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It has long been accepted that a realistic view of what happens between customer companies and their suppliers cannot be achieved by examining single purchases alone. Instead, a single purchase can only be understood as part of a supplier–customer relationship which both affects and is affected by it. Also in business markets, a customer's purchase behaviour is not simply a passive response to the marketing actions of a supplier, but part of the interaction between an active customer and supplier. A major element in this interaction is likely to arise from the efforts of the customer to develop its own products interactively with a network of suppliers. This paper reports on a study into the ways in which customers employ the skills of their network of suppliers and attempt to direct that network in product development projects. The paper suggests that customers are likely to use either of two alternative strategies for product development, that we term “network delegation” and “network intervention”. The paper draws on four in-depth case studies to highlight the types of situation where customers are most likely to employ each of these strategies and draws conclusions for marketers about the implications of each approach.

An increasing amount of research has indicated that some customers are adept at coordinating and exploiting the capabilities of their immediate suppliers and also of a wider network of indirect suppliers in their product development. In the 1980s and 1990s a number of studies reported how large, powerful companies in industries, such as automotive and computers, ‘organised’ their suppliers into structured tiered networks. For example, Takeuchi and Nonaka (1986) and Imai, Nonaka, and Takeuchi (1985) showed how lead manufacturers divided suppliers into ‘primary’ (or first tier) and ‘secondary’ (or second tier) subcontractors, thereby enabling the innovation process to gain more momentum. In a similar vein, Womack, Jones, and Roos (1990) described how ‘lean’ Japanese car assemblers assigned the design and development of whole modules to a group of first-tier suppliers, who in turn utilised a team of second-tier suppliers for the detailed development and engineering. Lorenzoni and Baden-Fuller (1995) and Jarillo (1988) reported similar findings on a range of firms in different industries, including Apple, Benetton, Corning, McDonald's, Nike, Nintendo, Sun, and Toyota. More recently authors in industrial marketing literature have begun to discuss how powerful ‘hubs’ appear to have ‘orchestrated’ or even ‘managed’ networks (e.g. Möller & Svahn, 2002 and Ritter, 1999). Lamming (1996) and Lamming, Johnsen, Harland, and Zheng (2000) discuss the different strategies of customers in attempting to manage their supply networks. They describe the cascade strategy as the imposition of initiatives and performance requirements from the customer to the supplier, and thence to sub-suppliers. It offers a strategy for drawing on several layers of suppliers and sub-suppliers and is based on the assumption that customers have a simple supply chain logically divided into ‘tiers’. The customer firm, often a large OEM, perceives that its power may be cascaded throughout its supply base. At the basic level, cascading is a way for a customer to delegate responsibility to its suppliers. In practice, it has been contended that cascading more often takes the form of a more imposing style of leadership (Lamming et al., 2000). They describe the ‘intervention’ strategy as similar to the cascade strategy, but importantly that it also entails the customer becoming directly involved in its indirect supplier's activities (e.g. ‘second-tier’ suppliers) and thereby effectively converting an indirect relationship into a direct one. According to Lamming et al. (ibid) intervention may be applied in cases where the customer seeks to help out an ailing supplier by applying its management skills to its operational problems (Hines, 1996). They also argued, however, that intervention may be practiced because the customer does not trust the supplier to implement operational improvements itself. The customer therefore engages directly in the supplier's activities to ensure proper implementation. Both of these suggested strategies (Lamming, 1996 and Lamming et al., 2000) assume that it is the customer that holds the position of knowledge and operational superiority, and hence sovereign power (Lukes, 1974). However, it is equally possible that a supplier may have similar power over the development and use of its products by its customers. To allow for this possibly two-way effect, we have re-conceptualised the two strategies as ‘network delegation’ and ‘network intervention’. Following Fig. 1 ‘network intervention’ entails a company actively involving itself in an otherwise ‘indirect’ relationship and thereby effectively disintermediating, or converting an indirect relationship with a supplier into a direct one. This may be for the purpose of providing, for example, design specifications or sub-supplier preferences (e.g. safety and environmental standards). ‘Network delegation’ entails a focal actor instructing another actor to disseminate or forward the focal actor's specifications and preferences. It is similar to the cascade strategy, although it does not rely on the arguably restricted interpretation of structured, vertical supply chains controlled by a customer. As the models illustrate, both the intervention and delegation strategies may work from supplier to customer as well as vice versa. Analysis of the literature suggests that it is particularly large and powerful companies that are in a position to apply the strategies of delegation and intervention (e.g. Dyer & Nobeoka, 2000, Imai et al., 1985, Lamming et al., 2000 and Womack et al., 1990). It is unclear, however, whether these companies operate in a particular set of circumstances, which propels them to seek to exercise such control of their network. From the perspective of business marketers this is an important question, as it may have a major impact on their ability to design and manage their own product development strategies, yet current marketing research appears to have paid little attention to the problems of customer network intervention. The research question explored in this paper is therefore: In which situations are customers most likely to employ network intervention and delegation during product development?

This paper has discussed how network delegation and intervention strategies have been applied by customers in four product development projects. We sought to identify the particular situations in which these strategies may be more likely to occur: Table 5 provides an overview of these situations. The findings indicate that the strategies of delegation and intervention may be more likely to be conducted if a company has a high degree of network power and influence, limited trust in the competencies of other actors, modular product architectures, and highly specified products or components. The indication is that such companies may seek to exert their control over the supply network by direct intervention or explicitly delegating, for example, their design specifications and preferences; they may also seek to negotiate directly through such network strategies. If these factors are not present, the findings indicate that delegation and intervention strategies are seen as less important to control the innovation process. This paper found little evidence of the focal companies intervening themselves. Rather, the case studies indicated that the focal companies were generally at the receiving end of their customers' intervention strategies. As a consequence we believe two tentative conclusions can be drawn for business marketing managers from our findings. 5.1. Conclusion one: understand the conditions that drive customers and other network actors towards intervention Business marketing managers have to face the reality that they may be unable to control the management of product development and innovation projects because powerful customers intervene in their choice of suppliers and in their communication with them, even if those customers have less technological knowledge than their suppliers. This is because those customers may not have sufficient competence trust in the company's ability to manage the innovation processes within its own supplier relationships. A supplier that is involved in the development of a critical product or part that has a modular product architecture may be more likely to be subjected to such customer network intervention. In these situations, a supplier may also have to consider intervening itself in the activities of its own sub-suppliers. The choices and actions of individual companies in the network may be limited. But business marketers may simultaneously have to cope with the constraints imposed on them by their customers and extend their involvement in their own supplier operations. Customer relationships cannot be managed in isolation from the wider network position and strategy of both that customer and the supplier itself. 5.2. Conclusion two: coping with customer's network intervention A critical issue for business marketers involved in product development projects is how to cope with situations of excessive customer intervention. This situation further extends the role of the marketing manager away from that of conventional relationship management. Faced with strong customer network intervention, it may be necessary for a supplier to seek to establish a more viable network position. For example, this could involve marketing's involvement in decisions on merging with or acquiring other suppliers in the network to provide a real full-system offering. But such moves are both costly and risky. A better alternative may be to develop strategic partnerships or alliances with other suppliers. This may enable a company to extend the value and completeness of its offering, without heavy capital investment. In some cases the development of new customer relationships may be the only solution to limit the over-reliance on powerful intervening customers. This might be relevant if the perceived cost of being in the network exceeds the perceived benefits. However, it requires that there are realistic alternatives and that the company has, or can, develop the capabilities to develop these new customer relationships. 5.3. Limitations and future avenues of research This paper has been based on only a limited number of in-depth case studies conducted across two industries. None of the four cases stood out as being unique in any way, although each individual case featured particular themes. The external validity provided by four cases constituted a first step towards replication and thus testing of the findings in different situations (Tsang & Kwan, 1999). However, caution is required in any generalisations to other industries with different technological characteristics. The preliminary discussions and empirical findings presented in this paper highlight a number of areas that require further work. The first of these concerns the network strategies likely to be adopted by customers in the increasingly common situation of product modularization (Baldwin & Clark, 1997, Langlois & Robertson, 1992, Doran, 2003 and Sako & Warburton, 1997). A number of critical questions arise for the business marketer, such as: • How do different product architectures affect the supply network strategies of customers? • How do modular product architecture strategies devised by OEMs impact on their existing and future requirements from suppliers and on the tasks facing business marketers? The second avenue of research is to use a different methodology to further examine the issues explored in the case studies. Using a structured questionnaire as an instrument to further validate and test the results on a wider set of contexts, quantitative analysis may be able to confirm, disconfirm or refine the set of explanatory factors that has emerged from the case studies.