008.11.011mailto:[email protected]:[email protected]


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these moral and ethical underpinnings of the members of the firm;

here valuation system is to be understood as the embodimentin the

moment of the permanent set of things we stand for which are

underpinned by the value system in this second sense (Glynn, 2007;

Stryker, 1980, 2000).

For example, one firm may, because of its commercial and market

circumstances, be motivated to place great and continuing valueon its

skills and competence, its ability to create innovative technologies,

processes and products. The valuation system of such afi

rm wouldthen constitute a listing of those attributes valued together with some

representation of how they interact. For example, there are clear

connections between competencies, skills, training investment, ability

to innovate and differentiation in the market place. The firm needs to

know and, further, needs to be able to express the interconnections of

its valuation system, because it is the performance of this very system

which is the focus of the whole of the management of the firm, since

what are we managing if it is not that which we value (Burt, 1992)?

This idea of dyadic interaction being a matter of interaction of valua-

tion systems is inherent in much of the network literature ( Brusoni,

Prencipe, & Pavitt, 2001).

After a brief discussion of the implications of this network and

knowledge perspective on management of B2B relations the paper

illustrates the use of a particular method, deriving from the systems

and KM fields and then, through the medium of a case study, the

appropriateness of the technique (known as System-based Knowl-

edge Management (Powell & Swart, 2006), or SBKM) is indicated.

We then make observations on the knowledge management issues

illuminated by the case study and in particular on the rle of co-

creation mechanisms in creating network knowledge.

2. Managerial challenges

The nature of the relationships within the context of a network of

interactions is, as has been observed, that they are not to be under-

stood solely as dyadic interactions. They are episodic and dynamic

in nature, distributed, interactive, and not standardised (Ford et al.,

2003 pp 227228). These characteristics place special demands on

the management of the series of dyadic relationships which constitutethe marketing activity of the firm. The challenge of managers and

indeed of the approach presented here is to understand the respective

valuation systems and their interactions.

Firstly, because they are of a distributed and dynamic nature, the

sense-making of managers aspirant to conditioning (if not control-

ling) the network is particularly challenged (Ford & Redwood, 2005).

It is no simple matter even to understand the internal systems of a

firm (Simon, 1972; Tsoukas, 1996; Tsoukas & Vladimirou, 2001; von

Krogh, Roos, & Kleine,1998a); expecting managers to understand and

empathise with the valuation systems of others in the network is an

additional demand, made essential by the recognition that what is

done in the dyadic system surrounding the firm will have referred

and changing effects elsewhere in the network. Action is dependent

upon knowing (Brusoni et al., 2001; Baumard, 1999; Cook & SeelyBrown, 1999; Davenport & Prusak, 1998; Polanyi, 1966; Swart &

Powell, 2006) and hence on sense-making(Tsoukas, 1996; Tsoukas &

Vladimirou, 2001; Weick, 1979). Managers of these networks, then,

seeking to influence the network as a whole through the limited

communication and action channels of their immediate dyadic set,

require a representation method which will allow them at least to

capture their misconceptions about others in the network (Kahaner,

1996). At best, of course, these misconceptions are challenged and

resolved through the recognition of mutual inconsistency by the

structuring which a system representation provides (Checkland &

Scholes, 1990; Coyle & Exelby, 2000; Davenport & Prusak, 1998; Eden,

1989; Flood & Jackson, 1991; Powell & Bradford, 1998).

Of particular importance is the observation that the nature of

the relationship of the firm with its surrounding network is both

systemic and (critically) non-standardised it is specific to the firm,

its context, its contemporaneity. The implication of this upon the

support needed by managers of these networks, then, is that any

sense-making representation method has to speak to the specifics of

the firm. Generalised models are inadequate. There is an extensive

body of literature which deals with this type of specific dynamic

modelling (Checkland & Scholes, 1990; Coyle & Exelby, 2000; Flood &

Jackson, 1991; Coyle, 1977, 1998; Forrester, 1961; Richardson & Pugh,

1981; Sterman, 2000; Tustin, 1953; Wolstenholme, 1990) which isable to represent the specifics of a firm's valuation systems and con-

text and upon which we draw in our subsequent representations.

Lastly, the assertion that the knowledge component of these net-

works is critical to their understanding and enactment leads us to

specify that whatever representation method is used to assist man-

agers in their action planning and sense-making, it has to have a

capacity to represent the knowledge inherent in the transactional

relationships of the dyads and hence the network (Powell & Bradford,

1998).

The purpose of this paper from this point onwards is to present a

practical wayof representing the specific interactions between valuation

systems which complies with the implied requirements identified in

this section.

3. General model

If we are to address the managerial issues surrounding the nego-

tiated valuation systems as we propose it is highly desirable to have

some disciplined, preferably commonly held and auditable way of

representing the interaction (Checkland & Scholes,1990; Coyle, 2000;

Powell & Bradford,1998; Quinn, Mills, & Friesen, 1992; Wolstenholme,

1990). Fig. 1 indicates the general architecture which we should

expect to see in such a system model supporting action-directed

managerial sense-making and analysis.

One should expect to see each party's business model interacting

with the mechanisms of the market (Hkansson & Ford, 2002). This

would be true even if the parties were non-communicating com-

petitors; there would still be a dialogue but one mediated only by

the mechanism of the market. In point of fact there will be othermechanisms of intercommunication which are not directly driven by

the economic, short term issues of the market. These are referred to in

Fig. 1 as indirect connections. Such indirect communications can be

quite explicit. For example, as we shall see in the case example cited

below, two high technologyfirmscan andusually will co-operate over,

say, joint technology development or research agenda definition even

if themarket as such does notrecognise thedirect benefit. An example

of such a market is aerospace and defense. Here states frequently

adopt policies either of arguing for a particular procurement on the

Fig.1. Interaction of participants' valuation systems within market context.

438 J.H. Powell, J. Swart / Industrial Marketing Management 39 (2010) 437449


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basis of Strategic Defense Industrial Base (SDIB), where the continuing

existence of a source of supply is deemed more important than value

for money in any particular procurement, or for myopic Value For

Money (VFM) procurement. In both cases the purchase is instru-

mental in thesensethat procurementofficers aredriven to adopt rules

which stress the outcome of the industrial system rather than ac-

cepting and accommodating its behavioural characteristics. No value

judgement upon such an approach is made here, but the observation

is offered that such an instrumental market tends to strengthen therelative importance of the indirect communications between nego-

tiating/co-operating firms since they become responsible jointly for

those aspects which they find strategically desirable but which arenot

reflected in procurement policy.

The behavior offirms reflects precisely what should be expected

from the study and practice of KM. As firms engage in these indirect

communications (enacted, of course, through the interactions of

individuals and groups of individuals) KM predicts the appearance of

co-created explicit and tacit knowledge emerging from and supported

by social and organisational structures supporting the knowledge

generating mechanisms (Burt, 1992; Cook & Seely Brown, 1999;

Davenport & Prusak, 1998; Granovetter, 1973; Leana & van Beuren,

1999; Nonaka, 1994; Quinn et al., 1992; Scarbrough, Swan, & Preston,

1999; Swart & Kinnie, 2003; Swart, 2006; von Krogh et al., 1998b ;

Weick, 1979). Thus we see in the case of high technology companies

(both for pure prime-contractor/supplier relationships and more

equipotent B2B relationships), the setting up of joint project teams

from which knowledge about complex projects are co-created.

Examples abound world-wide, and include JSF, Eurofighter, Common

New Generation NATO frigate and the example discussed later in this

paper, the nuclear submarine programmes of the United Kingdom. In

all these cases we see both the purposive generation of knowledge,

altering the explicit technical valuation systems of participants and

the non-purposive, deeply tacit co-experiencing of an emergent

requirement which inexorably, and in just as powerful a way as that of

the explicit mechanisms, alters the valuation of the participating

organisations (Tsoukas, 1996; Swart & Powell, 2006; Swart & Kinnie,

2003; Krogh et al., 1998b).

It will be seen, then, that a system model which purports torepresent the engagement between co-operatingfirms in an essential

dyadic relationship must also, reflect the third, silent party, namely

the surrounding network context (Powell & Bradford, 1998). In the

case of the nuclear submarine joint programme (to which we will

soon turn) we see a rich engagement by the provider of the nuclear

prime mover (the so-called nuclear steam raising plant or NSRP) and

the prime contractor who, conventionally, is the hull provider. At first

glance this looks like a one-to-one B2B relationship of conventional

form; the NSRP provider seeks to sell a plant to the prime contractor.

Fig.1 illustrates that in fact thenegotiatedrelationship is triadic in that

each party is, in addition to this straightforward one-to-one engage-

ment, experiencing interactions with the market, here, narrowly, the

monopsonic procurer of a strategic national defense asset (the nuclear

submarine) representing, unusually, the whole surrounding networkcontext.As a resultthe case represents a simplified, canonical example

of a B2B network of the form generalized in Fig. 1. The effect of the

network of suppliers is not ignored here, not least because there areof

the order of 3 million separate components in the product, but the

triad analyzed here is the dominant feature of the project landscape.

In addition to the overt triadic relationship driven by explicit

market demands we should expect our system model to show evi-

dence of co-creation of knowledge through the social mechanisms of

interaction among workers on the project and between them and

client experts (Morris, 2000; Reagans & Zuckerman, 2001; Swart &

Kinnie 2003). If we can generate a system model which exhibits these

features and which aligns with the characteristics of the interaction

indicated above we have a basis for identifying managerial action

which is system-based, respectful of the knowledge dimension of

analysis and aimed at managing the relationship between both sides

ofthe B2B relationship.

4. Research and analysis design

The toolset we choose to represent these interactive valuation

systems was developed particularly for the representation of knowl-

edge systems. It is known as Systems Based Knowledge Management

(SBKM) (Powell & Swart, 2006; Swart & Powell, 2006) and derivesfrom the qualitative variant of the ubiquitous Systems Dynamics

family of tools (Coyle, 1998, 2000; Eden, 1989; Sterman, 2000). As

such it is essentially directed towards the representation of the com-

plex valuation system and hence to action aimed at the conditioning

of the behaviour system in focus and at allowing the rehearsal of

systemchanges. Thus it is both descriptive and normative in its output

(Coyle, 1977, 1998; Richardson & Pugh, 1981). There are other

approaches. Cognitive mapping (Eden, 1989), for example, can be

used to represent interactive systems but suffers from the disadvan-

tage that, while it is flexible, it lacks the grammatical stability nec-

essary for any resulting analysis to be transparent and well-founded

(Coyle, 1998, 2000; Liddell & Powell, 2004; Powell & Coyle, 2005;

Sterman, 2000). Network pictures, to some extent, circumvent these

difficulties but lack the required specificity of system representation

(Ramos & Ford, 2006) The large body of numerically based modelling

methods is rejected also, on the argument that many of the important

variables present in interactive valuation systems deriving from

human activity systems are, at best, arbitrarily rendered by a simple

number (Coyle, 2000; Powell & Swart, 2006; Powell & Coyle, 2005 );

one would find it difficult to justify attaching a simple number to the

concept oftrustor reputation in a business network, for example.

In essence SBKM represents the interaction of the protagonists'

valuation systems through the following procedure

Generate a causal loop or influence diagram which captures the

causal relationships between descriptive variables of a system in

which the protagonists are acting to enhance their valuations.

Identify which actors within the firm control the strength of

connection between each pair of variables. These actors are notsynonymous with those in the AAR model, but may well include

some or all of these.

Identify the tacit and explicit knowledge used at each connection by

each actor in pursuit of her rle in that part of the system.

With reference to the objectives of the system client, identify what

actions areappropriate in order to manipulate the objectives of each

actor at each point in the system and hence to derive the knowledge

required for each actor's enactment within the system.

We illustrate its use in a simplified version of a real life case study

of the triadic relationship between a UK nuclear submarinebuilder, its

NSRP provider and the monopsonic market in which that specific B2B

relationship is enacted.

5. Case setting co-operation in a major defense program

The case now described has been constructed from public sources

and from a series of conversations and interviews with principal

players, notably the Rolls Royce and Associates' Chief Engineer on the

program together with the Chief System Engineer. These interviews

were conducted over a period of two years from January 1990 to

December 1991, primarily in the context of the project team's sites,

being in Bath, (where the procurement authority was located) and

Barrow-in-Furness (where the design team was located). Data was

also included deriving from contemporary personal conversations

between one of the researchers and senior members of both the firms

involved and with the Director General in charge of the procurement

at the time. The most important contributor to the case and the one



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whose viewpoint the case takes is that of a senior member of a third

company, BAe Systems, who werecontemplating, at the time,entering

this strongly competitive market by offering their prime-contractor-

ship skills. Thus the informant was well-informed of the market

dynamics and characteristics of the business network but was, at the

same, not burdened by too great an asymmetry of knowledge among

the participants, as would have been the case had a senior member of

any of the three protagonists been the informant. As part of the joint

project team, the informant was seconded to the team by agreementwith the other parties. Thus the viewpoint of the analysis is from the

position of a member of the joint project team but not, conveniently,

from any of the viewpoints of the three explicit protagonists. The

model is constructed from contemporary private papers and notes,

using the SBKM grammar (Powell & Swart, 2006) post facto to re-

present their content. The viewpoints taken are, successively and

separately those of the informants capturing the valuation systems of

each protagonist. The overall system model then emerges from the

modelers' linking (in this case, the three) informants' views, checking

that linking variables (i.e. those used by two informants) are similarly

understood.

6. Background

In the early 1990s the procurement of nuclear submarines in the

UK was problematic. These military platforms are amongst the most

complex objects ever built by man, containing over 3 million separate

identifiable components. From an engineering point of view the sys-

tem integration problem is immensely difficult, with the most sig-

nificant challenges being the engineering of the noise environment of

the submarine. In summary terms the sonar of the submarine is

affected not just by its own inherent effectiveness and sensitivity but

also by the noise created by the hull moving through the water, often

at relatively high speed and by the noise generated by the systems

inside the boat, particularly that of the machinery of the prime mover

plant, known as the nuclear steam raising plant, or NSRP. It can be

imagined that there are other huge integration issues surrounding

avoiding interference of one system with another and even in achiev-

ing a workable spatial layout of a submarine.These submarines cost hundreds of millions of pounds and togeth-

er with their operating costs command substantial fractions of the

defense budget even of a developedeconomy. Of theunit procurement

cost some 60% accrues to the pressure hull, some 15% to the NSRP and

the remainder to weapon systems and integration. The risk, however,

is notin proportion to thecost since,althoughat firstglance onewould

expect the vitally important pressurehull to contain substantial risk, it

doesnot relative to the weapons systemsand, above all, the integration

of thesystems into a working warship. This is because thepressure hull

even for a new design, will be little changed in critical respects from

previous ones. For example, both ends of the cigar-tube shaped

pressure hull might remain unchanged, so that that difficult part of

the stress design would not need to be revisited and the construction

arrangements would be essentially unaltered. The weapons system,however, invariably deploys revolutionarynew technologies and pres-

ents a disproportionately high fraction of the risk.

In the UK the only supplier of NSRP was (and remains) Rolls Royce

and Associates (RRA) who, under the terms of a technology transfer

agreement with the US government dating from the 1950s (and

known as the 1954 Agreement) are allowed to implement the design

principles of a specific type of NSRP particularly suitable for under-

wateruse.The type isknown as a PressurizedWaterReactoror PWR. At

the time of the case the only hull manufacturer was Vickers Ship

Engineering Limited (VSEL). Othercompetent manufacturersin France

and the United States were effectively disbarred from any competition

because of SDIB considerations.

Thus, when a proposal to build a new class of submarine was

requested by the UK government, the two manufacturers of hull and

NSRP respectively came together in cooperation. Their relationship

was a complex one. VSEL was protective of its knowledge of pressure

hulls and of the integration of plant into those hulls. RRA was in-

different as such as to whether it held knowledge about the pressure

hull itself, but it was a substantive issue for the company whether it

could contribute strongly to design discussions about the integration

aspects and about the NSR itself. Were it to lose a place at that design

table, its ability to be seen to be a part of the risk reduction regime of

the project would decline and, ultimately, its very place as the sole UKsupplier of the relevant nuclear technology under the 1954 agreement

might decline also. RRA was, however, very definitely a supplier of

nuclear technology equipment, design knowledge and integration

know-how while VSEL was the main contractor, a position to which

RRA did not aspire. Others such as GEC and BAe did, however, and

ultimately GEC took over VSEL and BAe merged with GEC, leaving RRA

still in its monopoly design position.

7. Method

The influence diagrams on which the method is based consist of

networks of causal relationships between variables which informants

declare as important or relevant to describing their problem. It can be

thought of as a causal relationship diagram which connects descrip-

tors chosen such that knowledge of their behavior would constitute

valuable knowledge as viewed by the informant. The arrows capture a

causal relationship (as distinct from mere correlation) and the signs

attached to the arrows indicate whether that relationship is direct

or inverse. In the latter case as the variable at the tail of the arrow

increases, the one at the head decreases and vice versa. Such an

inverse relationship is indicated by a sign associated with the arrow.

For clarity, arrows with negative signs are also shown dashed in

figures. A direct relationship (often indicated by a + sign, but here

suppressed) is where the variable at the tail and at the head rise and

fall together. Relationships are not necessarily linear and the strength

of correlation will vary, not least as the system is managed to produce

the effects desired.

The method used here derives from the powerful and widely-used

approach of system dynamics which, being an example of a systemapproach is concerned with the overall behavior of an interconnected

set of components or factors. System dynamics (Sterman, 2000) in its

quantitative form is particularly well-suited to the representation and

study of those systems whose components can be represented in a

purely numerical way, but in the type of system exemplified by B2B

marketing, where the components or factors are less easily and less

satisfactorily represented in a purely numerical way, the qualitative

form of system dynamics (Coyle, 1998) is more appropriate.

Influence diagrams are a common feature of both quantitative and

qualitative system dynamics and are well-documented in the liter-

ature (Montibeller & Belton, 2008; Sterman, 2000). Diagrams arebuilt

up step-by-step by eliciting from informants the causal relationships

between variables which serve to describe the system behavior. These

relationships are not necessarily linear, and indeed can be eitherstrong or weak in their effect. The method requires variables to be

well-defined (by the informants) and to be capable of expression on a

scale (although not necessarily to be measurable in practice). There

are well-established rules of praxis (Coyle, 1998; Sterman, 2000)]

which ensure structural integrity of the diagram, for example in en-

suring that a consistent level of analysis is used throughout. The main

analysis approach is to examine the influence diagram for resonant

structures, known as loops, which have the capacity, once activated, to

continue to produce managerial benefits. The emergent diagrams are

authenticated by the informants where possible and achieve a high

degree of contemporary valuation and hence authentication by these

informants.

Here, we interviewed experienced individuals from all three firms

involved in the procurement in question, working with them to create



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an influence diagram which each felt was appropriate. The diagrams

were then checked for consistency and validity of variables and re-

presented to the informants who then checked them for validity and

relevance.

8. Context of supply (see Fig. 2)

The procurement officers will be more willing to place a contract

(here necessarily to a home supplier) the greater the predicted valuefor money (VFM). VFM can accrue from many sources but a sub-

stantial component of it in these types of contract derives from

effective risk management. If the procurement officers judge that the

risk remaining with the state (known in the UK as The Crown) can be

reduced, the effective VFM is increased. Thus we see a negative sign

attached to the causal relationship residual risk to crown perceived

VFM. Separately the procurement officers will judge residual risk as

undesirable of itself and hence a high residual risk (if the contractor

cannot carry out the task or cannot bear a liability) will lead to a

reduced desire to procure at all.

We see in Fig. 2 how these primary issues are connected with the

competences of the potential contractors and in particular the overall

project capability, the ability of VSEL and RRA to bear their share of the

risk (ability to bear risk V and ability to bear risk R, respectively). We

see in Fig. 2 the first inklings of a KM perspective, too, since the

willingness of the procurement officers to grant contracts will affect

the track record of VSEL and RRA jointly and severally and will hence

increase their experience, knowledge and competence to carry out

these complex design and implementation tasks. The joint working

arrangements between the firms will prove critical. The working ar-

rangements followed a standard contemporary practice, with a joint,

co-located project team concentrating on overall project design and

management together with separate in-house working teams design-

ing and planning specific hull and NSRP issues.

In many respects the B2B marketing task of supplying a NSRP is a

trivial one in that RRA are a monopolistic supplier. The design of the

PWR is essentially a stable, proven one. We have a monopsonic buyer

(the UK government), a single main contractor (VSEL) and a monop-

olistic supplier of NSRP. It is neither offer for sale nor selling asdescribed in the earlier part of this paper. Because the replacement

submarine represents the embodiment of many years of experience

of in-fleet operation and because nuclear technology, like all high

technology contexts, is a changing one, there is a true convergence of

valuation system throughout the project life. The specification of the

NSRP, although necessarily based on the PWR basic design, has many

options which will affect the way in which NSRP, hull and weapons

system work together to set the weapons system sonar performance,

for example. There are many other considerations than the noise. For

example, the fuel life of the submarine is an important through-life-

cost issue which affects both the hull design and the NSRP design not

least because of the exigencies of refueling a nuclear reactor by means

of opening a pressure hull designed to go to great depths without

failing. The fewer times this is done the better.

9. Effect of competence on marketability

The marketability of this complex product is the ability of VSEL(in interaction with RRA) to satisfy the needs of the buyer. If we

consider the internal valuation system of each of the contractors, VSEL

and RRA we begin to see how the competences of each affect that

marketability. Fig. 3 shows how the VSEL top-team see the interaction

between such important attributes of thefirmas its ability to bearrisk,

its financial security and the valuation placed on those attributes by

the governmental buyer. We shall see later that the VSEL team takes

into account the contribution of RRA towards that overall project

competence as well as the VSEL and RRA risk-bearing capabilities in

their own respects. Thus we will see VSEL working within the context

of the valuation system of the governmental buyer and manipulating

the joint valuation system of itself and RRA to satisfy the market

demand.

VSEL, of course, is concerned in the long term with their ownsecurity as submarine manufacturer (security of position as s/m mfr

(V)) that security stems from a number of interrelated attributes (as it

happens all of them positively correlated for cause and effect). An

important relationship exists between the overall technical knowl-

edge of integration discussed above (technical knowledge integration

(V)) and the individual technical competences of knowledge of hull,

NSRP and weapon system components. Each of these are bolstered by

the track record of VSEL (track record V) in the sense that the longer

the track record (the more business won) the more opportunity there

has been for knowledge of this integration aspect of the project to be

co-created by VSEL andits partners and hence to be accessibleto VSEL.

From a KM perspective, VSEL's marketing imperative is to maintain

that engine of co-creation by participating in projects. As Noel Davies,

the Chief Executive put it in conversation with his MD, The most

Fig. 2. Connections with participant firms' competences. (V = VSEL, R = Rolls Royce

and Associates).

Fig. 3. VSEL'svaluationsystem (s/m mfr = submarine manufacturer,V= VSEL, R = RRA).



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important thing is to be there [in the project]. That lets us learn more

and learn more and faster than [competitor 1].

10. RRA's valuation system

We see in Fig. 4 the very similar cause and effect diagram of RRA's

competence dynamics and their interrelation with the desired char-

acteristics of the firm. In a similar way to that of VSEL in Fig. 5, we see

theimportant loop oftrack record R technical knowledge (NSRP) R

security of position as NSRP provider track record R. This loop, once

kicked off in a positive direction will tend to self-reinforce, thus

making RRA's position as monopolistic NSRP provider even more

difficult to supplant because any outsider will have no access to the

RRA knowledge. More subtly, this loop in RRA's valuation strengthens

Fig. 4. Rolls Royce and Associates' valuation system.

Fig. 5. Combined triadic system diagram.



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VSEL's hand as the incumbent main contractor, since any newcomer

attempting to supplant them would have to have access to that NSRP

component of the co-created knowledge needed to raise the overall

project capability (Fig. 5). Observe that the integrity of the 1954

agreementappears in the RRAvaluation cause and effect diagram. This

agreement between the US and the UK in essence licenses RRA to be

the UK's repository of knowledge and provider of the relevant nuclear

technology, Clearly other firms, all in the US, which have that capa-

bility would clearly and understandably prefer to be the supplier andhence there is inherent pressure on the governments only to maintain

the 1954 agreement in place so long as RRA has a demonstrable ability

to discharge their duties. In short, the firm's technical and financial

competence is essential to attenuate any desire by the US nuclear

lobby to remove its UK monopolistic licensed status.

11. Triadic system

Clearly the two supplierfirms' valuation systems diagrams interact

with those of the buyer. We can see this even at the most obvious

level, because certain variables (such as track record V) appear in more

than one ofFigs. 24. At a practical level, too, it is clear that we should

expect the competence of each of the contractors to appear as a

conditioning factor in their long-term attractiveness as contractor to a

long-term buyer such as a national government. Fig. 5 combines these

three valuation systems by concatenating the diagrams through the

identification and absorption into one valuation system diagram of

any variable held in common with another. Certain minor duplications

have been removed but no other topological changes are made to the

combined figure at this point.

Fig. 5 reflects the essential structure shown in Fig.1. We haveyet to

add the other connections between the two firms, those which we

called the indirect mechanisms previously.

Fig. 5 reflects the realities of the project in a very satisfying way

(i.e. in a way which resonateswith theexperiences and understanding

of the informants). It can be seen that it falls into three main parts,

namely the VSEL valuation system in the top left, the MOD customer

top centreand the RRAvaluation system bottomright. While there are

implicit inter-company connections for example overall projectcapability and ability to contribute to project R, most of the connections

between VSEL and RRA pass though the mediating mechanisms of the

MOD. For example, RRA's ability to bear nuclear risk affects, through

a long chain, VSEL's track record but only through the MOD's will-

ingness to place home contracts (ability to bear risk Rresidual risk to

crown willingness to place home contracts track record V). This is

most accurate; VSEL and RRA are not the same company; they do not

come together in joint projects because of an inherent joint interest

but because the buyer values their joint product and because they

cannot produce that product in isolation. We see later, as we add

further components to the direct interactions between VSEL and RRA,

that the knowledge sharing underpinning this MOD-mediated joint

motivation is an essential part of the project relationship.

12. Knowledge management considerations

We turn now to the counterpoint of this paper, namely the way in

which knowledge and its management are central to the competitive

advantage and survivability of these two firms. Fig. 6 shows some of

the key specific KM mechanisms elucidated by the informants. They

are evidenced in an extensive literature as surveyed by Swart (2006)

and before integrating it into the larger influence diagram we discuss

briefly the KM praxis issues which underlie the informants' links

shown in Fig. 6.

Fig. 6 is not a full causal loop diagram (in fact there are no loops in

it). It is, rather, a summary of a handful of key mechanisms evidenced

in the KM literature which address the practicalities of engendering

the co-creation of knowledge in an organization (here the complex

interrelationship of the UK government scientists, VSEL, RRA and the

joint project team).

Studies of the way in which knowledge is created between and

within professional groups show that there are a number of con-

ditioning factors which support that co-creation. We see three of

those conditioning factors emerging here from the actions of the

industrial partners in setting up their project teams to respond to the

MOD's requirement.

A collocated joint projectteamwas setup near theMOD authority. The

objective of this team was very clear: by collocating subject experts

with different professional skills and knowledge (heterogeneity of

project team in Fig. 9) knowledge was worth sharing because it was

obvious to team members that their peers both knew a great deal

about something relevant to the design and that whatwas known was

not known by others. Thus RRA put in an expert PWR NSRP designer

who could be seen to be a subject expert in those matters by the VSEL

submarine hull designers.

The two industrial partners, however also set up an in-firm team of

experts to look after their own firm's interest. Clearly there was adecision to be made about the extent of collocation vis--vis the in-

house teams (see degree of collocation of project teams) and this

was in part a function of the expressed (and therefore actionable)

expression of mutuality by the two firms. In other words the more

they believed and moreover publicly stated that they were engaged

in a common endeavor, the more they had to weight the total

staffing towards collocation and away from single firm teams.

Being a member of a collocated project team, however is not just a

matter of working together but of socializing, building trust and, in

general, building social capital (Ambrosini & Bowman, 2001; Argyris

& Schn, 1996; Leonard & Straus, 1998; Swart & Kinnie, 2003;

Wenger, 2000). Moreover the working arrangements of the joint

team contribute towards the organizational social capital compo-

nent of the co-creation context. We summarizethese by the variablecommon experiences of the project team members which tends to

create homogeneity of view and hence to reduce heterogeneity of

project team. Conversely, however, the common experiences build a

common currency of communication, a lingua franca through which

the trust, reputation and other attributes emerging from the social

capital are expressed (Ambrosini & Bowman, 2001; Brusoni et al.,

2001; Cook & Emerson, 1978; Ford, 1997; Gummesson, 2002;

Hkansson & Snehota, 1995). The term lingua franca here is not to

be understood in the strict linguistic sense, but as shorthand for the

whole set of carriers of the social capital, linguistic, meta-linguistic,

behavioral etc.

Thus three well-understood knowledge co-creation mechanisms

can be seen operating in Fig. 6, namely, heterogeneity of teams

Fig. 6. Knowledge co-creation mechanisms.



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(leading to a perception of the worth of communicating in pursuit

of co-creating knowledge) homogeneity of teams (expressed by the

informants as common experiences of project team members and lead-

ing to a means of communicating and an inherent trust in the mu-

tuality of co-creation) and the clarity of expression of mutuality

(leading to initially externally-derived and later internalized valua-

tions of the worth of new co-create knowledge).

Fig. 7 shows the complete causal loop diagram including the

indirect connections just discussed and is the specifi

c form ofFig.1 forthe case in hand.

In Fig. 7 (towards the bottom of the figure) we see the effect

of the contributions of the two firms designers to heterogeneity.

Each firm brings its own specialized knowledge, so that if the other

brings that knowledge too, heterogeneity is reduced, Thus we see

that VSEL's adding of hull knowledge technical knowledge (hull) Vis

of opposite sign to that of RRA's (lesser) knowledge of submarine

hulls. This is because, given VSEL's existing knowledge, the appear-

ance of RRA's similar knowledge reduces the heterogeneity of the

project. The more RRA designers know about what VSEL brings to

the party the less the heterogeneity of knowledge in the joint team.

This is not true of knowledge about the integration aspects, how-

ever, since the more that is known about the system under design

as a whole the less the knowledge heterogeneity in the team. Thus

we see in Fig. 7 that in both firms' cases knowledge of integration

aspects reduces heterogeneity.

We can also see in Fig. 7 that the propensity to share (more strictly

to co-create) knowledge leads to an increase of eachfirm's knowledge

of the other's expertise and hence to knowledge of the all-important

integrative aspects of the project.

This completes the representation of the interactive system be-

tween firms and market. We turn now to the use of the represen-

tation in identifying action in managing the relationships which itcaptures.

13. Actual events

During the gestation period of the nuclear submarine project in

question, both these approaches, direct and indirect, could be seen. At

one point (early 1990) HM government made a strong statement that

for the new replacement for the Trafalgar Class submarines, (a project

known as SSN20), offshore purchase using the national dockyards

of France was a new and distinct possibility. The effect was to cause

the two protagonists here, VSEL and RRA, to make clear public state-

mentsof mutualityand commoncause, claiming a joint track record in

submarine design and invoking a movement towards the establish-

ment of a common project team. The loop of Fig. 8 can be seen to be

Fig. 7. Full loop diagram including indirect (firm to firm) connections.



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operating with the variable willingness to place home orders as the

initiating factor in the change of valuations of the contractors (and

eventually the buyer).

After some time the expense of SSN21 caused HM government tosuspend the new build project and instate a redesign of the existing

platform, the Trafalgar Class submarine. This new project, known as

Batch 2 Trafalgar Class (B2TC) eventually produced the Astute class of

UK nuclear submarines. It commenced in early 1993.

Before any statement of offshore purchase could be made, the cor-

porate players acted decisively. They immediately set up a connected

set of in-house and joint project teams, the latter split between a

requirements team placed near the buyer and a large design team sited

at the dockyard where the submarines would be built. The teams

immediately reacted to this clear statement of mutual intent and com-

menced a fast-moving requirements activity which took the design

initiative away from the MOD customer. Because of the collocation,

the expression of mutual endeavor and the organizational structural

arrangements (such as the funding arrangements, reporting chains andspread of responsibilities of project posts among the companies, which

now included GEC and BAe Systems) the project team was highly

motivated to work together and the design progressed rapidly.

This effective initiative on the part of the companies indicates

clearly that the marketing of the project need not be enacted in direct

response to the buyer's valuation but, through a system approach,

indirectly, using the system mechanisms exposed by the causal loop

diagram methods of System Dynamics. Secondly, it illustrates that the

KM mechanisms are central to this example of accommodation of

valuation systems between provider and buyer. It is the setting up and

effective establishment of a system for co-creating the knowledge

necessary to convince the UK government of the competence of

the joint project which cut off at the pass any potential renewal of an

offshore purchase policy.

14. Discussion

Fig. 8 further illustrates the connectivity between the market

issues and the valuation system of one of the participating firmsthrough the KM mechanisms.

We see that as the MOD withdraws support from the home market,

the experience of RRA in the long term declines, since their designers

become less au fait with the needs of the complex system. Thus they

have less to bring to theconversation within a project. In turn this leads

to an INCREASE in the heterogeneity of the team: the VSEL designers

have much integration expertise but the RRA designers are tending to

bring only NSRP knowledge. Hence the demarcation within the project

is more visible and, perhaps counter-intuitively, theworthof sharingthe

disparate knowledge increases. Hence the VSEL designers take more

from the knowledge environment for their part and their ability to

govern the project risk thereby goes up. In short, over a long period of

time the effect is to stabilize the relationship between the two firms; as

cooperation operates, heterogeneity decreases and it becomes lessworthwhile to work together we see the platform supplier becoming

more confident in its relationship with the MOD customer, but as the

RRA specialists work separatelythey establish greater heterogeneity and

it became once more, worthwhile for VSEL to work with them. In terms

of relationship strategy the conclusion is obvious RRA should, to the

extent that it sees a joint submarine productemerging from a long term

relationship with VSEL, ensure that inperiodswhenit is in contact with

VSEL its engineers are absorbing the maximum amount of submarine

knowledge while, when the two firms are not working together, RRA

should embrace enthusiastically the specialist expertise of nuclear

engineering in order the better to be valued by VSEL in the later and

inevitable cooperative stage. We see again that the effect of a market

statement by the customer affects in a very direct way those variables

which represent the valuation system of the two contracting firms.

Fig. 8. Effect of knowledge sharing on integration knowledge.



10/13

SBKM, however, allows more than a generalized approach to be

taken to the management of knowledge between firms in such B2B

relationships, since it allows a more precise, procedural approach to

the KM aspects of the system.

Fig. 9 shows how actors can be attached to Fig. 8 in order to show

which agents are controlling the strength of connection between the

important causal links ofFig. 8. Actors in the procurementauthority or

national government are given Greek letters while actors in the two

firms carry Roman letters.We see that the key controlling influences over the extent to which

a reduction in the MOD's willingness to place contracts induces

mutuality between the two contractors are, naturally, the boards of

the two firms, V and R. Similarly we can observe towards the top of

the diagram how the project director, D, the project staff S, the MOD

staff, , and the MOD risk team, , all act together to control the extent

to which the main contractor's ability to bear risk is brought into effect

in an actual reduction in risk to the crown. The full SBKM procedure

requiresthis to be done forall appropriateloops; here we illustrate the

method with only the one loop.

Having identified the relevant agents, we proceed to establish

what knowledge they are using in the specific rle associated with

each link. Note that the knowledge and indeed the rle of each agent

will in general be different as each of their positions in the system is

examined. For example, the rle of and knowledge employed by the

Project Director, D, in engendering a rich tacit learning environmentin

the causal connection propensity to share knowledge overall project

capability will be very different from his rle and knowledge in the

link overall project capabilityperceived VFM. In the former rle he is

concerned with knowing the way in which knowledge is co-created

in a professional team whereas in the second rle he is much more

directed towards the specific tasking of that team towards a specific

set of design aims.

Table 1 illustrates the nature of the SBKM output in indicating

the knowledge, both tacit and explicit employed by actors in such asystem diagram. Table 1 shows the knowledge deployed by the agents

in only two links, namely the connections willingness to place home

orders clarity of expression of mutuality and overall project capa-

bility perceived VFM. These links are representative of the output

of the method and are selected here to indicate specific marketing

lessons. The entries in the boxes marked explicit and tacit (knowl-

edge) are indicative of the knowledge deployed and do not constitute

a full description of that knowledge.

Table 1 indicates the way in which the SBKM method can support

the marketing policy by connecting the agents who have control

over thesystembehavior (throughthe loopbehavior)and theknowl-

edgethat theyuse. Marketing is then seenas a processof engagement

with that knowledge as deployed by agents in the context of the

system.

For example, consider Fig. 8. We see that in order to achieve the

desired result of improving the propensity of the MOD to place home

Fig. 9. A key loop with agents attached to causal links.



11/13

contracts, we shouldbe considering such thingsas therles of the two

CEOs and the Minister of Defense. Conventionally one would consider

how the CEOs might act directly upon the position of the Minister

in order directly to alter his propensity to place home orders. With

the system viewpoint, however, we see that the CEOs should be

preemptively setting out an agenda of mutuality and we can help to

bring this about by ensuring that the appropriate knowledge shown n

Table 1 is,in fact, available to theprotagonists. Forexample, shouldthe

Minister change due to a reshuffle or change of government, the loop

ofFig. 8 will become very weak in its effect because of the weakening

of the knowledge shown in Table 1. In particular the tacit under-

standing of thesocial norms andexpectations of a new minister wouldbe an absolute priority in order to ensure the renewed strength of the

critical mechanisms of success.

15. Managerial implications and practice

The application of the SBKM method to the case study illustrates

some of the benefits to practice and the academic perspective of

business networks.

15.1. Practicalities

In practical terms the method indicates that it is possible to move

from the somewhat abstracted view of business networks necessary

to advance their study as an intellectual schema towards that which

is needed to form the basis for action-centered managerial action.

Abstraction is necessary, desirable and welcome in providing general-

izations upon which academic progress is founded, but the practi-

tioner requires support in identifying potential actions to manage the

business network and, ideally, some prediction of the consequences

of that action. SBKM as a representation of the specifics of a firm's

situation is very powerful in the first respect. Its natural product

(illustrated above through the knowledge based action analysis) is to

generate lists of actions which, while they still have to be reconciled

onewith theotherthrough theubiquitous politicalprocess of decision

making in firms, can be guaranteed to represent good things to do.

We mean by this that each action can be associated with a specific andvisible system mechanism to achieve a result favored by the client/

manager. While it has less to offer in terms of its predictive ability

(since it is qualitative) it does allow arguments of causality to be

presented, which, nonetheless, can be very powerful in advocacy for

resources.

15.2. Benefits to the study of networks

The ability to represent a specific situation is of inestimable

value to the academic study of business networks, not least because

it provides a valuable research tool to capture and place under a

generalizing theory the experience, challenges and context of a firm.

Since SBKM derives from what is now a highly standardized family

of methods (namely Qualitative System Dynamics) the method has

Table 1

Tacit and explicit knowledge deployed in submarine project.

Link Agent Initial motivation Knowledge deployed

Willingness to place home orders

clarity of expression of mutuality

V Low Explicit

Appropriateness of channels of communication

MOD organization and relationships

Expressed values of stakeholders

Expressed values of MOD

Tacit

Appropriateness of communication and languageWhich strings to pull

R Low Explicit

Appropriateness of channels of communication

MOD organization and relationships

Expressed values of stakeholders

Expressed values of MOD

Tacit

Appropriateness of communication and language

Which strings to pull

Indifferent Explicit

Contact details ofV and R CEOs

Vand R expressed policy

TacitHow to talk their language

Personal experience of V and R CEOs

How to talk their language

Overall project capability perceived VFM D Very high Explicit

Design linkages leading to VFM

What constitutes VFM

Tacit

Flexibilities in VFM definition

How to sell the design

How to motivate for design excellence

S High Explicit

Engineering knowledge

Tacit

Experience-based knowledge of how submarine systems interact

Indifferent Explicit

Design book definitions of VFM attributes

Tacit

Flexibility in meaning of VFM

Negative Explicit

Rule-based investment appraisal knowledge

Tacit

Cultural expectations of Treasury mandarins



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the potential of forming of itself a standardized and therefore uni-

fying representation method for the study of the dynamics of

business networks.

15.3. Future work

It is anticipated that the knowledge structure view of marketing

is applicable not only to the B2B case, but to the B2C case, where the

value relationship with the customer is one-to-many rather thanone-to-few and we anticipate the application of the knowledge a

management view to this, more complicated requirements capture

process as part of the ongoing product design process of B2C,

particularly in such interactive products as automobiles and

electronic goods where the need to capture and condition emergent

valuations on the part of potential customers is critical.

An exciting but emergent field of study is that of epistemetrics,

the measurement of knowledge. Recent work (Powell & Swart,

2008) indicates that it may now be possible to measure the flow of

knowledge per se around a system. Past work has concentrated on

the value of knowledge and its effects and social embodiments.

While these remain vital viewpoints, the absence of a credible,

consistent measure of how much is known at a node of a network

has constrained the representation of these systems in respect, for

example, of normative advice in resource allocation aimed at the co-

creation of knowledge in the firm. The existence of a knowledge

scaling metric should allow a substantial increase in our ability to

represent the dynamic features of knowledge flow around a busi-

ness network.

The focus of this present initiative in furthering a KM perspective

on marketing, however, remains the extension of practice in the

further application of theSBKM methodwithin marketingto allow the

practical exercise of KM perspectives in improving the effectiveness of

marketing, both in B2B and wider applications.

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John Powell is Professor of Strategy at Cardiff University, having held similarappointments at Bath University and Southampton after a career at board level in theEuropean Defense industry. His main research area is in the application ofmathematical methods, and particularly those of Operations Research and SystemsTheory to the study of knowledge and strategy. He holds a PhD from Cran fieldUniversity together with HM the Queen's Gold Medal for academic excellence andthe OR Society's President's Medal.

Dr.Juani Swart specializes in Knowledge management andthe management of Knowledgeworkers at the University of Bath where she is Director of the Work and Employmentresearch Centre (WERC). Her early research focused on collective tacit knowledge hercurrent work develops an understanding of knowledge and its renewal in social networks(for which she has received a best paper award). Juani has published in the areas ofpeople management in knowledge intensive firms, intellectual capital structures, systemsapproaches to knowledge management and network influences on strategic choice.


mapping the values in b2b relationships

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