Dynamism and B2B firm performance: The dark and bright contingent role of B2B relationships

Abstract

Grounded by the contingency theory, we postulate a match and mismatch conceptualization that can be used to highlight the dark and bright side of business-to-business (B2B) relationships in the environmental dynamism-performance framework. The research conceptualization is examined using the survey data from 180 B2B firms operating in New Zealand. In this study, the mismatch of dynamism, B2B relationships and strategic performance, and a match of dynamism, B2B relationships and financial performance are both confirmed. Our study expands existing dark side relationship research by revealing that B2B relationships negatively moderate the effect of dynamism on B2B firms’ strategic performance. Our study also offers new insights by confirming the positive integrative effect of B2B relationships and dynamism on financial performance. Our findings significantly broaden contingency theory, environment, B2B relationships and performance research.

Introduction

Research has extensively explored the influence of a firm’s external environment (e.g., dynamism, hostility) on its performance (Rosenbusch, Rauch, & Bausch, 2013). Studies have reported that the external environment affects firms’ performance (Bain, 1956, Rumelt, 1991, Schmalensee, 1985), but empirical research on the environment–performance relationship has generated mixed results. Though earlier studies report a direct relationship between the firm’s environment and performance (e.g., Rumelt, 1991, Schmalensee, 1985), recent research reveals that the effect of environment on performance is not universal and its impact is contingent on the alignment factors (e.g., competitive strategies, organizational networking) (Robertson and Chetty, 2000, Sinkovics et al., 2018). With the latter group, a contingent alignment model is often postulated. For example, cost leadership strategies are suggested to be more effective in stable environments, whereas differentiation strategies would be more useful in dynamic and uncertain environmental settings (Lee and Miller, 1996, Miller, 1988, Miller, 1991). Moreover, a strong entrepreneurial orientation can also lead to a higher level of financial performance when environmental dynamism is high and volatile (Robertson and Chetty, 2000, Tajeddini and Mueller, 2019). Taken together, this research stream indicates that the effect of the firm’s environment on performance is more evident when aligning with the contingent factors. As a result, the environment and performance link has been examined through the lens of the continency theory (Lee and Miller, 1996, Sinkovics et al., 2018, Zeithaml et al., 1988;). In this study, we also follow the contingency theoretical approach, in order to be in-line with the findings of the contemporary environment and performance research (e.g., Tajeddini & Mueller, 2019).

In general, contingency theory research suggests that the environments in which a firm compete are important factors for the firm’s growth and development (e.g., Koberg, Uhlenbruck, & Sarason, 1996). A central postulation of this theory is that there are no universal or optimal structures for all tasks (Hickson et al., 1971, Robertson and Chetty, 2000, Ruekert et al., 1985). Contingency theory posits that firms in uncertain and tentative business environments need to demonstrate diverse behaviors, processes and capabilities, and adjust their management styles to the varying contingencies in the environment (Burns and Stalker, 1961, Collis, 1994, Miller, 1988, Scott, 1981). Consequently, successful firms’ performance is highly dependent on the match (or fit) of organisational contingency factors with the environmental factors facing firms in the markets operated in (Lee and Miller, 1996, Zeithaml et al., 1988). For instance, an appropriate fit between environment (e.g., social-cultural environment) and organizational strategy (e.g., strategic orientation, organizational networking) (Ghauri et al., 2003, Robertson and Chetty, 2000, Sinkovics et al., 2018) will result in a superior performance. This result suggests that firms would need to acquire resources from their external environment and turn them into products and services through exploring and exploiting opportunities affiliated with the environment (Rosenbusch et al., 2013). Encouraged by this theoretical foundation, our study focuses on the contingent role of business relationships (a form of organizational networking) in the dynamism-performance relationship, in the context of business-to-business (B2B) operation.

Dynamism is a key external environmental factor. It denotes the continuousness of changes in a B2B firm’s business environment that arises from technological advancement, competitive rivalry, regulatory developments and similar forces (Ruiz-Ortega et al., 2013, Zahra, 1993). B2B relationships denote the interrelationships that the firms have with buyers, suppliers, distributors, competitors and other key industry participants such as the chamber of commerce (Chung et al., 2016, Peng and Luo, 2000, Sheng et al., 2011). Relationships between B2B firms include both the dark and bright side of these engagements (e.g., Cacciolatti et al., 2020, Cortez and Johnston, 2019, Gu et al., 2008, Lin et al., 2020). Research has already outlined the role of B2B relationships in the formulation of competitive strategies (Li, Zheng, & Shao, 2009), organizational learning (Chung, Yang, & Huang, 2015) and internationalization (Sinkovics et al., 2018). Despite these developments, further research in the B2B domain can still help improve our understanding of such relationships in a number of ways.

First, though the effect of firms’ organizational capabilities (e.g., technology and marketing) on environmental dynamism and innovation/performance is investigated (e.g., Ruiz-Ortega et al., 2013, Sinkovics et al., 2018), research has not explored when and how B2B relationships matter in the environmental dynamism-performance conceptualization. More specifically, despite research that has already advocated social networking as a useful organizational capability which can help overcome environmental barriers in markets (Park and Luo, 2001, Sinkovics et al., 2018), the role of B2B relationships in the environmental dynamism-performance framework is yet to be uncovered. Due to their importance to business operations and performance (Cacciolatti et al., 2020, Chung et al., 2016, Cortez and Johnston, 2019), research needs to provide clear guidance on how and when B2B relationships may act as a contingent factor in the environmental dynamism-performance framework.

Second, though contingency theory research may already highlight the importance of mismatch and match in any consideration of the link between environment and performance (Lee and Miller, 1996, Robertson and Chetty, 2000, Sinkovics et al., 2018), the existing research scope can also be improved. A mismatch represents the dark side, whereas a match embodies the bright side of the contingency factor (Chung et al., 2016, Gu et al., 2008, Sheng et al., 2011). Prior research suggests the mismatch would result in an inferior performance, while the match potentially results in superior firm performance (Sinkovics et al., 2018). These results are in line with recent studies exploring the dark (and bright side) of contingency factors, in which B2B relationships are depicted to have a negative contingent effect in the technology capability-performance framework (i.e., mismatch), but a positive effect in the management capability-performance conceptualization (i.e., match) (e.g., Chung et al., 2016, Gu et al., 2008, Sheng et al., 2011). Despite this research development, it is still unclear how the match/mismatch plays out in the context of environmental dynamism, B2B relationships and the performance framework (Lee and Miller, 1996, Miller, 1988, Miller, 1991, Sinkovics et al., 2018).

Third, though strategic and financial performance are viewed as two important operational elements to consider (Cavusgil and Zou, 1994, Styles, 1998), research relating to environment and performance has not explored the strategic performance in their conceptualization (Lee and Miller, 1996, Rosenbusch et al., 2013). Strategic performance denotes a firm’s competitive position in relationship to its key competitors (e.g., gaining foothold, increasing strategic awareness and response to competition) in the market (Styles, 1998, Zou and Cavusgil, 2002). It is viewed as one of the most important types of performance for B2B firms (Cavusgil and Zou, 1994, Chung and Kuo, 2018), because it is a measurement of a firm’s competitive and responsive positioning in the market. Financial performance, on other hand, is a measure of a firm’s business operational efficiency in terms of cost spending and profit generation (Zou & Cavusgil, 2002). A firm can only achieve a positive performance when its sales revenue exceeds its cost spending. Consistent with the match/mismatch conceptualization postulated by the contingency theorists (e.g., Lee and Miller, 1996, Sinkovics et al., 2018), recent research in the B2B context reveals that the integrative effect of competitive strategy - such as low cost and B2B relationships - on strategic performance is viewed as a mismatch, while that relating to financial performance is classified as a match (Chung & Kuo, 2018). The former yields a negative outcome, while the latter has generated a positive outcome. In spite of this recent novel development, guidance on the match/mismatch in relationship to environmental dynamism, B2B relationship, and strategic and financial performance is still not provided (e.g., Robertson & Chetty, 2000).

Thus, based on previous research on the contingency theory, environmental dynamism, B2B relationships and performance (Chung, 2011, Chung et al., 2016, Zahra, 1993, Zahra et al., 1997), we offer a new contingent conceptualization exploring the dark (and bright) side of B2B relationships in the environment-performance framework (Lee and Miller, 1996, Sinkovics et al., 2018), as depicted in Fig. 1.

Accordingly, our study contributes to the research in the domain of the dark (and bright) side of relationships in the following ways. One, by confirming the contingent role of B2B relationships in the dynamism and performance framework, our study’s findings significantly extend prior research that has explored the moderation role of firms’ capabilities in the dynamism and entrepreneurial orientation framework (Ruiz-Ortega et al., 2013). Together with past findings (e.g., technological and marketing capabilities), this research can now inform scholars whether they should include B2B relationships as firms’ capabilities in key themes such as dynamism, entrepreneurial orientation and performance (strategic and financial) investigation (Chung et al., 2016, Park and Luo, 2001, Robertson and Chetty, 2000, Ruiz-Ortega et al., 2013). Two, this study’s results also significantly broaden dark side relationship research findings by offering a new mismatch conceptualization (Chung and Kuo, 2018, Gu et al., 2008, Sheng et al., 2011). Specifically, the dark side effect of B2B relationships in the dynamism-strategic performance is highlighted in the study. It is theorized that the dark side features such as reciprocal information sharing within B2B relationships may dampen the effect of dynamism on strategic performance (Chung et al., 2016, Gu et al., 2008). Based on this study’s findings, future research on the mismatch conceptualization can consider whether to use B2B relationship as the dark side contingency factor in research on environment and performance (Lee and Miller, 1996, Robertson and Chetty, 2000, Sinkovics et al., 2018).