Enhancing Relationships with Supplier Companies Through Customer Identification

In this study we argue that relational norms in buyersupplier relationships are factors which affect both firms’ and relationships’ performance significantly. Referring to theories in relational exchange (Macneil 1980) and social identity (Taifel and Turner 1979; Ashforth and Mael 1989), we discuss supplier identification as one aspect of relational norms. Organizational identification, as a specific form of social identification, occurs when individuals define themselves in terms of their membership in a specific organization (Mael and Ashforth 1992). Thus, individuals’ level of organizational identification indicates the degree to which individuals’ membership in an organization is tied to the context of their self-concept. Recent conceptual studies, proposed identification processes can even occur on an organizational level (e.g., Scott and Lane 2000; Steinman, Deshpandé, and Farley 2000). Therefore, theorists in social identification theory (Hogg and Terry 2000) suggest extending the framework to an organizational level in order to improve explanation and understanding of inter-group relations and inter-organizational phenomena. Thus, the purpose of our study is first to examine what the antecedent factors of such organizational identification processes in supplier-buyer relationships are. Second, since the member’s organizational identification has been identified as having crucial impacts on the wellbeing of the organization and the individual (Ashforth and Mael 1989), we expect similar beneficial consequences of identification processes on an organizational level. Therefore, we investigate how supplier’s organizational identification with one particular customer affects both suppliers’ outcomes and the quality of the relationship. Moreover, we will investigate how suppliers’ and buyers’ affect and behavior in terms of commitment may strengthen or weaken the effects on firms’ and relationships’ outcomes. Hypotheses were tested using data obtained from 346 suppliers of the German-speaking automotive industry. The questions in the survey pertained to the supplier’s relationship with one particular customer. The data collection took place between August and November 2002. We conducted exploratory factor analyses to purify the scales and developed acceptable measurement models prior to conducting tests of the hypothesized relationships between constructs. We assessed individual hypotheses by conducting multiple regression analyses. Results revealed that suppliers do indeed identify with their customer organizations and thus to our knowledge, this is the first study that provides empirical evidence of the concept on an organisational level. In regards to the effects of suppliers’ identification, our main implication is further that the formerly assessed beneficial effects of individuals’ identification (e.g., Ashforth and Mael 1989; Dukerich, Golden, and Shortell 2002), are applicable to organizations if they are involved and engaged in relationships that are marked and strengthened by identification. Our results indicated that a firms’ objectives of their supplier’s social and economic satisfaction, as well as beneficial relationship outcomes in terms of trust and conflict reduction, are best achieved by high levels of the supplier’s identification with the customer. Further, we sought to establish support for the hypothesis that there is a positive relationship between how suppliers perceive themselves in relation to the customer and the strength of their identification with this customer. We examined the consequences of high versus low customer reputation as well as inter-firm cooperation on supplier’s identification with the customer. The results indicated strong support for all hypothesized antecedents. Discussing the conditions under which organizations come to identify in more detail, our results revealed that the antecedents of inter-organizational identification are not entirely equal, but to a certain extent similar to those that were investigated earlier in the context of individuals’ identification. As such, several scholars in social identification argue that similarity and the reputation of the focused entity are seen as preconditions for individuals’ identification (e.g., Dutton, Dukerich, and Harquail 1994; Dukerich, Golden, and Harquail 2002). In addition, we found that firms’ close interaction has a significant impact on supplier’s level of identification. These findings are consistent with recent research in inter-organizational identification (Scott and Lane 2000; Dyer and Nobeoka 2000). In addition, this study extended the understanding of organizational identification in vertical exchange relations by investigating moderating effects. Although research in commitment highlights the need for reciprocal commitment (e.g., Williamson 1985) our results differ from these prior assumptions. While a supplier’s commitment moderates all relations between supplier identification and the outcomes positively, a customer’s commitment has only positive interaction effect with supplier identification on trust. Counter to our intuition, however, a customer’s commitment has a negative moderation effect on supplier identification and economic satisfaction. As an explanation, theorists revealed the risk that suppliers can come to rely too much on the support services provided by the customer (MacDuffie and Helper 1997). Social identification research warns of the effects of focused identification or over-identification, resulting in the lost of the individual’s self (Dukerich, Kramer, and Parks 1998). From on organizational perspective, it is likely that the supplier will focus on only one particular costumer, which might be associated with resistance to change and an inability to adapt to new conditions (Peteraf and Shanley 1997). We recommend for reaping the full range of identification gains, it is better when the suppliers have a moderate degree of identification and are only partially dependent on customers’ assistance. Finally, our study showed that developing organizational identification processes towards selected customers is not simply a sensible strategy; it may also be essential to the long-term survival of the supplier by providing a sustainable long-term competitive advantage for supplier firms without sacrificing their profitability.