Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
131
The building blocks of a relational capability –
evidence from the banking industry
Wojciech Czakon
Department of Management,
Ul. Bogucicka 14, 40-226 Katowice, Poland
E-mail: [email protected]
Abstract: Cooperation is an increasingly important strategic option for both large and entrepreneurial
firms. Firms need to assess the potential for successful cooperation. Among other factors the relational
capability of partners needs to be identified. Prior research provides little insights into what makes a
firm relationally capable or how to build this capability. The bank’s franchising network case study
provides evidence that a set of dedicated resources, governance mechanisms and knowledge
management together make a relational capability. It has been source of above average earnings. The
durability of cooperation requires relationships adjustments, which brings in flexibility and the
underlying knowledge articulation and sharing.
Keywords: relational capability; entrepreneurship; network governance; franchising; banking.
Reference to this paper should be made as follows: Czakon, W. (2009) ‘The building blocks of a
relational capability – evidence from the banking industry’, Int. J. Entrepreneurial Venturing, Vol. 1,
No. 2, pp.131–146.
Biographical notes: Wojciech Czakon is a Professor at the Management Faculty of the The Karol
Adamiecki University of Economics in Katowice, Poland. He obtained his PhD in Management from
The Karol Adamiecki University of Economics in Katowice, Poland. He teaches undergraduate courses
in general management, value chain management, management accounting, managing relationships
with banks, and quality management. His areas of interest include cooperative dynamics in business
relationships, competition, networking and collaborative strategies.
1 Introduction
Cooperative arrangements have received increasing academic attention in strategy and
entrepreneurship fields. Seen from the resource-based-view perspective, firms need resources
to grow (Penrose, 1959), depend on the environment in terms of resource access (Pfeffer and
Salancik, 1978) and use them to achieve a competitive advantage (Barney, 1991). Yet access
to external resources is often too costly or unavailable (Katila et al., 2008). Beyond
acquisition or organic development of the required resource base, cooperation is therefore
increasingly seen by managers as a third option (Grunwald and Kieser, 2007). Seen from the
entrepreneurial perspective cooperation appears typically as an opportunity for growth. It
provides the flexibility and agility consistent with the dominant logic of entrepreneurship
(Kuratko and Audretsch, 2009). Recently scholars proposed to link cooperative capability as
and entrepreneurial process and behaviour with the competitive advantage of the firm (Ireland
et al., 2009). Extant literature emphasizes that dealing with entrepreneurial events and
extracting value from them is difficult for large organisations (Vale and Addison, 2002). This
suggests convergent concerns in
strategy, entrepreneurship on some concepts at least.
Effective and long term use of partner’s resources requires distinct capabilities (Lorenzoni
and Lipparini, 1999), labelled relational capabilities. This relatively new concept addresses
endogenous factors such as: resources, behaviours, processes, skills and structures connected
with successful cooperation. Scholars agree over the general boundaries of the concept, seen
as the willingness and ability to partner (Dyer and Singh, 1998). Still some authors perceive
the concept as a single capability (Jarrat, 2004) while others suggest that relational
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
132
capabilities are many (Möller and Svahn, 2003). Empirical studies reveal (Das and Teng,
2000) a high failure rate of cooperative arrangements, which suggests a major managerial
challenge and academic gap. It is important for partners to purposefully build and deploy
appropriate capabilities, while other firms need to assess the potential for successful
partnering. There are very few studies on the components or building blocks of the relational
capability, their deployment and impact on the ability to successful cooperation.
The retail bank franchising network case study addresses these theoretical and managerial
gaps. Through a detailed description of the capability building process the study identifies
dedicated assets, governance structures and knowledge management deployment over the
franchising network life cycle. It provides evidence of how to build a relational capability in
an organisation which did not have previous experience on that field and achieve a clear
competitive edge over its competitors. The paper is organised in three sections. First,
theoretical underpinnings are reviewed, grounding the concept in the dynamic capability
approach. Secondly, empirical research design is specified. Thirdly, the results are presented
and discussed.
2 Theoretical underpinnings
The RBV focuses on explaining why firms achieve different performance levels, drawing on
resource heterogeneity and imperfect mobility (Wernerfelt, 1984; Barney, 1991). Privileged
exploitation of resources contributes to above average earnings as a monopoly rent, enabling
to limit supply or set prices on the market (Peteraf, 1993). Ricardian rents refer to differences
in resource productivity, i.e., the need to efficiently use them to create value (Madhok and
Tallman, 1998). The concept of capabilities captures this idea of coupling resources with the
knowledge and routines that are operated in the firm (Nelson and Winter, 1982). Capabilities
are seen as tangible or intangible assets which are firm specific, created over time through
complex interactions among firm’s resources, and based on developing, carrying and
exchanging information through the firm’s human capital (Amit and Schoemaker, 1993). The
time dependence of the concept has lead to the emergence of dynamic capabilities (Teece et
al., 1997). Dynamic capabilities literature proposes two broad approaches to the concept: from
the resource base and the resource’s use perspective. When a firm is able to purposefully
shape and modify its resource base (Helfat et al., 2007) research focuses on the set of skills
needed to do so. It provides an extension to the RBV by adding change over long periods of
time. Four typical processes or skills have been identified (Figure 1), all aiming at integrating
the resources available to the firm in order to generate value and throughout a long time span
altering this configuration (Teece et al., 1997).
Figure 1 Dynamic capability as skills altering the resource base of the firm
Release
Integration
Reconfiguration
Gaining
Altering the resource base means gaining or releasing resources. Furthermore, alteration of
the resources base involves reconfiguration and integration activities upon the renewed set of
resources so that value creation processes can be effectively carried out. The second
perspective on dynamic capabilities focuses on learning processes, which alter the routines
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
133
used by firms instead of mere resources (Zollo and Winter, 2002). The way resources are
exploited to create value is brought into light. Modified or new routines contribute to better
generate value and to achieve competitive advantage. Relevant views on dynamic capabilities
are summarised in Table 1.
Table 1 Relevant views on dynamic capability concept structure
Impact object
Expected results
Resources
(Teece, Pisano, Shuen, 1997;
Blyler, Coff, 2003)
Routines
(Zollo, Winters, 2002)
Value creation
(Eisenhardt, Martin, 2000)
Competitive advantage
(Lorenzoni, Lipparini, 1999; Kale, Dyer,
Singh, 2002)
Change
(Hefalt, 2007)
Capabilities
(Hefalt, Peteraf, 2003)
Several types of dynamic capabilities have been identified: product development, strategic
decision making, resource allocation, knowledge creation, alliance and acquisitions, exit
(Eisenhardt and Martin, 2000). Among others, the alliance or relational capability is focal in
this study. It refers to accessing resources and capabilities of other firms through alliances
(Helfat et al., 2007) and integrating firm’s own resources with those in possession of its
partners. Alliances are cooperative relationships between two or more organisations, which
are designed to achieve a shared strategic goal. Drawing from the dynamic capability concept,
a relational capability refers to purposeful alterations of the firm’s routines and resource base
necessary to achieve goals shared with partners.
Since research interest in relational capabilities is very recent, the theory building process is
far from being achieved (Capaldo, 2007). Two sides of the relational capability coin can be
discerned (Table 2). The first is an ex ante relational capability – a precondition to effective
partnering. Several components are pointed out with reference to this capability, such as: prior
partnering experience (Zollo et al., 2002), learning on joint value creation (Anand and
Khanna, 2000), social capital use (Blyler and Coff, 2003) or dedicated assets (Kale et al.,
2002) etc. However prior research provided evidence on the role of single elements, it did not
achieve an exhaustive list and even less suggested relationships between them.
The other side of the relational capability coin is an ex post relational capability, developed
and altered over time. The distinctive feature of ex post building blocks is that they are
dedicated to known partners, whereas the ex ante components exist before even choosing a
partner. Such elements as asset specialisation (Madhok and Tallman, 1998), mutual
adjustments (Sivadas and Dwyer, 2000), open knowledge transfer (Zollo et al., 2002) are
suggested in the literature. While prior research reveals a path dependence of the concept, life
cycle long studies have hardly been undertaken.
Table 2 Ex ante and ex post components of the relational capability
Ex ante
Prior experience
(Teece,
Pisano, Shuen, 1997; Zollo, Reuer, Singh, 2002)
Ex post
Dedicated partner-specific investments (Dyer,
1996)
Learning
(Anand, Khanna, 2002)
Asset co specialization
(Kale, Dyer, Singh, 2002)
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
134
Alliance function manuals, personnel and assets
(Teece, Pisano, Shuen, 1997; Kale, Dyer, Singh, 2002)
Open learning and knowledge transfer (Dyer,
Singh, 1998; Zollo, Reuer, Singh, 2002)
Interfirm knowledge-sharing routines
(Dyer, Singh, 1998)
Mutual adjustment
(Sivadas, Dwyer, 2000)
Willingness and ability to partner
(Dyer, Singh, 1998; Lorenzoni, Lipparini, 1999)
Relationship building efforts
(Madhok, Tallman, 1998)
Social capital
(Blyler, Coff, 2003)
Embeddedness
(Madhok, Tallman, 1998)
So far no operational definition in terms of research and practice, of what a relational
capability is, has been made available. An enumeration of components and a process
description together would provide a good basis for achieving such a definition. This research
undertakes the endeavour to contribute to the better understanding of what a relational
capability is.
3 Problem
Both research and business practice aims at identifying the existence of the potential for
successful cooperation, in other words – the existence of a relational capability. Mistakes in
partner selection impact the relationship’s further operations, which is why the formation
phase of relationship development has received significant researcher’s attention (Kanter,
1994; Gulati et al., 1994; Mitsuhashi, 2002). For entrepreneurial firms issues of value
appropriation (Alvarez and Barney, 2001), partner’s potential investigation (Shane and Spell,
1998) and survival (Mitchell and Singh, 1996) are core concerns on the relationship life cycle.
It leads to two research questions addressing the need to identify a relational capability and
achieve superior performance through it.
The first question tackles the issue of identifying a relational capability, by pointing out to the
elements that should be gathered to form it. A correlate of this question addresses the process
of building a relational apability, basically oriented on the resources, skills and routines
necessary to successful cooperation.
Research question 1 What are the elements of relational capability?
The second question addresses the extent to which relational capabilities may contribute to
achieve competitive advantage, and when achieved to sustain it. Prior research provides
opposing suggestions that the relational capability is idiosyncratic and therefore difficult to
imitate (Amit and Schoemaker, 1993), but also that it is substitutable, imitable and fungible
(Eisenhardt and Martin, 2000). There is clear need to further investigate the link between a
relational capability and superior performance in the long run.
Research question 2 Does the relational capability provide a sustainable competitive
advantage?
4 Research design
Consistent with Lorenzoni and Lipparini (1999) assertion, the research of dynamic
capabilities implies a dynamic and process approach. Explorative case studies are particularly
appropriate when: the development stage of a theory is early, the boundaries of the
phenomenon and the context are unclear and the contemporary phenomenon is studied in real-
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
135
life context (Eisenhardt and Graebner, 2007). Furthermore, by confronting extant literature
with empirical findings, induction enables theory building thus contributing to further
research.
The object of study is a retail bank in Poland, one of top five on the country’s market. With
some 480 branches it covers well the central, southern and western regions of Poland, while
its presence remains weak in the rest of the territory. One of its strategic goals has been to
expand territorially. The bank has made a strategic commitment to collaborative expansion,
through a franchising network project. Several reasons justify the case choice. First, the bank
had no significant previous experience in partnering. The effort to build the relational
capability was therefore expected to be easily identifiable. Secondly, cooperating with
partners who are typically flexible, entrepreneurial, responsive to change, requires significant
adjustments of the franchisor, contributing to the visibility of a relational capability. Thirdly,
franchising is a cooperation arrangement offered by a firm that chooses deliberately to
develop through partner network, being clearly entrepreneurial. Typically it is aiming at small
and medium enterprises (SME) willing to do business along standard lines, under a common
logo, under common strategic management, under a common product portfolio, but also under
conditions of separate ownership. The franchising business model brings bilateral advantages.
For the franchisor it is a way to perform rapid, low-cost expansion, achieve economies of
scale and thus lead to growth and potentially to competitive advantage. For its partners it
constitutes a way to reduce uncertainty, achieve economies of scale, network externalities and
ultimately competitive advantage. Fourthly, a major discontinuous change happened, i.e., the
merger with another bank. It enables observation under conditions of environment changes,
typical to adaptative processes in ex post relational capability. Fifthly, franchising network
enables the observation of network phenomena experienced by many partners in similar
circumstances, as the process, structural and governance factors are standardised. Sixthly, the
banking sector is renowned to work under formalised and hierarchical terms, which facilitate
access to codified knowledge and documentary analysis.
4.1 Data collection and analysis
The procedure of data collection relies on three sources, all gathered between June 2005 and
December 2007: internal documentation analysis, four semi-structured interviews and press
releases. The first data source is the bank’s archival documents database including 257 files
such as: internal procedures, decisions, rules of cooperation, standard agreement forms,
check lists, project descriptions, business plans, master plan of the project, manual of the
franchisee, manual of the supervising branch director, operating procedures, etc. This set of
data enabled to identify both the decision process relative to cooperative growth, to resource
allocation and to knowledge management necessary to cooperate with a large number of
partners. The second data source consists of four retrospective, semi-structured interviews
conducted with: the top executive responsible for the indirect sales department and a local
branch sales director, who directly supervises franchisees. A set of 30 questions was crafted
and communicated to the respondent by e-mail. While interviewing, an open discussion
appeared significantly enriching the data input. All interviews have been further codified
through a note taking and memo crafting procedures. The third data source focused on press
releases in the period from June 2005 to December 2007. Due to network building activity the
bank has disclosed information about its strategy of network formation in professional daily
and monthly press titles tied to the banking, financial or franchising sector. Industry analyses,
financial press information disclosures referring to relevant bank’s decisions and to the
merger process have also been gathered. Typical data biases have been reduced through
triangulation of all sources.
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
136
5 Results
5.1 Franchising network initiation
The bank’s strategic objective of market expansion has been deal with through franchising
network formation. The organic growth option has been rejected because of:
1 long time span, as a typical bank’s branch setting requires about one year from
decision to operations
2 prohibitive cost, as an own branch demands around 250,000 euro investment,
therefore achieving a visible market presence demands a very large investment
3 high risk, as all risk factors rest upon the bank.
No acquisition at reasonable cost has been available in 2003, a time of strong market growth.
Instead the bank has opted for cooperative network development, composed of hundreds of
entrepreneurs. Cost-reduction, risk reduction, small cities presence increase and feasibility
arguments made this project interesting. Yet, a managerial challenge related to the lack of
experience in cooperation on the market appeared.
The bank has deployed resources dedicated to the network before first franchising contracts
have been signed. Specifically the indirect sales department has been created, with a project
budget of three million euro allocated to franchising infrastructure development and an
operating budget. Franchising infrastructure development required a capability building
focused on:
1 information systems (IT) necessary for operating the network
2 a governance structure to frame cooperation, appropriate value and minimise
transaction costs
3 the business format specification in terms of the collaboration process setting
4 knowledge management inside the franchisor’s structure and directed towards
franchisees.
IT solutions involved: network infrastructure requirements, data transfer security, the
interface with the main banks operating system. The software, indirectly corresponding with
the main bank’s computer system was implemented in order to reduce the risk of unauthorised
franchisee intervention, either accidental or intentional. The hardware component comprised:
servers and network infrastructure for the franchisor, and a technical specification of
computers and network infrastructure (modems, network cards and firewalls) for the
franchisees. Transaction security infrastructure comprising pin pads and identification cards
for both customers and the franchisee employees has been designed.
Network’s operation requires a governance structure and process which responds to two
major concerns: transaction cost minimisation and value creation. Considerable assets have
been allocated to this ’alliance function’ in terms of office space, personnel and budget. Along
with resource allocation budgetary objectives in terms of sales and earnings have been set.
The structure of the interface with partners has been chosen as two level multi-central, i.e.,
that a central department for indirect sales has been created within headquarters of the bank,
but direct cooperation with partners resides on local bank’s branches (Figure 2). Headquarters
supervise the whole structure, conducts trainings, operates the software interface, develops the
franchising network and provides direct assistance to partners. The bank’s branch cooperates
along standard lines, i.e., receives customer applications for credits, loans, credit cards,
accounts, etc. from the partner and then performs its usual procedures.
Governance structure implemented to frame network operations relied on three components:
social capital, formal contract and a coordinating central unit. The social capital component
has been implemented since the formation of the relationship to reduce the need of third-party
intervention in case of conflict. As one of the managers put it: ‘Why don’t we let the branch’s
directors point out to candidates that they are willing to work with, whom they know, whom
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
137
they trust?’ The legal component relied on several financial and legal bonds, ranging from
dedicated tangible investment very difficult to sell out of the franchising network, in blanco
notes issued by the franchisee, insurance, to full customers cash flow control by the bank and
exclusivity clauses in the contract.
The business format focused on the joint operation process and support provided to the
franchisee. Operating procedures in a highly formalised environment offers a limited range of
possible developments yet the value creation process had to be split between the bank and its
partners. The critical steps in terms of risk-management are: credit approval, contract singing
and cash transfer have been kept by the bank. The critical steps in terms of sales efficiency
are: collection of client applications, documents filling and annexes collection, customer
attracting and persuading to buy the bank’s offer, cash-operations of limited value. Those
steps have been transferred to partners. Next, the franchisor has designed a list of standard
equipment of a point of sale, i.e., furniture, safe boxes, computers and peripherals, etc., are all
specified on a banks list, as well as suggested
suppliers. Furthermore, the bank provided marketing support both in the form of bank’s
marketing resources and dedicated budget. All campaigns, promotions and television
advertisements benefit directly in terms of market presence and sales level. Also, local
promotion in the local newspapers, leaflets, gadgets, etc. Finally, the franchisee gets cash for
money transaction, usually 3,000 euro. In fact he operates with bank’s money and does not
have to invest his or her proprietary assets into the operating cash.
Figure 2 Franchising network built over existing own structure
Bank’s headquarters
Bank’s local branch
Franchisee
Hierarchical relationship
Franchising relationship
Knowledge management consists of: codification, sharing, articulation and internalisation.
Codification resided upon the elaboration of manuals for both the franchisee and the
supervising branch director. Also training requirements have been specified and standard
training relevant to: products, selling techniques, procedures and
the IT system operation have been worked out.
5.2 Franchising network development
Target partners have been described as entrepreneurs or SMEs, operating in small and
medium cities, willing to invest around 10,000 euro to perform banking product sales and a
limited range of teller operations for a share in customer fares. The recruitment process has
not been crafted as formalised. Instead, the social capital of the bank has been extensively
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
138
exploited in the network formation phase. Bank’s branch directors have drawn a list of
potential candidates from among their business or social relationships, and carried out
preliminary interviews. This extensive use of social and relational capital has lowered the
costs, and strongly increased the pace of the operation. The list of potential candidates has
been completed in 30 days. The franchising network growth can be
described as on Figure 3.
Figure 3 Franchising network growth (see online version for colours)
Number of partners
450
400
350
300
250
200
150
100
50
0
XII.2003
XII.2004
XII.2005
XII.2006
XII.2007
The decision to implement the franchising network project has been made in November 2003.
The first partner point of sale has started operations by end May 2004, and by the end of
August 2004 the pilot phase has been closed. The main purposes of the pilot phase have been:
verification of recruitment assumptions, verification of operating rules, refinement of
technical infrastructure and operating procedures. Specific milestones have been attributed to
this phase, referring to IT solutions, operating procedures, visual identification items and the
process of candidate approval. From August 2004 on the full-scale development phase aimed
at growing as fast as possible. Within four months further 90 points of sale had started
operations. Next year has seen the rise of total number of partners to 310. In the mid 2006 the
total number of partners has hit a maximum, equalling the number of 460 own bank’s
branches. Next a slow, then faster decrease could be noticed, and is further sloping to 310 by
the end of 2007. This relatively short period has provides data on full life cycle, from
inception to decline.
In 2006, the franchising network generated around a quarter of all mortgage loans, a tenth of
short term loans and a 20th of all new bank accounts set. This shows a major impact on
bank’s financial performance, achieved through a very small investment with an overall
project budget of three million euro. Measures of investment project efficiency show that the
IRR surpasses 220%, which is quite significant. During the period 2004–2006, the
development of the franchising network has followed the initially planned path, with networkbuilding pace even exceeding expectations. Changes occurring in the environment, pointed
out by the franchisees concerned mainly available products, procedure optimisation, the need
to clearly identify the franchising network in national advertising campaigns, adjust allowed
cash levels at the point of sale, modify locations, and extend support by the headquarters. The
governance structure has been evolving along the network development. The coordinating
central unit grew from a team of two to a 21 persons employed. Further added sections have
been dedicated to:
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
139
1 relationship managers responsible for supervising 40 to 50 franchisees
2 audit and control unit
3 regional managers responsible for the development of the network
4 logistics and banking processes improvement.
Parallel with the development of the network, regional directors first had to be hired, and then
their number increased to five, to further be turned into regional network supervisors, and
finally reduced to zero. This shows the need to reconfigure and release resources. At the
branch level a day-to-day operating improvements and capabilities emergence appears.
Franchisees were concerned specifically with the lack of effort with respect to that day-to-day
open communication, adjustments and relationship building efforts. They suggested that
cooperation with supervising branches was not satisfactory due to delays, disregarding
attitude and formalism. Nevertheless, no systematic guidelines were drawn by the
headquarters with this respect. A major emphasis has been put on a more general relational
capability, than to bilateral issues. Those were not expected to arise at all, as far as social
capital has been extensively used. Such an expectation appeared to be overly optimistic.
Knowledge management during the network development phase involved articulation,
facilitated by informal e-mail reports of problems, direct problems reporting, renegotiation
initiatives, seminars, control visits, and internet forums observation. Also, knowledge sharing
and internalisation went along franchisees suggestions: new functionalities have been added
to the IT system, notably with reference to sales reports.
Upgrades have been made in terms of data input: primarily all customer documents such as
applications, appendixes, certificates, etc. had to be transferred to the bank, where the digital
data input took place. This generated a lot of transporting costs, all the more frustrating for the
franchisees as the approval ratio was 0:4–0:8 of all applications received. The franchising IT
system has been further integrated with the bank’s scoring system to enable a rapid
confirmation of customer eligibility for the product demanded. The final scoring still
remained at bank’s hands, but this upgrade almost equalled service level at the franchising
point of sale with the bank’s branch. Throughout the cooperation, the bank transfers a lot of
knowledge concerning risk analysis, technology improvements, banking procedures, legal
issues, selling targets, etc. to the franchisee and their employees. This kind of know-how
would not be accessible to them otherwise.
5.3 Franchising network decline
On the other hand, during the merger operation, i.e., 2006–2007 very few information has
been issued to franchisees. They did not take part in any form in working out of their future;
neither received any kind of support. When the decisions have been made, a simple
communication was issued to franchisees. In that same period managers of the indirect sales
department unit have quit their jobs. Because of the operation’s scale, the merger has been
subject to Polish banking supervision body approval. Finally the terms of the agreement with
national authorities stipulated the splitting of the franchisor into two sets of branches: one to
be merged, the other to be sold to a third party. The impact of this decision on franchisees,
directly supervised and tied by procedures and IT linkages to supervising franchisor’s
branches has been considerable. The allocation of each franchisee has been depending on the
supervising branch: if the bank’s branch has been allocated to merge, then the franchiser tied
to it has been offered an option to sign a new franchising contract with the merged bank. But
if it has been allocated to the 285 branches set to be sold and then the franchisor has not been
offered any new option. During and after the process of authorising the merger, little attention
has been paid to the franchising network. No strategic intent has been disclosed or
implemented with reference to the partners. Major competitors in face of such a success
launched their own franchising building projects. Six other banks launched the network
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
140
building phases, after a two-year long preparatory phase. Jointly, these six banks planned to
have over 500 partners by end of 2007.
Another issue has been the transfer of senior managers from the franchisor to competing
banks in the second half of 2007, clearly in relation to the merger process. What is interesting
is that one of these managers has been hired to build a franchising network by the bank Y.
Within six month the bank Y issued an identical offer to franchisor’s in terms of expected
partners, product range, expected location, terms of cooperation, governance and even the
strategic goal to match the bank Y own branch’s structure by the partner’s network within two
years. It took exactly six months to open the first franchising point of sale since the transfer of
the franchisor’s manager to bank Y. The second of franchisor’s senior managers has been
hired as CEO by a new entrant to the Polish retail banking industry. He declares a strategy of
organic and cooperative growth clearly similar to the solutions implemented by the bank X.
6 Discussion
The study findings on the relational capability components enable the following proposition
(Figure 4).
Proposition 1 A relational capability relies on three components: resources dedicated
to cooperation with partners, knowledge management processes to ensure effective
value co-creation with partners and governance to manage transaction costs of
partnering.
Dedicated resources have been gathered in order to allow interoperability with a network of
external agents. Legal requirements of the industry focus attention on IT security, requiring
dedicated solutions for franchisees. The franchising business model leads to the formation of
a centralised network, where relationship-specific and general cooperative resource allocation
address the same issues. These findings are consistent with previous research in that
appropriate allocation of resources is a good predictor of alliance success (Kale et al., 2002).
Additionally, the study provides evidence contradictory to prior research, which suggests that
experience is an important factor of cooperation success (Anand and Khanna, 2000). The
bank’s case shows that even without previous experience it is possible to successfully carry
out a cooperative activity on a large scale. Experiential learning, gathered through day-to-day
iterative capabilities improvement has proven to have a limited impact on the network
operations. It must be noticed that a great effort in terms of organisational learning has been
launched even before the cooperative operations started. Knowledge about interorganisational
relationship formation, operation and dissolution has been codified, shared and internalised.
Further articulation of partners’ knowledge has been used to improve efficiency of network
activities. A knowledge exploitation and exploration system was implemented by the bank for
organisational learning. The output of these knowledge management processes has been
extensively codified in the form of: manuals, procedures, trainings, internet forums, emails,
integration meetings protocols, etc. This suggests that organizational learning, however
complex and difficult, can replace experiential learning to achieve expected results faster.
Openness, care about partners’ learning for efficient operations, willingness to transfer
knowledge characterised the knowledge processes in the franchising case.
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
141
Figure 4 Pillars of the banks relational capability and impact on competitive advantage
Dedicated assets:
•IT system,
• Physical resources
• Personnel,
• Financial resources (budget
allocation)
•Relational resources (service
and equipment providers)
Governance:
•A lliance function,
•Contractual and financial
bonds,
•Social capital
Relational Capability
Competitive advantage
Knowledge Management:
•Articulation
•Codification,
•Sharing
•Internalization
The relational capability requires a purposeful choice of governance structure and processes.
Successful implementation of the cooperative strategy requires a dedicated function and
efficient joint value creating processes. The alliance function aims at supporting all
cooperative activities. The study findings are consistent with previous research (Kale et al.,
2002) in that four aspects of the relational capability are enhanced by the investment of a
dedicated alliance function:
1 focal point for learning and leveraging experience
2 informing stakeholders on the performance and major events within the cooperative
operations
3 improving internal coordination and resource support for cooperative activities
4 maintaining and evaluating alliance’s performance.
The study’s findings bring also an estimate of return on investment into a dedicated alliance
function which is well above average, with an IRR topping 220% and payback period of two
to five years. Abnormal returns imply a competitive advantage. Imitation processes launched
by rivals show that the relational capability of bank X has been appreciated as worth
imitating.
Also the study shows that investing in the alliance function is path dependent, aligned with
the current needs of the cooperating activities development. There is evidence that resources
have to be integrated in order to achieve operational capability by the alliance function, but
then further gained, released and reconfigured according to the development of franchising
network. The innovation introduced by the franchisor to the banking industry has been the use
of social capital for the network formation phase. It is consistent with previous research on the
role of self-enforcement governance mechanisms and informal versus formal selfenforcement mechanisms (Dyer and Singh, 1998). The contribution of this research is that
competitive advantage may come from appropriate balancing of the two components: social
and control mechanism, in time. First a reliance on social has been considerably heavier in
order to rapidly find and approve candidates for partnership, in order to form the partnership
efficiently. Then, throughout the operations phase rather control mechanisms have grown in
importance in order to deter from opportunism. This leads to the following proposition:
Proposition 2 Balance shifts between social and control mechanism in the governance
of the relational capability can generate a competitive advantage.
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
142
The relationship between the relational capability and competitive advantage is clearly strong
and positive because of three elements: the high return on alliance function investment, high
impact of cooperation on earnings in major product lines such as mortgage loans and shortterm loans, a strong imitation activity among competitors. This is consistent with previous
research (Dyer and Singh, 1998; Kale et al., 2002) which established a positive link between
relational capability and their assessment by major stakeholders: shareholders and the
company itself. The findings of the study extend our understanding by providing evidence
that competitors also perceive this relational rent, and strive to imitate it. Also the study
contributes to extant literature by providing evidence on the relational competitive advantage
sustainability. Previous research suggests (Amit and Shoemaker, 1993; Teece et al., 1997)
that relational assets are idiosyncratic by definition and therefore difficult to imitate. This
hypothesis might not be valid, because dynamic capabilities are equifinal, fungible and
substitutable (Eisenhardt and Martin, 2000). This study provides evidence that relational
capability contributes strongly and positively to achieving competitive advantage.
Nevertheless sustaining this advantage in the long terms revealed to be difficult for two
reasons: imitation processes, which are exogenous, and the relational capability dynamics, an
endogenous reason.
Network size dynamics suggest that formation processes have been relatively more efficient
than network management, especially in the face of major changes. This suggests that
capabilities relative to formation were stronger than capabilities relative to network
adjustments. Competitors’ behaviour also indicates that this network formation knowledge is
seen as critical in the industry. Rivals have chosen to gain it either through organic
development or through human resource investment, which basically is acquisition of
knowledge. Network expansion numbers also show that when maturing the network
encountered barriers, which reversed the dynamics from expansion to reduction. This suggests
that knowledge articulation processes have not met expectations, leading to dissatisfaction
and interorganisational relationship dissolution. Knowledge articulation should therefore be
seen as a critical element of the knowledge management processes in the long term.
When rivals launched their own franchising network projects, it took about two years to
develop a network, and will probably take another year to equal the size of bank X’s
cooperative activities. Also those competitors who hired senior managers quitting the bank X
will develop the cooperative network even faster. The dynamics of the relational capability
are an endogenous reason for competitive advantage loss. Throughout the merger process the
open communication has stopped, and no partnering activities in terms of knowledge
articulation, sharing, creation were carried out. As a consequence many partners simply have
quit the cooperation, reducing the size of the network by a third and this process still
continues. This suggests the following proposition:
Proposition 3 Knowledge processes, mutual openness and adaptability are critical for
achieving relational rents in the long term.
The research findings support also recent models in corporate entrepreneurship (Ireland et al.,
2009). The relational capability emerges here as an antecedent of the competitive advantage
of the firm.
7 Conclusions and limitations
The bank’s franchising network case study provide insights into the process of building a
relational capability and extracting value from it. The contributions of the study are fourfold.
First, it identifies the components of a relational capability. The study findings suggest that
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
143
there are three pillars of a relational capability: dedicated resources, governance and
knowledge management. All have been allocated, implemented and created after the strategic
decision to form a cooperative network, and did not exist before.
Second, this study provides evidence on the balance between social and control mechanism in
governance structure and process. It is path dependent and the shifts in balance between both
mechanisms have contributed to achieving a competitive advantage. The dynamic aspect of
the relational capability therefore relies not only on
resources’ but also on governance’s reconfiguration.
Third, the study shows how important a relational competitive advantage can be: in terms of
earnings impact, return on investment indicators and rapidity of growth of the market
presence. All of these measures show above average efficiency, suggesting the hypothesis that
a relational capability is source of competitive advantage.
Fourth, the study shows that a dynamic capability may be easily lost to competitors because
of major changes in the environment. The merger process affected so much the relational
capability, that critical component: openness, knowledge articulation, sharing, etc. were
dwarfed. Also tacit knowledge has been released to the market, as senior managers quit the
franchisor. The combination of partners’ network shrinking, competitor capability gaining and
interception of tacit knowledge by the competitors has eroded the competitive advantage.
The research’s limitations are relative mainly to the choice of the franchising network case. A
single case illustrates usually well the business reality by providing a rich description of what
has been designed and achieved. However the findings seem empirically valid, further
research and notably testing is required with reference to each of the propositions. The
purposeful choice of a bank provides a strongly formalised and rigid environment. It
underscores the flexibility feature of a dynamic capability on the one hand, and over scores
the role of codified knowledge on the other hand. Therefore the research agenda could tackle
the relational capability in more flexible and less codified environments.
Dynamic capabilities address major issues in strategic management and entrepreneurship
research and practice. Relational capability is critical to implementing a cooperative strategy
of all partners: the large firms, the SMEs and entrepreneurial firms. The other side of the
relational capability coin is visibility to partners. It seems important to potential partners to be
able to assess the present and future prospects of cooperation. Dedicated resources are a factor
of success, while the weakening of knowledge processes might be an early-warning signal of
cooperation quality deterioration.
References
Alvarez, S. and Barney, J. (2001) ‘How entrepreneurial firms can benefit from alliances with
large partners’, The Academy of Management Executive, Vol. 15, No. 1, pp.139–148.
Amit, R. and Schoemaker, P. (1993) ‘Strategic assets and organizational rent’, Strategic
Management Journal, Vol. 14, pp.33–46.
Anand, B. and Khanna, T. (2000) ‘Do firms learn to create value? The case of alliances’,
Strategic Management Journal, Vol. 21, pp.295–315.
Barney, J.B. (1991) ‘Firm resources and sustained competitive advantage’, Journal of
Management, No. 17, pp.99–120.
Blyler, M. and Coff, R. (2003) ‘Dynamic capabilities, social capital and rent appropriation:
the ties that split pies’, Strategic Management Journal, Vol. 24, pp.677–686.
Capaldo, A. (2007) ‘Network structure and innovation: the leveraging of a dual network as a
distinctive relational capability’, Strategic Management Journal, p.585–608.
Das, T.K. and Teng, B.S. (2000) ‘Instabilities of strategic alliances: an internal tensions
perspective’, Organization Science, Vol. 11, No. 1, pp.77–101.
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
144
Dyer, J. (1996) ‘Specialized supplier networks as a source of competitive advantage: evidence
from the auto industry’, Strategic Management Journal, Vol. 17, No. 4, pp.271–291.
Dyer, J. and Singh, H. (1998) ‘The relational view: cooperative strategy and sources of
interorganizational competitive advantage’, The Academy of Management Review, Vol.
24, No. 4, pp.660–679.
Eisenhardt, K. and Graebner, M. (2007) ‘Theory building from cases: opportunities and
challenges’, Academy of Management Journal, Vol. 50, No. 1, pp.25–32.
Eisenhardt, K. and Martin, J. (2000) ‘Dynamic capabilities: what are they?’, Strategic
Management Journal, Vol. 21, pp.1105–1121.
Grunwald, R. and Kieser, A. (2007) ‘Learning to reduce interorganizational learning: an
analysis of architectural product innovation in strategic alliances’, Journal of Product
Innovation Management, Vol. 24, pp.369–391.
Gulati, R., Khanna, T. and Nohria, N. (1994) ‘Unilateral commitment and the importance of
process in alliances’, Sloan Management Review, Vol. 35, No. 3, pp.61–69.
Helfat, C. and Peteraf, M. (2003) ‘The dynamic resource-based view: capability lifecycles’,
Strategic Management Journal, Vol. 24, pp.997–1010.
Helfat, C. et al. (2007) ‘Dynamic Capabilities. Understanding Strategic Change in
Organizations’, Blackwell Publishing.
Ireland, D., Covin, J. and Kuratko, D. (2009) ‘Conceptualizing corporate entrepreneurship
strategy’, Entrepreneurship Theory & Practice, No. 1, pp.19–46.
Jarrat, D. (2004) ‘Conceptualizing a relationship management capability’, Marketing Theory,
pp.297–309.
Kale, P., Dyer, J. and Singh, H. (2002) ‘Alliance capability, stock market response and longterm alliance success: the role of the alliance function’, Strategic Management Journal,
Vol. 23, pp.747–767.
Kanter, R.M. (1994) ‘Collaborative advantage: the art of alliances’, Harvard Business
Review, Vol. 72, No. 4, pp.97–102.
Katila, R., Rosenberger, J. and Eisenhardt, K. (2008) ‘Swimming with the sharks: technology
ventures, defence mechanisms and corporate relationships’, Administrative Science
Quarterly, Vol. 53, pp.295–332.
Kuratko, D. and Audretsch, D. (2009) ‘Strategic entrepreneurship: exploring different
perspectives of an emerging concept’, Entrepreneurship Theory & Practice, No. 1,
pp.1–17.
Lorenzoni, G. and Lipparini, A. (1999) ‘The leveraging of interorganizational relationships as
distinctive organizational capability: a longitudinal study’, Strategic Management
Journal, Vol. 20, No. 4, pp.317–338.
Madhok, A. and Tallman, S. (1998) ‘Resources, transactions and rents: managing value
through collaborative relationships’, Organization Science, Vol. 9, No. 3, pp.326–339.
Mitchell, W. and Singh, K. (1996) ‘Survival of businesses using collaboration relationships to
commercialize complex goods’, Strategic Management Journal, Vol. 17, No. 3, pp.169–
195.
Mitsuhashi, H. (2002) ‘Uncertainty in selecting alliance partners: the three reduction
mechanisms and alliance formation process’, International Journal of Organizational
Analysis, Vol. 10, pp.109–133.
Möller, K. and Svahn, S. (2003) ‘Managing strategic nets – a capability perspective’,
Marketing Theory, Vol. 3, pp.209–234.
Nelson, R.R. and Winter, S.G. (1982) An Evolutionary Theory of Economic Change, Harvard
University Press, Cambridge.
Penrose, E. (1959) The Theory of the Growth of the Firm, Blackwell, Oxford.
Int. J. Entrepreneurial Venturing, Vol. 1, No. 2, 2009
145
Peteraf, M.A. (1993) ‘The cornerstones of competitive advantage: a resource based view’,
Strategic Management Journal, Vol. 14, pp.179–191.
Pfeffer, J. and Salancik, G. (1978) The External Control of Organizations. A Resource Based
Perspective, Harper & Row, New York.
Shane, S. and Spell, C. (1998) ‘Factors for new franchise success’, Sloan Management
Review, Vol. 39, No. 3, pp.43–50.
Sivadas, E. and Dwyer, F. (2000) ‘An examination of organizational factors influencing new
product success in internal and alliance-based processes’, Journal of Marketing, Vol. 64,
p.31–49.
Teece, J., Pisano, G. and Shuen, A. (1997) ‘Dynamic capabilities and strategic management’,
Strategic Management Journal, Vol. 18, pp.509–533.
Vale, P. and Addison, M. (2002) ‘Promoting entrepreneurship and innovation in a large
company: creating a virtual portfolio’, Journal of Change Management, Vol. 2, No. 4,
pp.334–343.
Wernerfelt, B. (1984) ‘A resource-based view of the firm’, Strategic Management Journal,
Vol. 5, pp.171–180.
Zollo, M. and Winter, S. (2002) ‘Deliberate learning and the evolution of dynamic
capabilities’, Organization Science, Vol. 13, No. 3, pp.339–351.
Zollo, M., Reuer, J.J. and Singh, H. (2002) ‘Interorganizational routines and performance in
strategic alliances’, Organization Science, Vol. 13, No. 6, pp.701–713.