MASTER’S THESIS
Drivers of Organizational Buying Behavior
Liying XU
Supervisors: Mr. Staphane LAMOUILLE Mr. Andreas MUNZEL
Master Thesis Master of International and European Business (MIEB) EM Strasbourg Business School University of Strasbourg Academic Year: 2012 / 2013
2013.08 Abstract
This paper is in the area of “Business-to-Business Marketing (B2B)”. Despite continuing and increasing research in B2B marketing, there is still a critical shortage of systematic constructs for this area. Properly and promptly understand the organizational buying behavior can help marketers to develop competitiveness. This study reviews and summarizes the 46 years of research on organizational buying behavior (OBB) following the three conceptual models sequentially published by Robinson, Fans, and Wind (1967), Webster and Wind (1972), and Sheth(1973). The author refines and re-classifies the existing driving forces behind the organizational buying behavior based on reviewing more than 100 articles which are not only in the discipline of marketing but also in supply chain management. Firstly, the drivers of OBB are classified into five main dimensions. Secondly, based on a secondary data analysis from the reports and surveys conducted by institutions and organizations, this study identifies the globalization, social responsibilities, organizational strategy, E-procurement, buyer-seller relationship, continuity of supply, word-of-mouth, cost killing as the factors that have gained more and more importance in affecting organizational buying behavior at the present and in the future. Finally, the author suggests that the correlation between these factors is a very interesting and important topic to study on in the future.
Keywords: Business-to-Business marketing, Organizational buying behavior, Buying Center
1 Acknowledgement
The author wishes to thank the faculty of International and European Business Master Program (MIEB) of Ecole de Management Strasbourg, University of Strasbourg, for their dedication and generosity in these two years.
In particular, I am very grateful to Mr. Staphane LAMOUILLE and Mr. Andreas MUNZEL, for their guidance and encouragement throughout the work. Their profound knowledge in practical and academic disciplines enabled me to broaden my knowledge and to make significant progress.
I would like to express my deep appreciation and gratitude to all the people that have contributed to the survey, interview and completion of this dissertation.
Last but not least, I would like to specially thank my family for their ever-present love and support. Without them none of this would ever have happened. I hereby dedicate this piece of work to my beloved parents and sister.
August 2013
Liying XU
In Strasbourg
2 Table of Contents
Abstract ...... 1 Acknowledgement ...... 2 Table of Contents ...... 3 List of Tables and Figures ...... 5 Chapter 1 INTRODUCTION ...... 6 1.1 Background ...... 6 1.2 Organizational Buying Behavior ...... 7 1.3 Drivers of Organizational Buying Behavior ...... 8 1.4 Research Problem ...... 8 1.5 Thesis Disposition ...... 9 Chapter 2 LITERATURE REVIEW ...... 11 2.1 Organizational Buying Behavior ...... 11 2.1.1 The Buying Process ...... 11 2.1.2 The Buying Center ...... 13 2.2 Factors Influencing Organizational Buying Behavior ...... 14 2.2.1 Environmental Factors ...... 16 2.2.2 Organizational Factors...... 19 2.2.3 Individual Factors ...... 21 2.2.4 Inter-organizational Factors ...... 22 2.2.4 Purchasing Characteristics ...... 24 Chapter 3 PROBLEM DISCUSSION ...... 26 3.1 Problem Discussion ...... 26 3.1 Research Problem and Research Questions ...... 26 Chapter 4 METHODOLOGY ...... 27 4.1 Research Strategy ...... 27 4.2 Research Method ...... 27 4.3 The Sources of Research Data ...... 27 4.4 Sample Selection of the Survey ...... 28 4.5 Limitation ...... 28 Chapter 5 DATA ANALYSIS AND RESULTS ...... 29 5.1 Data from Institute for Supply Management (ISM) ...... 29 5.2 Data from CSC Company ...... 30
3 5.3 Data from Annual BuyerSphere Report ...... 33 5.4 Primary Data from Survey ...... 34 Chapter 6 CONCLUSIONS ...... 38 6.1 Research Question 1: How the drivers influencing OBB can be categorized? ...... 39 6.2 Research Question 2: Which drivers have become more and more important in influencing OBB during the past years? ...... 39 6.3 Implications for Marketing Practices ...... 41 6.4 Recommendation for Future Research ...... 41 7 BIBLIOGRAPHY ...... 42 8 APPENDIX ...... 50
4 List of Tables and Figures
Figure 2.1 Three major aspects of organizational buying behaviors…………………………………………….……11 Figure 2.2 Four phases of industrial buying process ……………………………………………………………….………..12 Table 2.1 Matrix of Buyclasses and Buyphases ……………………………………………………………………….….…...12 Table 2.2 Major roles in the buying center……………………………………………………………………………………....13 Table 2.3 Dimension of the buying center ……………………………………………………………………………………....14 Table 2.4 Research Studies on the factors influencing OBB………………………………………………….…………..15 Table 2.5 Illustrative finding about globalization………………………………………………………………………..…….17 Table 2.6 Illustrative finding of social responsible purchasing and green supply chain……..………………18 Table 2.7 Illustrative findings of E-procurement development………………………………………………………….21 Table 2.8 Illustrative findings of buyer-seller relationships………………………………………………………..……..23 Table 2.9 Illustrative findings of continuity of supply………………………………………………………..………………25 Figure 5.1 Manufacturing ISM Report On Business® 1948-2013…………………………………….…………………29 Figure 5.2 Priorities of procurement function in the current situation………………………………………………31 Figure 5.3 Green Supply Chain Implementation………………………………………………………………………………..32 Figure 5.4 Which department is responsible for procurement?...... 32 Figure 5.5 Main procurement performance indicators……………………………………………………………………..33 Figure 5.6 Usage and degree of influence of the purchasing channel……………………………………………….34 Figure 5.7 Sample composition of the survey……………………………………………………………………………………35 Figure 5.8 Environmental Factors…………………………………………………………………………………………………..…36 Figure 5.9 Organizational Factors………………………………………………………………………………………………..……36 Figure 5.10 Individual Factors………………………………………………………………………………………………..…………36 Figure 5.11 Inter-organizational Relationship……………………………………………………………………..……………36 Figure 5.12 Purchase Characteristics…………………………………………………………………………………………..……36
5 Chapter 1 Introduction
The first chapter will describe the background of the research. It will introduce the concept of organizational buying behavior, drivers of organizational buying behavior and the evolution of academic research in this selected area. Furthermore, it will describe the problem and the purpose of this research. The disposition of the thesis will be presented at the end this part.
1.1 Background
The organization buying behavior may be firstly illustrated in Cyert’s article (1956) as an example of decision making process. Since the early 1980s, study on OBB has been exploding (Ward & Webster, 1991). There are at least three reasons according to Sheth (1996). First, a better understanding on how to influence consumers to customers has increased the focus on OBB. Second, both academic and professional world have encouraged research on industrial buying behavior. Third, theories in other areas like organizational behavior, industrial organizations, and supply chain management have increasingly influenced the disciplines of business marketing.
Despite of the continuous and constructive research in OBB, however, there is still a popular belief today among marketing scholars and business marketers that organizational buying behavior is a neglected research area comparing to consumer buying behavior (Sheth, 1996). For example, the business marketing is referred to as “the sleeping giant” in the Journal of Marketing (Webster & Wind, 1980). Business-to-business seems still to be in lack of a good theory for the planning of industrial marketing activities (Choffray & Lilien, 1978), and must become methodologically more sophisticated (Sheth, 1996), even though it is easy to cite more than a thousand references in the form of books, journals, articles, reviews and other publications in reviewing the literature (Sheth, 1978).
It is important for business marketers to understand business purchasing principles and the problems that the buyers face (Gross, Banting, Meredith, & Ford, 1993), in fact, many valuable findings about OBB can be discovered from supply chain management research . Further, it is necessary to examine both organizational and individual decision-making process to understand OBB (Webster, 1965), since, any organization is made of individuals and individual behavior is the base of all organizational buying behavior (Webster & Wind, 1972).
6 The organizational buying behaviors apt to be influenced by various drivers coming from external and internal of the organization (Ellis, 2010), and a systematic classification and analysis of them may help marketers to understand and anticipate their client’s purchasing behaviors thus to establish marketing strategies (Malaval, 1999). In addition, studies conducted in the early stage of the theory development often failed to capture the recent evolution along with the changes of environment and business world (Johnston & Lewin, 1996). It is essential for B2B marketers to distinguish the influencers which have become stronger from the ones that have been weaker.
1.2 Organizational Buying Behavior
The first three fundamental models of organizational buying behavior were introduced by Robinson, Faris and Wind (1967), Webster & Wind (1972), and Sheth (1973). Robinson, Faris, and Wind initiated the concept of “Buying Center” (also known as a decision making unit or DMU), which is a group of members of family or any type of organization responsible for making major decisions, usually involving a purchase. A few years later, Webster & Wind (1972) and Sheth (1973) presented respectively their general models for understanding organizational buying behavior.
The core concept of these three models is that organizational buying behavior is a process. There are seven phases in the buying process: (1) Recognition of need and identification of solution, (2) Determination of the characteristics and quantity of products/services, (3) Search for potential suppliers and qualification, (4) Tender process and tender analysis, (5) Evaluation of proposals and selection of providers, (6) Management of the order routine, (7) Feedback and evaluation of performance (Robinson, Faris, and Wind, 1967; Webster & Wind, 1972; Sheth, 1973). According to other models, this process is a composition of a series of phrases which are different in the numbers of stages but quite similar in terms of nature and sequence (Johnston & Lewin, 1996).
Organizational buying behavior is therefore defined as a decision making process where organizations establish the need for purchasing products or services, search for potential providers, evaluate and select among alternative proposals and suppliers, and finally manage the order and performance (Webster & Wind, 1972).
Any organization consists of individuals. The purchasing process in a formal organization usually involves several persons. In a buying center, there are five types of role can be
7 identified: user, gate keeper, influencer, decision maker and buyer. One person can hold one of several of these roles along the purchasing process (Webster & Wind, 1972).
1.3 Drivers of Organizational Buying Behavior
Driver means a factor which causes a particular phenomenon to happen or develop. No buying decision is ever taken without reason. Each decision is driven by factors having to do with the organization and the individuals who are involved. Since any organization consists of individuals, an alternative approach to analyze organizational buying behavior might be found in behavioral psychology, particularly in Skinner’s operant theory (Skinner, 1974). Skinner concluded that behavior expressed feelings which could be influenced by the environment. Behavior analysis has always focused on the role of situational variables which determine behavior (Foxall et al, 2011). Based on the above theory, it is possible to believe that the behavior is affected by the individual itself as well as the environment where he/she is behaving.
The environment of an organizational buyer is much more complicated than the one of a consumer buyer and thus deserves to be studied separately. Before investigating what factors influence organizational buyers and their buying behavior, it is valuable to analyze why organizational buying is so different. John Burnett (2003) highlighted five unique features of organizational buying:
1. Most of the organizational buying process is a multi-person activity. 2. The organizational buyer is motivated by both rational and emotional factors. 3. Organizational buying decisions frequently involve complex technical dimensions. 4. The organizational buying process frequently takes a considerable time. 5. Each organization has a specific way of functioning which can be hardly classified.
Keeping the human nature similarity and the environmental difference in mind, it is safe to analyze organizational buying behavior drivers from social, political, cultural, individual, behavioral perspectives, just as in consumer buying decisions (Foxall, 1993).
1.4 Research Problem
In order to succeed in business-to-business marketing, marketers must understand their business customers’ buying behaviors, and especially need to analyze the motivations or
8 drivers that directly or indirectly influence organizational buying behaviors (Johnston & Lewin, 1996). Early since 1960s, many researchers have developed models to explain these drivers. In the three basic models, Robinson, Faris, and Wind, Webster & Wind and Sheth presented eight constructs of influences: Environmental, Organizational, Individual, Purchase characteristics, Seller characteristics, Group characteristics, Informational characteristics, Conflict negotiation characteristics. Johnston & Lewin (1996) and Ellis (2010) proposed other constructs like role stress, decision rules, and buyer-seller relationship or inter-firm relational influences.
It seems to be too complicated and frustrated for the business marketers to analyze all the drivers mentioned above as they are either overlapped or confused to some extent. Further, since the business world has been dramatically changing during the recent half century, the original models may fail to update all the concepts and variables that emerge during the time (Johnston & Lewin, 1996) .
The purpose of this study is to review, summarize and re-classify the drivers influencing OBB in academic research in the past 46 years. And the result will lead us to formulate our research problem as: How these drivers evolve during the time? Which drivers are getting weaker over time? Which drivers are getting stronger and will continue to strongly influence the OBB in the future?
In order to successfully summarize the drivers, the study will be supported by the theories in OBB, the studies in supply chain and procurement management, and consumer marketing in order to have a comprehensive understanding of OBB. The study will also be based on the empirical investigations on the secondary data collected from the business world.
1.5 Thesis Disposition
This thesis consists of six chapters. In this chapter, the reader is introduced to the background of the research, followed by the main concept of organizational buying behavior and the research problem in this area. In the second chapter, the author presents a literature review of the previous research conducted by industrial marketing scholars, in order to lay a theoretical foundation for the analysis below. Following the literature review, a problem discussion is presented, as well as the research questions. In the fourth chapter, the methodology used for this thesis is discussed. Meanwhile, the reader will also learn about the limitation of this research. The fifth chapter will provide all the data used for this study and the data analysis.
9 The sixth and final chapter is assigned to derive the conclusion and implications, where we will answer the research questions based on the findings, and give recommendation for business marketers and further academic research.
10 Chapter 2 Literature Review
This chapter introduces the previous research in the area of organizational buying behavior. Books, research articles, institutional website and other studies have been consulted and the following information has been found for supporting the research.
2.1 Organizational buying behavior
Organizational buying behavior was firstly modeled by Robinson, Faris, and Wind in 1967, who viewed the industrial buying not as single events but a decision making process. They introduced the “Buygrid Framework ” as a conceptual model for organizational buying process and initiated the concept of “Buying Center”. Several years later, Webster & Wind (1972), and Sheth (1973) presented respectively their general models for a further understanding of OBB. These models have been generally considered as the three generic conceptual models in OBB.
As an outcome of the extensive area of prior research, the characterization of the OBB can be summarized and classified into three major aspects: Buying Center, Buying Process and Drivers influencing the buying behaviors (Hutt & Speh, 2007) (Figure 2.1). These three concepts can provide the basis for a comprehensive understanding of organizational buying behavior (Wind & Thomas, 1980):
Drivers Buying Center influencing the buying behaviors Buying Process
Figure 2.1 Three major aspects of organizational buying behaviors (Hutt&Speh,2007) 2.1.1 The Buying Process
The importance of understanding and modeling the organizational buying process has been highlighted by many researchers (e.g Webster, 1965; Robinson et al, 1967; Sheth, 1973; Johnston & Bonoma, 1981) and several models had been proposed (e.g Webster, 1965; Robinson et al, 1967; Webster & Wind, 1972; Sheth, 1973; Wind & Thomas,1980)
11 Before Webster (1965), most of the studies of OBB were descriptive and case study based. Webster analyzed the industrial buying process, identified the critical variables and stated some causal relationship among them. Webster’s model was an empirical outcome of the interviews with approximately 135 responsibilities and 75 cross-section companies. The industrial buying process was divided into four stages (Figure 2.2):
Problem Authority Search Choice Recognition Assignment Procedures Procedures
Figure 2.2. Four phases of industrial buying process (Webster, 1965)
Also based on empirical research, Robinson, Faris and Wind (1967) incorporated the “Buygrid Framework ” consisting of a matrix of Buyclasses and Buyphases. They divided the organizational buying process into eight sequential, distinct and interrelated Buyphases, and classified the buying tasks into three situations (Table 2.1).
Table 2.1. Matrix of Buyclasses and Buyphases (Robinson et al., 1967)
Buy Classes Buy Phases New tasks Modified rebuy Straight rebuy 1 Recognition of need and identification of solution 2 Determination of the characteristics and quantity of products/services 3 Description of the characteristics and quantity of products/services 4 Search for potential suppliers and qualification 5 Tender process and tender analysis 6 Selection of proposals and providers 7 Management of the order routine 8 Feedback and evaluation of performance
In the general model of Webster & Wind (1972), the process of organizational decision is composed of five basic stages: (1) Identification of need, (2) Establishing objectives and specifications, (3) Identifying buying alternatives, (4) Evaluating alternative buying actions, (5) Selecting the supplier. Sheth (1973) proposed also a composition of a series of phrases which are different in the numbers of stages but quite similar in terms of nature and sequence.
12 2.1.2 The Buying Center
The term of the buying center refers to all the members involving in the buying process for a particular purchase in an organization (Robinson, Faris and Wind, 1967). According to Johnston & Bonoma (1981), it was Cyert (1956) who firstly recognized that the industrial buying decisions involve regularly several managers other than the purchasing staff. The buying process is complex and may refer to all levels in a firm (Weigand, 1968).
Roles in the buying center
There are several major roles in the buying center: user, gatekeeper, influencer, decision maker and buyer (Webster & Wind, 1972) (Table 2.2).
Table 2.2 Major roles in the buying center (Webster & Wind, 1972)
Roles Definition User The employees of the organization who will use the concerned product/service Gatekeeper The employees of the organization or external to the organization which control access to information from potential suppliers Influencer The employees of the organization or external to the organization which are involved in the definition of the specifications of the product/service, in evaluating the offers Decision The employees of the organization or external to the organization which in maker reality make the final decision about the suppliers’ selection, about the products’/services’ selection. Buyer The employees of the organization that formally inform of the selection of the suppliers/products/services, define and implement the order process for the concerned products/services
One person can hold one or several of these roles along the purchasing process, and equally, any role can be executed by several individuals (Webster & Wind, 1972).
Dimensions of the Buying Center
(Johnston & Bonoma, 1981) proposed five dimensions of specification and measurement for the buying center: Vertical involvement, Lateral involvement, Extensity, Connectedness, Centrality (Table 2.3).
Further, Johnston & Bonoma derived that there were two important variables strongly shaping the buying center: the degree of organizational formalization and the importance of the purchase situation. Each of these variables had significantly affected three of the five buying center dimensions.
13 Table 2.3 Dimension of the buying center (Johnston & Bonoma, 1981)
Dimensions Description Vertical Involvement The degree to which organization’s hierarchical levels exert authority influence and communicate within the buying center. Lateral Involvement The degree to which non-purchasing departments involve in the purchasing decision. Extensity The degree to which individuals involve and communicate within the buying center. Connectedness The degree to which the members of buying center are connected to each other. Centrality The percentage of communication frequency of the purchasing manager comparing to the total individuals in the buying center. 2.2 Factors Influencing Organizational Buying Behavior
The organizational buying behaviors apt to be influenced by various drivers coming from external and internal of the organization (Ellis, 2010), and a systematic classification and analysis of them may help marketers to understand and anticipate their client’s purchasing behaviors to establish marketing strategies (Malaval, 1999). As OBB consists of buying process and buying center, we can analyze the factors influencing buying process and buying center to identify the drivers of organizational buying behavior.
Environmental, Organizational, and Individual influences are three sets of factors being generally accepted by previous researchers (e.g Robinson, Faris, and Wind 1967; Webster & Wind 1972; Sheth 1973; Johnston & Lewin 1996; Hutt & Speh 2007; Ellis 2010).
Robinson, Faris and Wind (1967) and Sheth (1973) proposed additionally two constructs in common, the first of these is purchase characteristics, consists of variables like purchase types, buying criteria, time pressure. The second is seller characteristics or the selection criteria such as price, quality, delivery time, service and reputation by which potential suppliers are evaluated.
The fifth factor is inter-organizational relationship, which refer to the relationship of buyer- seller and between the organization and other stakeholders in the industrial network in which the buying organization performs (Ellis 2010).
A sixth factor, group or interpersonal characteristics, is introduced by Webster & Wind (1972) and Hutt & Speh (2012). This factor regards the buying center as a social group which is unique in terms of structure, authority, membership, experiences, expectations, leadership, objectives and background. The group characteristics can be classified into individual or
14 interpersonal characteristics, since the buying center is a communication network which does not necessarily derive from the formal organization, but rather reflects the individuals involved and their relationships (Johnston & Bonoma, 1981)
Sheth’s (1973) model of OBB introduced two additional constructs: informational characteristics and conflict negotiation characteristics. Informational factor refers to the type and channel of information each buying center members are exposed to. For instance, conferences, trade shows, word-of-mouth, news, mails and advertising can be viewed as channels of information. The notion of informational characteristics is interesting, however, it is not necessary to be classified separately from other constructs, since information flows reflect a combination of environmental, organizational, individual, inter-organizational and product characteristics factors (Webster Jr. & Wind, 1972).
More recently, Hutt & Speh (2012) presented four forces influencing OBB: environmental, organizational, group and individual. The buyer-seller relationship was not analyzed as a driving force but particularly emphasized and discussed in a whole chapter.
Table 2.4 Research Studies on the factors influencing OBB
rganizational
o
-
characteristics Study Year Environmental influence Organizational influence Individual influence Purchase characteristics Inter relationship Seller Group/Interpersonal influence Informational characteristics Communication characteristic Robinson et al. 1967 × × × × × Webster & Wind 1972 × × × × × Sheth 1973 × × × × × × × Thomas & Wind 1980 × × × × × Johnston & Bonoma 1981 × × × Thomas 1982 × × × Vyas & Woodside 1984 × × × × Johnston & Lewin 1996 × × × × × Ellis 2010 × × × × Cheraghi et al. 2011 × × Hutt & Speh 2012 × × × × ×
15 The above research helps to identify the major dimensions of the drivers influencing industrial buying behavior. Table 2.4 summarizes the studies in OBB, presenting which factors have been investigated.
We identify that five major dimensions of drivers affecting the industrial buying behaviors could be re-classified. These dimensions are:
1) Environmental factors 2) Organizational factors 3) Individual factors 4) Inter-organizational factors 5) Purchase characteristics
2.2.1 Environmental Factors
The organizational buying behaviors are influenced by the larger environment within which the organization and its members perform. The complex environmental influences are divided into six major groups: physical, technological, economic, sociocultural, political, legal factors (Webster & Wind 1972).
1. Physical influences. The physical factors such as climate and organization’s geographic location determine the constraint and options for the buying behavior, including the availability of nature resources, demand for certain goods and services such as cold storage system and transportation. Furthermore, physical environment is no longer merely an environmental issue but also a social and legal influences as the environmentalism had linked the physical environment to social judgment (Menon & Menon, 1997) in 1960s. Several laws and regulations were approved during 1970s to 1980s which created monitoring mechanisms and restricting relationship between the regulators, environmentalists, and businesses (Adler & Borys, 1995). 2. Technological influences. The increased use and innovation of internet, computer programs, natural science technologies, and transportation systems are examples of technological influences. In general, technology defines the availability and quality of goods and services to the buying organization. In addition, improved purchasing technologies such as internet and use of computer have influenced the buying process and decision making.
16 3. Economic influences. The organization in any country is firstly operating in the macro-economic condition which includes the level of employment, interest rates, economic growth, and its balance of payments situation. 4. Sociocultural influences. Social and cultural factors can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing (Kotler & Armstrong, 2010) 5. Political and Legal influences. The political and legal environment within which organizational buying takes place refers to the ways in which government legislation influences purchasing. For example, environmental protection legislation directly affects which materials can be bought. Also, corporate governance will indirectly affect the investment purchasing(Gross et al., 1993).
Among all, the author has recognized several factors which are getting stronger in influencing OBB.
The first factor is globalization. Along with the development of Internet and transportation industry, globalization has become a key issue in the business world. The researches on how globalization influences OBB appear more and more frequently in the academic circles. Table 2.5 summarizes some illustrative studies relating to the factor of globalization and how it influences organizational buying behavior.
Table 2.5 Illustrative finding about globalization
Researchers Year Findings Douglas & 1986 Organizational global buying strategy is an argument for some of the Wind components of the marketing strategy to be globalized. Samli et al. 1988 Exploring and modeling international organizational buying behavior Min & Galle 1991 The globalization has resulted in an increase in the number of firms shifting their domestic sourcing to global sourcing. Dholakia 1993 Dr. Dholakia's research deals with technology, innovation, market processes, globalization, and consumer culture etc. Herbig & 1996 The purchasing department is becoming more and more global in O’Hara orientation. Bozartha & 1998 This paper analyzes the interrelationships between international sourcing Handfield decisions, sourcing strategies, and supplier performance. Bowman, 2000 Investigation of factors that affect supplier selection and level of usage for Farleyn, & global business services providers. Schmittlein Trent & 2003 Globalization offers the best opportunity to gain performance to satisfy Monczka customer needs while responding to relentless competitive pressure Park & Stoel 2005 The globalized production and sourcing have brought lower costs to the companies.
17 Quintens, 2006 Introduction of a global purchasing strategy Pauwels, & Matthyssens Roy & 2007 Globalizations of buying behavior is moderated by firm-level, by task and Sivakumar global moderating factors Ellis 2010 Companies are seeking to work with suppliers who can develop their own businesses globally and provide international product and information flow. Wind & 2010 The accelerating globalization has increased the interdependency of Thomas organizations, influencing emergency of additional networks and changing how organizations purchase.
The second one is social responsibility. The 1990s have been considered as the Earth Decade, with environmentalism movement becoming active worldwide (Kirkpatrick, 1990). Several laws and regulations were approved during 1970s to 1980s which created monitoring mechanisms and restricting relationship between the regulators, environmentalists, and businesses (Adler & Borys, 1995). For example, laws required the firms to purchase the best raw materials and machines for reducing pollution and emissions. Thus, along with this growing governmental regulation and social pressure, actual and potential social responsibility began increasingly and explicitly an important driver for companies decisions (Sale, 1993), and which obviously include buying decisions. Table 2.6 summarizes the academic studies since 1990s about social responsible purchasing and green supply chain.
Table 2.6 Illustrative finding of social responsible purchasing and green supply chain
Researchers Year Finding Drumwright 1994 Social responsible buying is a growing trend rather than a fad.
Beamon 1999 Develops a general procedure towards achieving and maintaining the green supply chain. Carter, Kale, & 2000 We combine survey and archival data to show that environmental Grimm purchasing is significantly related to both net income and cost of goods sold, after controlling for firm size, leverage, and primary earnings per share. Maignana & 2002 Introduction of socially responsible buying and explanation of how Hillebrand companies can incorporate social responsibility criteria into their purchasing decisions. Maignan 2003 The article proposes a conceptualization of socially responsible buying that accentuates the role of stakeholder and organizational norms, respectively. Carter 2004 Researchers in the field of corporate social responsibility (CSR) have examined a broad array of activities including environmental management, ethical issues, the advancement of a diverse workplace, safety, human rights, philanthropic donations, and community involvement. Park & Stoel 2005 SRB generally followed a cognitive decision framework and was partly influenced by the decision maker's affective reaction to peer buying/sourcing professionals' behaviors. Carter 2005 It is found that organizational learning and supplier performance act as key, mediating variables between purchasing social responsibility and costs.
18 Maloni & 2006 Research of socially responsible supply chain in food industry. Brown Srivastava 2007 As a literature review on green supply chain management (GrSCM), this paper classifies the GrSCM on the basis of the problem context in supply chain's major influential areas. Amaeshi, Osuji, 2008 The article highlights the use of code of conducts, corporate culture, anti- & Nnodim pressure group campaigns, personnel training and value reorientation as possible sources of wielding positive moral influence along supply chains. Salam 2009 This article contributes towards filling the gap in understanding the determinants of purchasing social responsibility in managing supply chains, particularly in an Asian context. Andersen & 2009 A case study of IKEA, a Swedish company, to present a conceptual Skjoett-Larsen framework for analyzing corporate social responsibility practices in global supply chains. Gold, Seuring, 2010 This paper explores the role of sustainable supply chain management as a & Beske catalyst of generating valuable inter-organizational resources and thus possible sustained inter-firm competitive advantage through collaboration on environmental and social issues. Sarkis 2011 This paper is an organizational theoretic literature review of green supply chain. Yifen Chen 2013 This chapter discusses the background, characteristics, and requirements/constraints of supply chains. A major focus is how they have been developing towards more green performance.
Other environmental factors like macro-economic, micro-economic and sociocultural factors have also big importance for organizational behavior. For example, the recent global crisis of confidence in the banking system had a huge impact on the housing market to purchase financial services, building materials and engineering consultancy (N. Ellis, 2010). However, these factors have no significant tendency to increase the degree of influence according to the literature review.
2.2.2 Organizational Factors
Each organization has its own objectives, policies, procedures, structure, and systems (Kotler & Armstrong, 2010). Organizational buying behavior is motivated and directed by the goal of the company and constrained by its structure (Webster & Wind, 1972). Organizational factors include not only the company characteristics of buyer, but also of the seller.
The organizational factors consist of many dimensions:
1. Size of company. A separate department for purchasing is more easily found in big companies (GrØnhaug, 1976), while Johnston & Bonoma (1981) found the size of the company did not affect any of the dimension of the buying center.
19 2. Type of business. An organization can be categorized depending on how it organizes its own activities, i.e. whether they are product-dependent or product independent. For example, product dependent organizations perceive few budgetary limitations, apt to have separate purchasing department, like formalized information, use service as a buying criteria rather than price deduction, comparing to their product independent counterpart. 3. Type of organization. Purchasing activities will obviously be influenced by the type of organization concerned, for example, there are high volume raw materials as a major purchase in the process industry, for which the negotiation and contracting may be done by the managing director or a functional director assisted by the purchasing department. 4. Organizational Strategy. Purchasing is growingly involved in organizational strategy. The main reasons are: Purchasing is now considered as an adding value function, rather than cost-killing; Rapid product innovation requires a more integrated supply chain management. Therefore, the purchasing activities can be affected if the organization plans to adopt certain strategies, such as business intelligence, lean manufacturing (including Just-in-Time supply chain and Total Quality Management etc.) It will be important for the suppliers to keep pace with the expectation that the client organization places on their purchasing department. From 1980s, many organizations became more aware of the strategic advantage of purchasing activities (Baily, Farmer, Jessop, & Jones, 2005) 5. Procurement structure. Some organizations prefer centralized purchasing process in order to reduce cost through purchasing larger quantities (Webster & Wind,1972). Decentralization, on the other hand, enables buyers to localize their purchases, which benefits the product modifications and response rates (N. Ellis, 2010). Wind (1971) suggested that decentralization was the most relevant structural characteristic to affect purchasing behavior. 6. Innovation and Technology. Innovation is increasingly essential to the development of organization, and it is closely interrelated with procurement. Webster (1968)found that innovative firms are more aggressive in management, having high rate of product development and capability to evaluate new products. Technology influences not only the products but also the nature of the organizational buying process itself (Webster & Wind, 1972). The spread of the Internet enables the application of E-procurement including searching for potential
20 suppliers, electronic auctions etc.(N. Ellis, 2010). Table 2.7 summarizes the academic studies concerning E-procurement development.
Table 2.7 Illustrative findings of E-procurement development
Researchers Year Finding Telgen 1998 This book calls the E-procurement as a revolution in the world of purchasing. Brunelli 2000 Suppliers who do not invest in e-procurement technology are more likely to be replaced by suppliers that can or will. Essig & 2001 This article analyzes the possibilities of electronic marketplaces for buyers Arnold from a theoretical perspective. The article develops an analytical framework that is based on information economics theory, which may be the most important theory to analyze market problems in general. Subramaniam 2002 Research on the value and impact of B2B E-procurement. & Shaw Osmonbekov, 2002 The analysis of the E-procurement impact on changing buying center in Bello & terms of efficiency and effectiveness. Gilliland Davila 2003 The results suggest that e-procurement technologies will become an important part of supply chain management and that the rate of adoption will accelerate as aggressive adopters share their experiences. William D. 2003 Supply managers need to understand the impact of technology and gain Presutti Jr. competency in making a business case for e-procurement. The implications are profound for the industrial marketer. Panayiotou 2004 This paper presents a case study concerning the analysis of the Greek governmental purchasing process with a new e-procurement system. Puschmann & 2005 This paper presents a first step towards a systematic analysis of factors that Alt may guide companies in the implementation of e-procurement solutions. Benyoucef & 2007 This is a study on fuzzy AHP-based supplier selection through e- Canbolat procurement. Garrido 2008 This research provides empirical evidence for Internet added-value in terms of its ability to transform the information stream within firms, and the consequences derived from this fact on industrial purchasing processes. Gunasekaran 2009 The study focuses on the current status of E-procurement in small and medium sized enterprises (SMEs) located in the South coast of Massachusetts. Aboelmaged 2010 This paper is the first study that examines e-procurement adoption in the United Arab Emirates. Makinen 2011 This study discusses cooperative purchasing and, moreover, focuses on the role of e-procurement systems as a success factor in cooperative purchasing. Gupta 2012 This paper presents the findings of a survey carried out to access the status of e-procurement and its implementation in Indian organizations. The findings of the survey show that the adoption of e-procurement in Indian organizations is going to increase in near future.
2.2.3 Individual Factors
All organizations consist of individuals and all organizational buying behaviors are finally individual behaviors (Webster & Wind, 1972). Individual is motivated by its own human
21 nature and personality, and also influenced by other individuals including members from the buying center and individuals from seller’s organizations (Webster & Wind, 1972).
Individual factors like perceived risk, specific self-confidence, education, computer experience, and number of jobs held are associated with buying decision making (Peters & Venkatesan, 1973) . McQuiston and Dickson (1991) show that perceived personal consequences, increases the buying center member’s participation and influence in a major purchasing decision. Further, research suggests that innovative person is more central in the communication network for developing new products (Keller & Holland, 1983). This implies that more innovative person have greater influence to the buying decision (Dawes, Lee, & Dowling, 1998).
The buying process and buying center are also influenced by the personal relationship between the members in the organization and buying center. Thomas & Wind (1980) found that the decision maker was affected by the authority, stature, or expertise of others. Social relationship in the buying center can derive relative power and influence (Galaskiewicz, 1997). In addition, individuals or groups that are centrally located in a network display low degrees of dependency, while the one who controls needed resources gain high dependency (Alba & Moore, 1978; Hickson et al., 1971).
2.2.4 Inter-organizational Factors
Inter-organizational factor refers to the relationships between buying organization and other stakeholders like suppliers, customers, government and other organizations in the industrial network. The nature of the relationship and the style of communication between parties will influence buying behaviors (N. Ellis, 2010).
Among all, the buyer-seller relationship is the most important and significant factor influencing buying decisions. The seller relies on the buyers to generate business. Meanwhile, the buyer becomes more and more dependent on the seller for continuous supply chain. Sheth (1973) has pointed out that only a harmonious relationship between buyer and seller can assure successful interaction. Table 2.8 summarizes the academic studies concerning buyer- seller relationship.
22 Table 2.8 Illustrative findings of buyer-seller relationships
Researchers Year Finding (Ford, 1980) 1980 The paper described how the development of buyer-seller relationships can be viewed as a process through time. Dwyer, Schurr 1987 The authors described a framework for developing buyer-seller relationships & Sejo from a theoretical point of view. Ganesan 1994 The paper indicated that trust and dependence play key roles in determining the long-term buyer-seller relationships. Wilson 1995 An integrated model of buyer-seller relationship development was proposed. Herbig & 1996 The development of relationships is necessary for purchasing in the O’Hara international environment. Johnston & 1996 The paper highlighted the inter-firm relationships, and indicated to consider Lewin systematically internal and external factors. Doney & 1997 The authors developed a theory through which industrial buyers can develop Cannon trust of a supplier and its salesperson. Cannon 1999 This paper proposed six key underlying dimensions that characterized the manner in which buyers and sellers conduct relationships. Prendergast 2001 An investigation of advertising agency-client relationships in China Ba & Pavlou 2002 This study examined the extent to which trust can be induced by proper feedback mechanisms in electronic markets, and how it can influence the price and buyer behavior. Narayandas & 2004 The paper suggested that weaker firms can benefit from long-term Rangan relationships with powerful partners which in return lead to increase inter- organizational commitment level. Ploetner & 2006 This paper explained the value generation and the distinctive qualities of Ehret partnerships as something more than ordinary customer relationships. Stanko 2007 This study conceptualizes four dimensions of tie strength and examines their effects on the buyer firm's commitment to the selling firm, as well as the impact of commitment on favorable buyer behavior. Paulraj 2007 This research explored the interaction of strategic buyer–supplier relationships and information technology on a firm's external logistics integration and agility performance. Boeck & 2008 This paper attempted to understand why a collaborative innovation, such as Wamba radio-frequency identification (RFID) technology, seems opposite buyer- seller relationship reactions in a supply chain. LaPlacaa & 2009 LaPlaca and Katrichis noted that articles on the topics of networks and Katrichisa relationships had relatively increased after 1996. Wind & 2010 An investigation of inter-organizational relationships in an interdependent Thomas business world. Ellis 2010 The nature of inter-organizational relationship and the style of communication will influence buying decisions. Miocevic 2012 This study introduced a conceptual model of the relationship between supply chain orientation and key supplier relationship management with a measure of effective purchasing behavior. Khan, Kamal, 2012 This paper suggested that organizational buyers are likely to benefit from Raza, khan, & positive brand cues when they have high quality relationships with their Irfanullah suppliers.
Many companies both buy from and sell to each other, which is called reciprocity. It means that a company may agree to buy certain product/service from its client, even though this
23 product/service will probably not be selected through normal buying process, only in order to maintain a good relationship with its client and ensure a reciprocal sale of its own products/services. The issues of formal and informal reciprocity between supplier and buyer have been discussed to a certain extent in the literature. However, reciprocity has been rarely studied in an empirical way even though it is quite a reality for most of the purchasing activities (Bonoma & Zaltman, 2011).
2.2.5 Purchasing Characteristics
The organizational buying process and the composition of the buying center tend to vary from the purchase type (whether the purchase is a new task, straight rebuy or a modified rebuy ) and the characteristics of the product/service (product complexity, time pressure, quality, price, after-sale service etc.) (Robinson et al. 1967; Sheth, 1973).
Different decision processes are followed under different purchase type, since purchasers have different information need, levels of risk, time consuming, etc.(Wind & Thomas, 1980). GrØnhaug (1976) found that the number of buying center participants vary according to the type of purchase, and the resources available.
Product complexity, quality, price, delivery, services are important criteria for selecting supplier. Higher purchase importance and complexity lead to more vertical and horizontal involvement in the decision making process (Robinson et al. 1967). Product and service purchase is different in terms of structural and interactive dimension (Johnston & Bonoma, 1981).
The notion of supply continuity has been raised significantly after the crisis in 2008 among buyers as a predictor of purchasing decisions. The disruption of supply would cause serious consequences in terms of planning and marketing. Where other criteria such as quality, price are taken as givens, supply continuity may be the central factor in the buying decision (Bonoma & Zaltman, 2011). Table 2.9 summarizes the academic studies concerning continuity of supply.
Purchase uncertainty is another important driver for buying behavior. The buying process and decision making is relatively straightforward when the company or buying center is sure about what it precisely wants. However, the need of company may be very difficult to
24 determine if it concerns important and complex purchase, and this purchase uncertainty will strongly influence the company’s buying behavior (Gross et al., 1993).
Table 2.9 Illustrative findings of continuity of supply
Researchers Year Finding Spekman 1988 More collaborative relationships are needed to gain price concessions and ensure a continuity of supply. Quayle 1998 Continuity of supply is a factor largely influences sourcing decisions. OlorunniwoT 2001 The study showed that the purchaser hopes to improve continuity of supply. & Hartfield Quayle 2002 The case study showed that buyers view more importance of continuity and security of supply. Dubois 2003 This paper analyzed the complex interaction between continuity and change in the supplier relationships based on a longitudinal case study of the supplier base of a manufacturing company between 1964 and 2002. Hunter 2004 The present work builds on the thinking of previous industrial buying typologies by integrating perceived risk concepts into the business buying decision. G. A. Zsidisin 2005 This paper examined how and why firms create business continuity plans to manage risk of disruption. Gomatom & 2008 This book has assigned a whole chapter to discuss continuity of supply, Short including the costs, markets and value for reliability, and how to improve the continuity. S. C. Ellis 2010 This paper explored the process through which buyers make decisions in the face of supply chain disruption risk, and factors impacting buyers’ perceptions of the probability and magnitude of supply disruption. Bonoma & 2011 Where quality, price, and risk levels are given, supply continuity may be the Zaltman central factor in the buying decision as a result of the 1974-75 supplier shortages.
25 Chapter 3 Problem Discussion
In this chapter, the research problem will be formulated and discussed based on the theoretical frame summarized from the literature review.
3.1 Problem Discussion
As summarized in Chapter 2, previous researchers have provided several general models in which the organizational buying behavior influencers were categorized in many different ways. However, studies conducted during the early stages of theory development often fail to incorporate all the emerging concepts, variables, business development needed to consistently predict complex buying behaviors (Johnston & Lewin, 1996). Meanwhile, recently studies either overlapped with previous researches in terms of categorization or presented too much new categories which were relatively confusing. It is needed to re-classify all the influences, combined with recent academic development and current environment.
In addition, it is essential for the business marketers to distinguish the drivers of stronger influence from the ones of weaker, in order to concentrate their efforts on analyzing the most significant influencers of their customers’ purchasing behavior.
The purpose of this research is to firstly summarize all the drivers that are influencing organizational buying behavior, which has been almost done in Chapter 2. Secondly but most importantly, the research will analyze the available data to identify the drivers which have gained more and more importance during the evolution.
3.2 Research Problem and Research Questions
Based on the discussion above, the research problem and research questions of this thesis are:
Research Problem What is the evolution of the drivers influencing organizational buying behaviors?
Research Questions:
1. How the drivers influencing OBB can be categorized? 2. Which drivers have become more and more important in influencing OBB during the past years?
26 Chapter 4 Methodology
This chapter will firstly introduce the research strategy of this research, and explain the research method which has been used during the research. Further, the source of data and the selection of samples will be presented. Finally, the limitation of the research will be discussed.
4.1 Research Strategy
It is important to establish a research strategy that will be based for the study before starting the actual research. Yin ( 2009) classified five different types of research strategies for social science endeavors: experiment, survey, archival, analysis, history and case study. Each type of research strategy has different ways of data collecting and analyzing, and most importantly, has its own pros and cons.
The choice of strategy depends also on the time limit of research, the sources available and the experience of the researchers. This paper has six months of research time, which does not allow the researcher to carry out a profound investigation. However, the researcher has 2 years working experience in a manufacturing consulting company in China and has a network of professional managers from manufacturing, information, consulting and other industries. Therefore, the research strategy chosen in this paper mainly consists of experiment, survey and archival from published documents.
4.2 Research Method
The research can be done either quantitatively or qualitatively. A quantitative approach is mainly applied for testing a theory where statistics and formulas are the major techniques. A qualitative approach is employed for creating a theory through a deeper investigation of the research problem (Merriam, 2009). Our main problem is “which influencing factors of OBB are getting stronger”. A qualitative approach can enable the researcher to gain a higher level of understanding through various data collection, thus to propose a series of hypothesis. Meanwhile, thanks to the existing professional network, a quantitative approach through survey is also adopted for testing the hypothesis generated from the qualitative method.
4.3 The sources of research data
According to (TULL & HAWKINS, 1990), the first step in data collection process is to look for secondary data which were developed for the similar research purpose. The secondary
27 data are relatively quick and inexpensive to obtain from books, magazines, internal reports, internet, earlier conducted surveys etc. The primary data is the information the researcher gathers by himself in order to complete specifically his own project. An important source of primary data is survey research. In this thesis, the researcher gathers firstly secondary data from previous academic studies, industrial associations, government agencies, organization’s internal reports, and other published sources. The primary data is collected from the survey.
4.4 Sample selection of the survey
It is often impractical or even impossible to take a census, meaning to measure each element in the group or population, because of cost, time, accuracy, and the destructive nature of the measurement (TULL & HAWKINS, 1990). Hence, a sample is often taken to represent the census. However, since the samples are not perfectly representative of the population, the researcher cannot be certain about the accuracy of the results (Graziano & Raulin, 1997).
For reasons of information access, the selected sample was mainly the international companies in China within a small portion in US, Canada and Europe. One common characteristic is that all companies are operating at least in two countries. Manufacturing is the industry mostly involved. The person approached consists of mainly the general managers, purchasing managers/directors, financial managers/directors etc.
4.5 Limitation
Industrial buying behaviors vary from industries and even from organizations in the same industry (F. E. Webster, 1965). In order to be effective, any industrial marketing strategy must be adjusted to the buying process of its organizational customer as existing evidence strongly proved that generalizing the OBB is likely to mislead the activities (F. E. Webster, 1965).
However, due to the time and resource limit, and especially the difficulties in obtaining large amount of participants in business to business market, the survey represents only a small picture of the whole business world.
28 Chapter 5 Data Analysis and Results
In this chapter, the data collected from the area of marketing and supply chain management will be presented. Each party starts with an introduction to the source and characteristics of data and then is followed by the data analysis.
5.1 Data from Institute for Supply Management (ISM)
Founded in 1915, ISM is a non-profit organization who provides education, research, standards of excellence and information dissemination — including the renowned monthly ISM Report On Business® —for supply chain management. It maintains a strong global influence among individuals and organizations. The Manufacturing ISM Report On Business® is based on data compiled from monthly replies to questions asked of purchasing executives in more than 400 industrial companies in about 80 countries. The data of ISM report consists of index for PMI, New orders, Production, Employment, Deliveries, Inventories, Customer inventories, Price, Backlog, Export and Import.
Data analysis from 1948 to 2013
Manufacturing ISM Report On Business® 1948-2013
Jan-76 Jan-48 Jan-55 Jan-62 Jan-69 Jan-83 Jan-90 Jan-97 Jan-04 Jan-11
Sep-52 Sep-59 Sep-66 Sep-73 Sep-80 Sep-87 Sep-94 Sep-01 Sep-08
May-50 May-57 May-64 May-71 May-78 May-85 May-92 May-99 May-06 May-13
Deliveries Price Inventories Customer inventories Import
Figure 5.1 Manufacturing ISM Report On Business® 1948-2013
Based on the objective of this thesis, the following indexes have been chosen for a further investigation: Deliveries, Price, Inventories, Customer inventories and Import (Figure 5.1).
The deliveries index had kept almost at the same level for the past 65 years, however, the curve was more fluctuating in the first 30 years and relatively stable in the last 30 years. This
29 may indicate that a stable delivery time is more and more required from the buyer to the supplier.
The price index does not present obvious increase or decrease in the long-term. Instead, it appears a seasonal fluctuation. This fluctuation can be explained by the macro and micro economics. For example, the price index had a big drop during the economic crisis in 1948- 1949, 1973-1975 and 2007-2008.
The inventory was very unstable before the 1990s, the curve tended to decrease which may thank to the introduction of Lean manufacturing within a requirement of minimum stock. The customer inventory is quite new a concept and was added by ISM in 1997. Customer inventory was measured means that suppliers became integrated in the supply chain of their client organization.
The index of import, represents the volume of raw material imports, was introduced in 1989 which exactly symbolized the second Eva of globalization. The global purchasing had kept increasing to a peak before the crisis in 2008.
5.2 Data from CSC Company
The CSC Annual SRM Brometer is a study carried out every year since 2009 by CSC, a business solution provider, in collaboration with TNS SOFRES. It is based on a survey of procurement and logistics directors from European and American companies employing over 1000 people, to conduct a quantitative analysis of the trend and outlook for the procurement function. The interviewed companies were increased from 80 in 2009 to 284 in 2012.
Data Analysis of CSC Annual SRM Barometer from 2009-2012
According to the data in Figure 5.2, international sourcing is the most significant one among those who have increased their importance in procurement from 2009 to 2012. E-procurement has also dramatically increased the priorities from 2010, while Sustainable procurement has steady but slightly been valued.
73% of purchasing directors stated in 2011 that the use and efficiency of e-procurement are central for improving performance. Comparing to the little application in 2009, cloud computing has become the priority for 70 percent of respondents, thus obviously confirms its
30 strong tendency as a tool for buying center. In fact, E-procurement responds to the need for efficiency, flexibility and ongoing cost reduction.
80% 70% 60% 50% 40% 30% 20% 2009 10% 2010 0% 2011 2012
Figure 5.2 Priorities of procurement function in the current situation
Cost killing and Supplier relationship management had kept the highest priorities and had steady increased of concern. Risk management and Investment are two relatively new concepts but became very important in 2011 and 2012.
For roughly thirty years, companies have been forced to reduce their costs to cope with increasing competition. This issue is even more important when the crisis comes. Running cost-killing projects, is the first on the list of priorities in 2009 and 2011, second in 2012 and the third in 2010.
In the current economic turbulence, companies have realized that, in addition to cost, risk management has to be put on the agenda. Supplier relationship management, sustainable procurement and risk management are three elements highly connected to each other. The sudden drop in activity in some sectors during the crisis, coupled with the lack of credit, brought about a record number of bankruptcies in 2008 and 2009. Therefore, the stability and sustainability of suppliers has been pushed to a top priority. The goal is to avoid procurement disruption. To reduce this risk, procurement departments recognize the importance of partner relationships with key suppliers. The significance of this partnership is twofold. First, it avoids sudden disruption which will have big impact on the production. Second, the strategic relationship between buyer and supplier enables a co-development of new products and optimization of cost.
31 Green supply chain is an important issue of Green Supply Chain sustainable procurement. Comparing to the 120% 52 percent in 2008, 80 percent of the 100% 80% companies were currently implementing or 60% evaluating green supply chain project in 40% 20% 2010 (Figure 5.3). However, the green 0% supply chain had not produced quantifiable 2008 2009 2010 savings or increased revenues. 39 percent of No current plan respondents in 2010 reported no saving Currently Implementing or evaluating
Figure 5.3 Green Supply Chain Implementation generated and another 34 percent indicating only 1 to 5 percent. 72 percent replied that none revenues created yet and another 24 percent indicated only 1 to 5 percent.
50% 40% 30% 2009 2010 20% 2011 10% 2012 0% Other Logisitics Finance General management
Figure 5.4 Which department is responsible for procurement?
We can easily identify from Figure 5.4 that the general management has been more and more involved in the buying decision making, followed by finance which is also the strategic department in the organization. The proportion of general management responsible for procurement departments is on the rise, meaning that the global economic situation has given greater strategic importance of the procurement function. The same is true for finance department. Supply chain management is perceived in 2010 by the majority as being of core business importance.
32 Main procurement performance indicators 100% 90% 80% 70% 60% 50% 40% 2009 30% 20% 2010 10% 0% 2011 2012
Figure 5.5 Main procurement performance indicators
The satisfaction of internal customers or end users has always been considered as the main indicator of procurement performance. However, it has not gained significant increase in terms of importance according to Figure 5.5. In fact, all the indicators like satisfaction of internal customers, supplier performance, ROI of procurement function etc. have shown a slight decrease from 2009 to 2012.
5.3 Data Annual BuyerSphere Report
The BuyerSphere Report is an annual study conducted by Base One, an advertising and marketing agency, in cooperation with B2B marketing, Research Now and McCallum Layton. The survey had covered 800-1000 respondents in Europe and mainly in UK. The main reason why this report was selected is that the study offered a deep insight into to channel which the industrial buyers use to gather information and the degree of influence on the organizational buying behaviors.
Data Analysis of BuyerSphere Report from 2009-2012
As summarized in Figure 5.6, the changing of purchasing patterns, media channels and social behaviors is changing the rules of engagement in the buying center.
According to the report, the Word-of-mouth (WOM) has increased recently in terms of usage and degree of influence. As buyers move through the buying process, word-of-mouth
33 recommendation increased in influence. It is also shown that scores for WOM were rather higher in the context of smaller value purchases than more expensive ones.
Figure 5.6 Usage and degree of influence of the purchasing channel
The funnels where buying center members access information have revealed significant evolution since the emergence of Web 2.0 and the social media. Web 2.0 tools have enabled the E-procurement, and social media has fostered an immediate and ongoing communication among buyer peers. Under the new rules, traditionally channels like offline events, direct mail are virtually diminishing, or even disappearing for some hard sales like cold calling. New generations of industrial buyers often start their purchasing journey by turning into web searches, social media or WOM to learn how other companies have handled similar business problems.
5.4 Primary Data from Survey
The survey was designed to test the finding concluded from academic research review and secondary data analysis. The sample finally consists of only 13 respondents who are mainly general managers and directors from manufacturing and service industry (Figure 5.5). The results may obviously have bias since the sample is too small and not representative in terms of company size, position and country. However, it is still interesting to present this survey
34 because the respondents were contacted individually by the researcher and they have seriously answered the survey with their professional background. Moreover, the result appears to support the conclusion we may derive from the secondary data analysis.
Industry No. of employees in the company
1 5 0-250 Service 4 >1000 Manufacturing 8 8 250-1000
Position in the company Country
Director China 1 1 5 Canada 6 Mananger 1 1 USA Sweden General 9 2 Manager/ CEO Spain
Figure 5.7 Sample composition of the survey
The following figures (Figure 5.8, Figure 5.9, Figure 5.10, Figure 5.11, and Figure 5.12) have summarized the number of respondents who considered the relative factor having stronger impact on their organizational buying behaviors. Among others, social responsibility, technology, purchasing structure, organizational strategy, buyer-seller relationship, continuity of supply, price/cost, quality, importance and complexity of product and service are perceived more importance.
Continuity of supply is highlighted by almost all the respondents. A series of delivery disruptions in recent years have warned us that the poor continuity of supply would cause serious crisis. For instance, Toyota was forced to recall more than 9 million vehicles worldwide in 2009 because of the component supplied by a subcontractor; BMW’s American plant was forced to shut down because their components were blocked in the air traffic in March 20th, 2010; Companies in more than 7 industries all over the world were forced either
35 closed plants or slowed down production because of the tsunami in Japan on March 11, 2011…
Political and legal… Technology
Cultural influence Lean production Technology E-procurement Microeconomics Purchasing structure Macroeconomics Social responsibility Organizational… Globalization Organizational strategy
0 5 10 15 0 2 4 6 8 10
Figure 5.8 Environmental Factors Figure 5.9 Organizational Factors
Salesperson of the… Reciprocity Corruption Personal relationship Organizational Perceived risk relationship pattens Personal recognition Word of mouth Buyer-Seller relationship Final customer
0 2 4 6 8 10 0 5 10 15
Figure 5.10 Individual Factors Figure 5.11 Inter-organizational Relationship
Continuity of supply Associated services Price/Cost Quality of product/service Need for an integrated solution Buy class Importance and complexity of the product/service
0 2 4 6 8 10 12
Figure 5.12 Purchase Characteristics
Importance and complexity of purchase is always a significant influencer of organizational buying behavior. The more important and complex the purchase is, the more high-level participants are involved in the buying process, and the more time will the decision making consume.
36 One respondent has put emphasis on the price and past experience with the supplier. This implies the importance of cost killing, buyer-seller relationship and also word-of-mouth.
Lean production is not as important as the researcher expected. JIT production system with zero inventory has put forward Japanese manufacturing industry as a benchmark for efficient and less costly supply chain. However, a series of delivery disruptions mentioned before made us to question whether a JIT is possible without an intelligence of supplier and ability to resist crisis from both sides. Another reason why lean production is not a significant driver is that lean is more implemented in manufacturing sector and rarely exists in service industry at the moment.
37 Chapter 6 Conclusions
This closing chapter will conclude the finding from the data analysis for our research question thereby accomplishing the purpose of this study. The implications for business marketing practices and future research will also be presented.
6.1 Research Question 1: How the drivers influencing OBB can be categorized?
The conclusion which can be drawn from this thesis research is that the drivers influencing organizational buying behaviors can be categorized into five main dimensions:
1) Environmental factors The organizational buying behaviors are influenced by the larger environment within which the organization and its members perform. The complex environmental influences are divided into six major groups: physical, technological, economic, sociocultural, political and legal factors. 2) Organizational factors The organizational buying behaviors are influenced by the internal factors like organizational objectives, policies, procedures, structure, and systems, as well as the size of company, type of business, innovation and technology. Organizational factors include not only the company characteristics of buyer, but also of the seller. 3) Individual factors The organizational buying behaviors consist of the individual behaviors which are motivated by human nature and personality, and also influenced by other individuals involved in the buying process. These factors include for example the perceived risk, specific self-confidence, education, experience, social relationship etc. 4) Inter-organizational factors The organizational buying behaviors are affected by the relationships between buying organization and other stakeholders like suppliers, customers, government and other organizations in the industrial network. Among all, the buyer-seller relationship is the most important and significant factor influencing buying decisions.
38 5) Purchase characteristics The organizational buying behaviors are finally influenced by the characteristics of the product/service such as product complexity, time pressure, quality, price, after-sale service etc.
6.2 Research Question 2: Which drivers have become more and more important in influencing OBB during the past years?
Driver 1: Globalization
The globalization since 1989 has brought about a plat world, thanks to the advances in transportation and microelectronics which have largely accelerated the material and information flows. Global sourcing is becoming more and more important for companies to optimize the total cost and efficiency of the supply chain.
Driver 2: Social responsibility
Along with the global decline in oil and nature resources and the deterioration of the environment, corporate social responsibility has become not only an external driver but also an internal driver for all the organizational activities. Sustainable procurement and green supply chain implementation have gained their priorities especially in multinational companies. Green issue remains however a new frontier, despite the growing attention it receives, since the investment of return of green supply chain cannot be easily evaluated.
Driver 3: Organizational strategy
Purchasing is no longer merely a cost-killing function, but a strategic department integrated with sales and marketing, product development, financial planning and corporate long-term strategies. Business marketers would expect more strategic participants involved in their client’s organizational buying center and a more complex buying process. The purchasing activities can be affected if the organization plans to adopt certain strategies, such as business intelligence (ERP), lean manufacturing (JIT). It is important for the supplier to keep pace with the expectation that the client organization places on their purchasing department.
39
Driver 4: E-procurement
The advent of information technology and more integrated software system has radically changed the ways how industrial buyers purchase. E-procurement is becoming prevalent. This driver brings both opportunities and challenges for suppliers. The free access to all the social media, web searches and online events helps suppliers to reach their potential customers without necessary barriers, while on the other hand, the competition has become more and more fierce, and suppliers should also implement necessary tools to work with e-procurement system.
Driver 5: Buyer-seller relationship
The accelerating globalization, periodic and global economic crisis, potential huge risk brought by disruption of supply chain and continuous changes of customer needs have driven the organizations to an interdependent business world. Buyer-seller relationship has become strategically important. More and more big companies are looking for certain suppliers who can be totally integrated into their supply chain.
This driver will bring a huge opportunity for the suppliers to build a long term oriented relationship with client, but also impose enormous pressure on the suppliers in terms of company strategy, structure, technology and human resources etc.
Driver 6: Continuity of supply
Continuity of supply has become more and more critical after the crisis. The disruption of supply could cause not only the loss of turnover but more seriously the loss of customer and market. Company may sacrifice other benefits like cost to maintain a sustainable and continuous supply chain.
Driver 7: Word-of-Mouth
Word-of-mouth is a powerful mechanism for individuals to organize themselves with peers to spread information and achieve their goal in the marketplace. It is proved that WOM is also high present in the Business-to-Business environment and it is highly valuated by deciders almost in all the stages of buying process. This factor indicates that it is important to transmit
40 positive information to individuals in the client organization, and especially the opinion leaders, for instance, through advertising, offer user experience, online/offline events or seminars etc.
Driver 8: Cost killing
Cost killing is constantly one of the priorities in purchasing function, especially after the recent crisis. Even though companies are adopting new strategies like innovation, risk management to withstand changing environment, business marketers should always keep in mind that industrial buyers are looking cost killing projects.
6.3 Implications for Marketing Practices
Based on the research conducted, the main implications for business marketers are as follows:
The general environment is always a barometer for megatrends.
Working as a strategic partner with the customers is becoming more and more essential.
Informationization is inevitable.
6.4 Recommendation for Future Research
This thesis is based on a quantitative approach which has drawn a global picture for business marketers to identify the major factors that are increasingly important in affecting the organizational buying behaviors. This global picture can help them to create a rough marketing strategy through incorporating all these drivers. However, if the marketers need a more precise plan, it is inevitable to recommend that new research should be conducted qualitatively through considerable survey or case study.
Further, the correlation between these factors is a very interesting topic to study on, since most of the research conducted on OBB has not covered this issue. Knowing that the budget of business marketing is significantly tinier than consumer marketing, it is essential for business marketers to efficiently allocate the resources to gain an optimization of return, to which the correlation between influencers of OBB would mostly contribute.
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49 8 Appendix Survey on the factors influencing organizational buying behavior
Dear Madam or Sir,
As student from the École de Management in Strasbourg, I am currently doing a research project concerning the factors influencing organizational buying behavior within the framework of my master thesis. I would appreciate your participation which will not take more than 8-10 minutes. To thank you for your help, I’m glad to share with you my study results. Please fill in your email address at the end of the survey if you are interested to get the results. This information will naturally be asked for on a separate page, thus ensuring your anonymity.
Thank you for your support. Yours sincerely, Liying XU
For any kind of questions or comments please contact me at: [email protected] or [email protected]
*Required
1. Which country is your company located? *
2. Which industry is your company in? *
o Manufacturing o Wholesale and retail o Logistics, Transport and Communication o Information o Hotel and restaurants o Consulting o Financial o Public or Governmental administration o Other service
o Other:
3. How many emplyees in your company? *
o 0-250 o 250-1000 o >1000
4. What's your position in the company? *
o General Manager/ CEO
50 o Purchasing Manager/Director o Financial Manager/Director o Other Departmental Manager/Director o Project Manager o Engineer o Other:
Factors Influencing Your Company's Purchasing Behavior In the following part we would like to gather some information about the factors influencing the buying behavior in your company
5. Environmental Factors What kind of environmental factors has STRONG impact on your organization’s buying behaviors? Please classify to what extent you would agree for the following factors and clarify if necessary
1) Globalization *
Is your company purchasing globally? Are you looking for suppliers who can provide global service?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
2) Social responsibility *
Environmentally friendly is a criteria for selecting product? You are looking for new ways of manufacturing, packaging,and recycling,...?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
3) Macroeconomics *
Interest rates, economic growth, recent global crisis have big impact on your organization's purchasing budget/decisions?
1 2 3 4 5
Strongly Disagree Strongly Agree
t a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
4) Microeconomics *
Supply and demand in your industry, shortage of key materials have bigger impact on your purchasing decision?
51 1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
5) Technology *
Are you referring to the emerging technologies when purchasing new products?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
6) Cultural influence *
National or organizational culture; Are you tend to decline a supplier because of culture difference?...
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
7) Political and legal influence *
New political or legal changes have big impact on your organizational buying behavior?...
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
8) Others
6. Organizational Factors What kind of organizational factors has STRONG impact on your organization’s buying behaviors? Please classify to what extent you would agree for the following factors and clarify if necessary
1) Organizational strategy *
Purchasing is becoming stategically important in your company?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
2) Organizational formalization *
52 The greater the standardization of process, the less personal connection between members in the buying center?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
3) Purchasing structure *
Centralization or decentralization of budget/decisions has big impact on the buying decsions?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
4) E-procurement *
You are increasingly using/relying E-procurement?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
5) Lean production *
Your company has implemented JIT/TPM and requires your supplier to implement as well?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
6) Technology *
You suppliers must keep step with the product or process innovation of your company?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
7) Others
7. Individual Factors What kind of individual factors has STRONG impact on your organization’s buying behaviors? Please classify to what extent you would agree for the following factors and clarify if necessary
53 1) Final customer *
Are you choosing a supplier because your final customers like this supplier?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
2) Word of mouth *
Are you evaluating a supplier based on the discussions with peers who have already adopted or rejected this supplier?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
3) Personal recognition and image *
The job security, individual performance, possible promotion, visibility in the firm have big impact on your purchasing behaviors?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
4) Perceived risk *
The fear to make wrong decisions, fear to lose relationship, etc. have big impact on your purchasing behaviors?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
5) Personal relationship *
The trust or friendship, feeling to owe sth., social networks (like alumni, clubs..) have big impact on your purchasing decisions?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
6) Corruption *
54 The corruption is common or an important influencer in the buying decision making process?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
7) Salesperson of the supplier *
The suppliers representatives have big impact on your buying behaviors?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
8) Others
8. Inter-firm Relationships What kind of inter-firm relationships has STRONG impact on your organization’s buying behaviors? Please classify to what extent you would agree for the following factors and clarify if necessary.
1) Buyer-Seller relationship *
The business relationship between your company and your suppliers has big impact on the purchasing behaviors?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
2) Organizational relationship pattens *
The purchasing process or behaviors vary a lot if your company is long-term or short-term oriented with the suppliers?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
3) Reciprocity *
It's common to ask suppliers to buy from you to return the favour? I buy from you, you buy from me.
1 2 3 4 5
55 Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
4) Others
9. Purchase Characteristics What kind of purchase characteristics has STRONG impact on your organization’s buying behaviors? Please classify to what extent you would agree for the following factors and clarify if necessary.
1) Importance and complexity of the product/service *
Strategic important or time/cost consuming proudcts/service strongly vary from simple purchasing?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
2) Buy class *
Purchsing behaviors/decision process is very different if it's new task, straight-rebuy or modified-rebuy?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
3) Need for an integrated solution *
You are increasingly requiring all the products/services from one supplier?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
4) Quality of product/service *
Is quality becoming more important?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
5) Price/Cost *
Is low cost becoming more important?
56 1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
6) Associated services *
Is after-sale service or additional product/service becoming more important?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
7) Continuity of supply *
Is the guarantee of continuous supply and relationship becoming more important?
1 2 3 4 5
Strongly Disagree Strongly Agree
Select a value from a range from 1,Strongly Disagree, to 5,Strongly Agree,.
8) Others
10. Comments Thanks again for your help ! Please feel free to add your comments here.
57