The Anatomy of Relationship Significance: a Critical Realist Exploration

Abstract

The markets-as-networks theorists contend, either explicitly or tacitly, the significance of business relationships for the focal firm that is, business relationships contribute somewhat to the focal firm s survival and growth. I do not deny the possible existence of significant business relationships but sustain, in contrast to the consensus within the Markets-as-Networks Theory, that relationship significance should not be a self-evident assumption. Significance cannot be a taken-for-granted property of each and every one of the focal firm s business relationships. Instead, the notion of relationship significance needs to be discussed and its causes thoroughly explained. Adopting a critical realist position, the relationship significance is claimed to be an event of the business world, rightly deserving a robust causal explanation. My main research question is thus the following: How is the relationship significance brought about? All the business relationships that the focal firm establishes, develops, maintains, and terminates with counterparts (most typically its suppliers and customers) can be adequately considered as entities which exhibit structural features namely continuity, complexity, informality, and symmetry. Owing to that peculiar structure, business relationships are endowed with certain causal powers and liabilities (e.g., allow the access to and exploitation of external and complementary resources and competences). Where those powers and liabilities (i.e., functions and dysfunctions) are put to work, inevitably under certain contingencies (namely the markets and networks surrounding the focal firm), effects (i.e., benefits and sacrifices) result for the focal firm and the relationship significance is likely to be brought about. Two of those relationship powers the `access and `innovation ones are especially consequential, for their activation is likely to affect the delimitation of the focal firm s vertical boundaries. The relationship significance can be brought about owing to the overall benefits in excess of sacrifices (i.e., relationship value) accruing to the focal firm as well as the dual influence that business relationships have on what the focal firm does and gets done by others. For the business relationships contribute respectively both (i) to the access to and exploitation (and on occasion the development) of the external, typically complementary competences and resources needed by the focal firm and (ii) to the creation of new, and the modification and enhancement (or impairment) of the extant, internal resources and competences of the focal firm. What the focal firm comprises within its vertical boundaries (chiefly resources and competences) and what it does and gets done (activities) are both strongly shaped by the business relationships in which it is deeply embedded. The relationship significance can result from the influence of business relationships on the nature and scope of the focal firm.