5 Understanding the relational DYNAMIC CAPABILITY BUILDING PROCESS

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615286SOQ0010.1177/1476127015615286Strategic OrganizationDonada et al.
research-article2015
Article
Understanding the relational dynamic capability-building process
Carole Donada
Strategic Organization
2016, Vol. 14(2) 93–­117
© The Author(s) 2015 Reprints and permissions: sagepub.co.uk/journalsPermissions.nav DOI: 10.1177/1476127015615286 soq.sagepub.com
ESSEC Business School, France
Gwenaelle Nogatchewsky
Université Paris-Dauphine, France
Anne Pezet
HEC Montréal, Canada
Abstract
There is a significant body of research on relational dynamic capabilities, but little is known about how a firm builds these capabilities. Using a longitudinal case study analysis of the French car manufacturer Renault, this research fills that gap. It provides a three-phase sequence model of a relational dynamic capability-building process. Each phase (identifying, building, and integrating) corresponds to a level of strategic intent (from emerging to deliberate) and a set of shaping factors that evolve with the changing environment. These factors are combinations of external triggers associated with macro-economic and industry conditions and internal enablers, including agent skills and missions, dedicated organizational structures, assets, and tools.
Keywords
alliances, automobile industry, building process, dynamic capabilities, longitudinal case study, relational capabilities, supplier management
Introduction
The number of inter-organizational alliances has increased dramatically over the last two decades, and this trend seems to be accelerating. Long-term cooperation with others is a means for firms to reduce costs, access complementary resources, access new markets, innovate, and increase their flexibility (Ding et al., 2013; Rothaermel et al., 2006). This gives firms the foundations of a rela-tional rent, that is, a superior advantage generated from alliances (Dyer and Singh, 1998). However, statistics indicate that 50%–60% of these alliances fail (Gerwin, 2004; Parise and Casher, 2003; Segil, 2004). Knowing how to manage alliances requires specific relational capabilities, often
Corresponding author:
Carole Donada, ESSEC Business School, 1 Avenue Bernard Hirsch, Cergy-Pontoise BP50105, France.
Email: donada@essec.edu
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referred to as alliance capabilities, which are not easy to acquire and maintain (Ireland et al., 2002). This knowledge requires being able to choose the right partner, to define the right governance structure, and to develop relational standards with this partner (flexibility, adaptability, information sharing, durability, and joint actions) in a climate of mutual trust (Wang and Rajagopalan, 2015). A certain body of work focuses on relational capabilities, their characteristics, antecedents, and out-comes. However, a major issue yet to be explored is how firms can build these capabilities and ensure they evolve in a changing environment. This issue was underlined by Jeffrey Dyer and Prashant Kale (2007), who invited researchers to explore the construction of relational dynamic capabilities.
This is precisely the object of this article. We hope to contribute to a better understanding of the construction of relational dynamic capabilities and, in so doing, to contribute to both dynamic capabilities theory and the knowledge on alliance management. Following previous work, we define relational dynamic capabilities as the ability to integrate, build, and reconfigure a set of skills, assets, and routines that provide the basis for a firm’s relational rent to address changing environments (Dyer and Kale, 2007; Dyer and Singh, 1998; Eisenhardt and Martin, 2000; Kale et al., 2002; Leonard-Barton, 1992; Teece et al., 1990, 1997, 2009).
The empirical design of this research is a longitudinal, single case study based on archival data and interviews with people (mainly retired) who were involved in the development of a relational capability-building process (supplier-management capability) at the French car company Renault. This design allowed us to observe and analyze the process throughout its history. We chose to ana-lyze the automobile industry because it corresponds to a dynamic environment for relational prac-tices with suppliers, from subcontracting to extended outsourcing, and massive global sourcing for complete modules. Consequently, this industry has always been a reference for scholars examining buyer–supplier relationships (Donada, 2002; Dyer, 1996; Dyer and Chu, 2011; Fujimoto, 1999; Helper et al., 2000; MacDuffie, 2013; Sako, 2004). Within this sector, we identified Renault because since the 1970s it has constantly sought to evolve in its relations with its providers, from operational procurement to long-term trust-based relational practices. Over the past several dec-ades, Renault has developed a relational dynamic capability that was offered to Nissan in 2001 through the Renault–Nissan Purchasing Organization (RNPO) and enabled both manufacturers to jointly manage their alliance portfolio with their suppliers.
Our analysis of the case study led us to observe a three-phase sequence-building process con-sisting of an identifying phase, a building phase, and an integrating phase. Each phase corresponds to a strategic intent (from emerging to deliberate) and a set of dynamic shaping factors. These fac-tors are combinations of external triggers associated with macro-economic and industry conditions and internal enablers, including agent skills and missions, dedicated organizational structures, assets, and tools, which all evolve according to the changing environment.
This article is structured as follows. First, we review the literature on relational dynamic capa-bilities, their characteristics, antecedents, outcomes, and building processes. Next, we introduce the research design and methods before presenting the case study. The “Discussion” section pro-vides our process model for building relational dynamic capabilities. Finally, our “Conclusion” section underlines the main contributions, limitations, and perspectives of this article.
Literature review
Relational dynamic capabilities
The crucial role played by relational capabilities in creating and capturing value through alliances has been demonstrated in the literature (Ireland et al., 2002). In this research, we understand the
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term “alliance” as defined by Kale et al. (2002: 748), that is, any independently initiated inter-firm links that involve exchanges, sharing, or co-development. Alliances can be vertical or horizontal and more or less formal, ranging from long-term cooperation contracts to joint ventures. The rela-tional view (Dyer and Singh, 1998) argues that alliances are more successful when partners suc-ceed in developing a joint innovation and that they are flexible, show solidarity, cooperate, adapt to environmental evolution, manage conflicts in a harmonious way, exchange information, and share the long-term financial benefits of this relationship in a fair and equitable way. These are the foundations of a relational rent comprising the relational capabilities of an organization.
However, not all firms are able to earn systematically relational rents from alliances. These dif-ferences can be explained by what authors adopting the resource-based view call the heterogeneity of firms regarding their collection of resources (Penrose, 1959; Wernerfelt, 1984). Each firm is viewed as a collection of capabilities whose idiosyncratic combination makes it possible to carry out activities that in turn generate rents.
Schilke (2014) highlighted several orders in dynamic capabilities. First-order dynamic capabili-ties refer to the routines that enable firms to deploy their resources in order to maximize fit with changing environments. Alliance management capability or relational capability is typically a first-order dynamic capability. Second-ordercapabilities are specific organizational learning routines. They are thought of as “learning to learn” capabilities (Schilke, 2014: 369).
By combining the definition of a dynamic capability proposed by Teece et al. (1997) with theo-retical inputs from relational and resource-based frameworks, we define relational dynamic capa-bilities as the ability to integrate, build, and reconfigure a set of skills, assets, and routines that provide the basis for a firm’s relational rent to address changing environments.
Relational dynamic capabilities: characteristics, antecedents, and outcomes
Characteristics. There are as many relational dynamic capabilities as there are firms and alliances. Based on an empirical study of sustainable supply chain management in the food industry, Beske (2012) identified five categories of relational dynamic capabilities: knowledge management, part-ner development, supply chain re-conceptualization, co-evolution, and reflexive control. Working on overviews of previous works, Barreto (2010) identified four categories: the propensity to change the resource base, to sense opportunities and threats, to make timely decisions, and to make mar-ket-oriented decisions. Wang and Rajagopalan (2015), however, differentiated these capabilities in terms of individual, alliance portfolio, and dyad-specific capabilities. Our literature review shows that the most common categorization in the literature is currently that offered by Teece (2007), who defined three categories of complementary dynamic capabilities: sensing capabilities (which make it possible to scan and monitor changes in the environment), seizing capabilities (which enable the construction of decision-making protocols and the assimilation of knowledge), and reconfiguring capabilities (which enable firms to re-combine their resources and knowledge). This categorization presents the highest level of abstraction and is therefore the most comprehensive (Jantunen et al., 2012).
Wang and Rajagopalan (2015) also distinguished between relational capabilities in the pre-formation phases (which they referred to as the partner selection phase) and those in the post-formation phases (which they referred to as the alliance execution phase).
The relational capabilities specific to establishing alliances help firms identify the “right” part-ners. The selection phase is crucial because its quality has an impact on risk management and the economic performance of the alliance, as well as on the relational norms established in later phases (Dekker, 2008). For Dyer et al. (2008), firms that are best able to identify the complementary capa-bilities of potential allies in a context of information asymmetry will most likely have the greatest
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relational rent. The analysis of dynamic capabilities in the selection of potential partners is a criti-cal issue in the existing literature on supply chain management (Beske, 2012; Beske et al., 2014; Vanpoucke et al., 2014, 2014; Wagner and Boutellier, 2002). With the growth in outsourcing and reducing purchasing costs, together with the need for new sources of innovation, “a company must determine appropriate criteria and methods for evaluating outsourcing partners to ensure that capa-bilities meet current and future needs” (Zhang et al., 2013: 1082).
The relational capabilities specific to the execution phases of alliances facilitate coordination, communication, and bonding (Schreiner et al., 2009; Schilke, 2014; Wang and Rajagopalan, 2015). They are inscribed within bureaucratic or social governance mechanisms (Van der Meer-Kooistra and Vosselman, 2000), which limit costs between partners (Dyer and Kale, 2007) and foster a cli-mate of mutual trust and cooperation (Kale et al., 2002; Vanpoucke et al., 2014,). Finally, they are what Cohen and Levinthal (1990) call “absorptive capacities,” that is, the ability “to recognize the value of new information, assimilate it, and apply it to commercial ends.” In both the selection and execution phases, the characteristics of these capabilities are the result of their antecedents.
Antecedents: triggers and enablers. The existing literature on the antecedents of dynamic capabilities1 has established a clear distinction between external and internal factors. External factors act as trig-gers. They comprise institutional, industry, market, or technological factors that characterize the velocity of the context of the firm and its ability to adapt. Although external factors are very important for authors such as Eisenhardt and Martin (2000), Zollo and Winter (2002), or Winter (2003), we observe—like Eriksson (2014: 75)—that they are “not explicitly addressed” in empirical studies.
On the contrary, internal factors that act as enablers have been more extensively studied. For Dyer and Kale (2007: 67), the four primary internal factors are investments in relation-specific assets, knowledge routines, organizational designs favoring access to complementary resource endowments, and the presence of effective governance mechanisms that can limit transactional and relational costs between partners. The latter two of these factors have been the focus of particular attention in the existing literature on “alliance functions” (Kale and Singh, 2009). An alliance func-tion is the structure that enables interactions between members of the alliance. It organizes knowl-edge management and facilitates coordination by equipping stakeholders with all necessary tools and processes. This enabler also provides the foundations for strategic assessment, which is crucial in the selection phases.
To the four internal enablers defined by Dyer and Kale (2007), other authors have added the role of managers and employees, that is, those agents who must be able to identify changes in the envi-ronment, build opportunities, and transform the set of capabilities considered strategic for the future (Augier and Teece, 2009). An empirical analysis of this enabler, which, according to Eriksson (2014), has not been sufficiently studied, requires new research at the unit level on what Teece
(2007) calls the micro-foundations of dynamic capabilities. Finally, strategic intent at the corporate level is an antecedent inherent to dynamic capabilities because, as stressed by Helfat et al. (2007), they need to be “purposefully” created. However, this antecedent is seldom taken into account in empirical research. In sum, enablers of relational dynamic capabilities include physical assets, knowledge routines, organizational capabilities, alliance functions, agent abilities, and strategic intent at the corporate level.
In fact, the existing literature has not yet provided an in-depth analysis of external triggers. Each factor has been treated mainly in isolation, whereas they “are bound to interact and possibly have a synergistic enabling or inhibiting effect” (Eriksson, 2014: 75). However, according to Eisenhardt and Martin (2000), Helfat and Winter (2011), or Zollo and Winter (2002), these ties will change depending on the type of capabilities being sought in the different phases of the alliances (selec-tion, execution) for which they exist.
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Outcomes. Most researchers assume a positive relationship between relational capabilities and competitive advantage. Their work measures outcomes by means of abnormal economic and finan-cial performance (profitability, market share, return on investment, partner integration, innovation, or sales growth) and through non-financial performance (learning, social capital, and respect for relational norms such as joint action, commitment, expectation of continuity, and satisfaction) (Eriksson, 2014). Relational rents are also the result of a reduction in the risk that alliances will fail (Kale and Singh, 2009) and of scope savings that enable firms to best leverage their network ties (Möller and Svahn, 2003).
Studies on supply chain management, which are very advanced in respectof the outcomes of relational capabilities, have demonstrated that the supplier-management dynamic capability con-tributes directly to reduced purchasing costs, higher quality products and services, supplier integra-tion and trust, speed of delivery, better flexibility, and more innovation (Beske, 2012; Delbufalo, 2012; Li et al., 2006; Prajogo et al., 2012; Vanpoucke et al., 2014, 2014).
Research published to date provides sufficient tools for assessing the characteristics, anteced-ents, and outcomes of relational capabilities. However, these contributions provide less insight into how to build these capabilities.
How to build a relational dynamic capability?
Knowing how to build and develop dynamic capabilities is all the more crucial given that they can-not be purchased in markets (Teece et al., 1997: 58). Firms have to build them through multiple processes that involve learning, reconfiguring, coordinating, leveraging, and integrating the set of skills, assets, and routines that will provide the basis for their future relational rent. These processes have already been studied (Adner and Helfat, 2003; Helfat et al., 2007; McKelvie and Davidsson, 2009; Rothaermel and Hess, 2007; Zahra et al., 2006; Zollo and Winter, 2002) in relation to various types of dynamic capabilities. The findings have emphasized the importance of processes that enable knowledge management because, as Pandza et al. (2003: 1028) suggested, “the process of how a firm acquires its capabilities cannot be separated from how it acquires its knowledge.” According to Eriksson (2014), four main knowledge-management processes stand out from exist-ing empirical studies: knowledge accumulation, knowledge integration, knowledge utilization, and knowledge reconfiguration. Drawing on Schilke (2014), one might ask whether these processes differ from one type of dynamic capability to the next.
Helfat and Peteraf (2003), and later Helfat et al. (2007), defined a construction cycle of dynamic capabilities in three phases (founding, development, and maturity) which Pablo et al. (2007) empirically confirmed in their analysis of health care services. In their research on organizations from the pharmaceutical industry, Narayanan et al. (2009) identified four phases (activation, artic-ulation, mobilization, and implementation). However, the two intermediate phases defined by Narayanan et al. actually match what Pablo et al. call the enabling phase. In general terms, the few existing research studies on these phases demonstrate that the initial phase of this process is an awareness by companies of the potentialities of the capabilities that need to be developed. This means that foundations that will lead to this future learning are identified, which is followed by a construction phase in which these abilities are mobilized and coordinated throughout the organiza-tion. Finally, this phase is followed by a transformation phase during which enablers that are at the origin of the most advanced processes are reconfigured and abilities are integrated within dedi-cated and lasting structures.
These contributions are useful in providing an overall analytical framework. Some are no more than theoretical and require an empirical application, while others relate to a specific sector. As far as we are aware, neither the construction process underpinning relational dynamic capabilities nor the
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mechanisms at work in each phase have been examined. And as suggested by Eriksson (2014), more fine-grained empirical studies on these processes are needed. This echoes the call by Van Weele and Van Raaij (2014: 63) on researchers in supply management to investigate how professionals can develop superior capabilities for managing alliances, how they can sustain superior codified knowledge of mar-kets and supply chains, and how they can secure and protect superior procurement competencies in order to gain a relational rent. However, answering these calls for further research means opting for longitudinal empirical designs, as Helfat and Winter (2011: 1245) recognized: examining only a snap-shot of time does not reveal “the enormity of the eventual change” in dynamic capabilities.
Research design and methods
In response to the call from other researchers, we based our empirical analysis on a longitudinal case study. This type of research design provides the opportunity to analyze a process by combin-ing different levels of analysis (Marcelo and Wadhwani, 2014). Thereafter, given that dynamic capabilities are idiosyncratic and emerge in a unique manner in every organization, focusing on a single case study appeared to be essential (Eisenhardt and Graebner, 2007). We chose to study vertical alliances (between clients and suppliers) because 80% of the costs facing large manufac-turing companies (e.g. in the transport, automotive, and aerospace sectors) currently come from purchasing departments, that is, from relations with suppliers. Consequently, the source of rela-tional rents is particularly important (Vanpoucke et al., 2014).
Case selection and data collection
Three levels of constraint guided our choices in selecting the case study and collecting the data: the industry, the company, and the interviewees.
First, we decided to select an industry in which relational capabilities constitute a major deter-mining factor of relational rents and in which context changes can be observed over a long period of time. The automotive industry meets these criteria. This industry has always been a reference for scholars exploring relational capabilities and, in particular, supplier-management capabilities (Donada, 2002; Dyer, 1996; Dyer and Chu, 2011; Fujimoto, 1999; MacDuffie, 2013; Helper et al., 2000; Sako, 2004). Moreover, in recent decades, this industry has undergone an evolution whereby the strategies of manufacturers have progressed from vertical integration to subcontracting, then to extended outsourcing, and now to massive global sourcing for complete modules carried out in partnership with a limited number of suppliers, handpicked for their innovation and relational capabilities (MacDuffie, 2013).
The second constraint was that we had to select a company whose strategic evolution was in line with that of its reference industry and which was able to build relational dynamic capabilities. The French car manufacturer Renault seemed to meet these criteria. After World War II, Renault was a vertically integrated French company. Over the course of the next 50 years, it moved from focusing on procurement to becoming a massive global outsourcing player. In 2001, Renault established the RNPO.2 This proved to be the cornerstone of the Japanese manufacturer’s recovery:
RNPO marked a new beginning for Nissan which had, at that time, a purchasing budget which was 25 to 40% higher than that of the French manufacturer. In only two years, thanks to Renault’s knowledge and tools for managing suppliers, Nissan had increased its purchasing performance by 20% (p. 17)3
and considerably reduced its supplier base. All purchases by both manufacturers are now managed by the RNPO, which recently launched its Common Module Family (CMF) program. This
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program, conducted in partnership with large module suppliers, is designed to identify new sources of competitiveness and synergies for a hitherto unknown large range of vehicles developed through the Renault–Nissan Alliance:
The CMF project will give the Alliance an average 30 to 40% reduction in product engineering/process per model and a 20 to 30% reduction for parts. The CMF approach will be fully implemented by 2020 in over ten countries, spread throughout the five continents. (Renault–Nissan press release, March 2014)
Our third methodological constraint was collecting longitudinal data. This is why we inter-viewed people who had many years of service with Renault, including some who are now retired. Their experience and criticaleye helped us to understand the situation from different perspectives. Moreover, these individuals were given great freedom to express themselves, which is invaluable for interview-based studies. Interviewees were questioned regarding the context of the firm and their departments, the development strategy for supplier-management capability, the organiza-tional design, and the dedicated tools for its implementation.
We carried out 20 in-person, semi-structured, in-depth interviews with key actors who worked for Renault’s purchasing, engineering, and manufacturing departments and for supplier firms (see Table 2 in Appendix 1).
In total, 18 of the interviews were recorded and transcribed; the remaining 2 were documented via detailed notes. In order to limit retrospective bias (Pearson et al., 1994), all the interview tran-scripts were read by two people who were also employees during the periods described by inter-viewees.4 Moreover, some interviewees provided us with their personal notes and reports they had saved. These notes helped us validate our data by cross-referencing written sources with what was said during the interviews. We also analyzed 23 internal Renault archives (mainly internal memos and presentation slides given by our contacts) in addition to 48 of Renault’s external activity reports and annual reports. Finally, we reviewed information provided by specialized media and historical studies on Renault.
Data analysis
In order to create a framework for coding the data, we used the narrative technique, which is ideally suited to addressing retrospective events across different organizational levels with embedded frontiers (Langley, 1999). This framework differentiates between three levels of data. At the macro-level, we identified facts characterizing the macro-economic and sectoral contexts; at the meso-level, the facts characterizing the firm’s corporate context; and at the micro-level, the facts characterizing the supplier-management activity (agents in charge, mission and roles, strategy, structure, tools, and processes). The time frame we defined for our analysis spans from the middle of the 1970s to the beginning of the 2000s. This can be broken down into three different periods:
mid-1970s to the mid-1980s (post-war reconstruction was behind them, a period characterized mainly by growth, inflation, and internalization); (2) mid-1980s to the mid-1990s (when the manu-facturer had to find a way out of a major financial crisis); and (3) mid-1990s to 2000s (Renault became a private company listed on stock markets, it established an alliance with Nissan in 1999 to rescue the Japanese manufacturer, and it inaugurated the RNPO in 2001).
Case study
Table 1 provides a summary of the main external contextual facts that triggered the construction of a relational dynamic capability for the management of supplier relationships by Renault, as well as
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	Table 1. Case study analysis.
	
	
	
	
	
	
	
	Mid-1970s to mid-1980s
	Mid-1980s to mid-1990s
	Mid-1990s to 2001
	
	
	
	
	Macro and industry
	End of the “thirty glorious
	“Lopez effect;” cost-
	Globalization;
	contexts
	years”
	killing objectives.
	modularization
	
	Oil crisis; high inflation
	Outsourcing as a means
	Outsourcing as a means
	
	Growth of Japanese
	to reduce costs on
	to cover the world
	
	competitors
	modules
	
	Renault’s corporate
	Volume strategy;
	Must get out of the
	Go global; massive
	strategy
	internationalization;
	financial crisis
	outsourcing strategy
	
	collaboration with
	Meet high operational
	Organize the
	
	American Motors,
	performance objectives
	privatization of the
	
	Peugeot, and Volvo
	for all units
	company
	
	Quality issue (benchmarks
	
	Define a matrix-based
	
	of Japanese companies).
	
	structure
	Supplier management
	No formalized strategy;
	Short-term tactical
	Deliberate and
	and purchasing
	short-term view;
	objectives to reduce
	formalized long-term
	strategy
	procurement issues
	purchasing cost.
	supplier-management
	
	
	Reduce the number of
	strategy
	
	
	suppliers
	Finding new sources
	
	
	
	of value creation
	
	
	
	(innovation and
	
	
	
	flexibility) with suppliers
	Agents and roles
	Powerless purchasing
	Active manager who
	Powerful leader who
	
	agents; mission to supply
	built the “purchasing
	transformed the
	
	factories with QCD
	department”
	“purchasing department”
	
	products
	Two missions:
	into the “supplier
	
	Daily work is about
	Optimizing technical
	relations department”
	
	administrative tasks and
	solutions for improving
	The missions of the
	
	no direct contact with
	purchasing performance
	supplier managers are as
	
	suppliers
	Developing closer ties
	follows:
	
	Only few qualified new
	with certain suppliers
	Selecting sustainable and
	
	employees who wanted to
	and mobilizing them into
	performing suppliers
	
	change the way of doing
	earlier phases of the
	Managing long-term
	
	business
	conception of modules
	relationships with them
	
	
	Recruitment of qualified
	Recruitment of qualified
	
	
	employees ready
	new employees with
	
	
	to cooperate with
	complementary
	
	
	colleagues from other
	qualifications; creation
	
	
	departments
	of specific training
	
	
	Direct contact with
	programs
	
	
	suppliers during their
	
	
	
	evaluation
	
	Organizational design
	Small and isolated
	Tripartite teams
	Larger department
	
	department
	to coordinate the
	interconnected with
	
	No coordinating structure
	capabilities of analysts,
	other functions. New
	
	with other functions
	purchasers, and
	name, re-engineering to
	
	Dependency on technical
	technicians
	align the structure of the
	
	department
	
	purchasing department
	
	
	
	with the corporate
	
	
	
	matrix-based structure
	
	
	
	Strategic committees
	
	
	
	and integrated teams
(Continued)
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	Table 1. (Continued)
	
	
	
	
	
	
	
	
	Mid-1970s to mid-1980s
	Mid-1980s to mid-1990s
	Mid-1990s to 2001
	
	
	
	
	Tools and physical
	Telephone, meals, “make
	Enlarge QCD evaluation
	Enriched EAQF based on
	assets
	do” approach
	grid to the EAQF tool
	140 criteria
	
	Basic QCD framework
	(a 40 criteria defined
	Renault’s dedicated
	
	(with an emphasis on the
	conjointly with Peugeot:
	assets and tools to
	
	D)
	To select the best
	manage alliances with
	
	IT in its infancy
	suppliers for the French
	suppliers:
	
	
	automobile industry)
	“Optima” program (to
	
	
	To control the
	benefit from relational
	
	
	suppliers; multiannual
	rents)
	
	
	contract with preferred
	Creation of the
	
	
	suppliers
	“Technocentre” (a
	
	
	
	building where Renault
	
	
	
	and suppliers’ people
	
	
	
	work side by side on
	
	
	
	projects
	
	
	
	Charter of supplier
	
	
	
	partnership
	Outcomes
	Capability to procure
	Capability to evaluate
	Relational capability
	
	parts in quantity and in
	and select suppliers
	to manage long-term
	
	time
	Enlarged relational
	alliances with suppliers
	
	Limited relational rents:
	rents: operational
	Extended relational
	
	operational performance
	(delay), economical
	rents: operational,
	
	(delay)
	(cost reduction, small
	economical, and
	
	
	innovation, better
	non-financial (mainly
	
	
	quality, supplier risk
	innovation, flexibility,
	
	
	reduction), and non-
	and global coverage)
	
	
	financial (commitment
	RNPO creation
	
	
	of internal stakeholders,
	
	
	
	expectation of
	
	
	
	continuity for
	
	
	
	operational cooperation
	
	
	
	with suppliers)
	
	
	
	
	
QCD:quality, cost, and delivery; EAQF: Évaluation Aptitude Qualité Fournisseurs; IT: information technology.
those internal factors that enabled the processes of its development. These events are detailed for each period in the following sections.
Mid-1970s to mid-1980s: the operational procurement capabilities period
External factors that increase awareness. The second half of the 1970s was marked by a threefold effect for generalist European car manufacturers: economic growth-oriented demand toward cars “for all,” an increase in the prices of raw materials because of the oil crisis, and the threat of new competitors from Japan. Bernard Vernier-Palliez (Renault’s chairman, 1975–1981) decided not to reflect the “oil effect” inflation on the company’s sale prices but to lower the break-even point by increasing volumes. This encouraged Renault to implement an internationalization policy and establish new ties with manufacturers to find new markets and new supply sources. In 1978, the company developed closer relations with the fourth largest manufacturer worldwide, American Motors Corporation (AMC), and teamed up with Volvo in 1980.5 For the managers and employees
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who visited the AMC plants, this was an opportunity to learn new approaches: “It was an eye-opener. Going to the States was a revelation” (p. 1). Teams were also sent to Japan to observe Toyota’s process: “In Japan, when problems had to do with suppliers, these had to be present. Such efficiency was impressive, but at the same time it scared us” (p. 7). At the end of this period, Ber-nard Hanon (Renault’s chairman, 1982–1985) lay out a 3-year plan in which the improvement of quality became a priority.
Internal enablers constrained by operational procurement goals and bureaucratic activities. To reach targets in terms of volume, the purchasing department operated without any formalized strategy regarding suppliers, but rather with short-term procurement objectives to supply Renault’s facto-ries with QCD (quality, cost, and delivery) products.6 Its scope for action was limited by the exter-nal suppliers and factories, which dictated the rhythm of supply: “We were still in the aftermath of an economy of shortages […] It was a real rat race to try and gather tons of steel sheets just to be able to work” (p. 4). Moreover, the internal technical department, which defined the blueprint and specifications, limited the purchasers to administrative tasks. The asymmetrical power balance between the purchasing and technical departments was maintained by the purchasers’ low level of skills. They were “guys who stood out” with no specific qualifications.7
However, there was an impetus for change caused by the recruitment of a few better-qualified new agents:
When I joined the team in 1969, I was the only person with a degree. They created a position for me called “Purchasing Methods.” […] What my boss expected me to do was to draw up proposals regarding the organization, structure, and implementation of more modern working methods. (p. 4)
Over the years, the new recruits who had been formally trained in management techniques, those who had traveled to Japan, and those who worked with AMC wanted their roles to evolve, and they also demanded additional resources. They said they were capable of working in direct contact with suppliers, just like their American peers or those working for Toyota. Although their dynamism was genuine, it was limited by the organizational structure, which isolated them from decision centers, and by professional practices inherited from the past.
Back then, the purchasing department was small. “Purchasing managers were specialized per families of products” (p. 3). There was no coordinating structure with the other departments, and above all, the purchasers had no formalized methods. Each purchaser dealt with a large number of suppliers (several hundred each), with whom they worked over the phone rather than traveling to meet them in situ. Contacts consisted mainly of a nice meal together after a quick tour of the fac-tory. “Make do” was the standard way of operating. The management of suppliers relied on handi-craft techniques. There were no audits. Thanks to an agreement with the competitor Peugeot, Renault purchasers began to learn how to evaluate suppliers with a QCD grid: “[Peugeot purchas-ers] were technically savvy and rummaged around. At the beginning, the Renault purchasers sim-ply watched them. They were discovering it all” (p. 12). Finally, the purchasing department introduced computers and information technology (IT) systems to report its work, constituting a type of “revolution” that imposed a new approach: structuring information using statistics. “It was a huge amount of work, because there was no codification, […] everything was transmitted orally, people used data that the computer could not process” (p. 4). “Little by little, we were thinking in terms of purchasing rather than procurement” (p. 3).
During this period, Renault acquired the capability to supply its factories properly and so became the first European generalist manufacturer with a market share of approximately 15% (40% in France). This commercial advantage was made possible by the very large number of
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subcontractors who helped the manufacturer meet its target volumes: “Renault made us work hard” (p. 12). However, the limited direct relationship with suppliers and the lack of an actual purchasing strategy brought about quality problems for new models and, most importantly, resulted in differences in costs, which, year by year, made the manufacturer’s financial situation more precarious.
Mid-1980s to mid-1990s: the supplier evaluation capabilities period
An external context “made in Lopez.”  Over this period, the automotive industry benefited from a fall in inflation, but profitability rates remained very low. The American and European automo-tive industries entered an era of outsourcing, which they implemented based on the “Lopez system,” named after the famous purchaser and cost killer for GM and Volkswagen in the early 1990s. The “Lopez system” consisted of reducing costs drastically on two different axes. The first involved purchasing modules8 rather than parts to be assembled (MacDuffie, 2013: 15). The second was based on a “huge inventory of data about suppliers, and an entire philosophy for both how the company should buy parts and how its suppliers should work to hold their costs to a minimum.”9
In 1985, Renault faced a major financial crisis and initiated a recovery plan that forced it to abandon the internationalization strategy, refocus on the core business, and develop outsourcing practices based on the ideas of Lopez. The goal was first and foremost tactical: reduce all costs.
Internal enablers that facilitated the internal coordination for supplier evaluation and selection. In 1985, the name of the new Purchasing General Manager, Michel Collin,10 appeared for the first time on the front page of the company’s activity report. This provided insight into the crucial role of this senior manager, who wanted to build a truly powerful purchasing department: “He didn’t let any-thing go, and he had the support of the CEO, so everything came back to us” (p. 8). Collin’s plan for the department established two main axes.
The first was internal as it dealt with broadening the scope of agents’ roles, a new profile for recruitment, and a change in the organizational structure. Purchasers were expected to contribute to the optimization of technical solutions for cost-cutting and to negotiate directly with suppliers. The idea was that “being involved in the design phase would help them [purchasers] understand the issues, and they would therefore be better equipped to negotiate with suppliers for the parts that they bought” (p. 9). The development of the technical capabilities of the department was entrusted to new, specially recruitedemployees:
They hired people from the same background as mine (technical). They were actually able to give some feedback on suppliers and say: “I saw them, they’re not bad. You should go and take a look. We can go together if need be,” so the contact with purchasing became more technical. (p. 5)
Moreover, business school graduates were recruited for their skills in management control, finance, marketing, or negotiating, and new positions, such as the role of “Purchasing Agent,” were created. Prior exchanges with Toyota, Peugeot, and AMC revealed there was a strong interest in tripartite teams composed of quality analysts, purchasers, and technicians. Consequently, the pur-chasing teams became part of a larger network of internal stakeholders: “People from the design teams were included in the purchasing teams […] who were explicitly in direct contact with the other departments” (p. 9 + internal memo 5 June 1989).
The second axis of the departmental plan was to develop closer ties with some suppliers and to mobilize them in earlier phases of the design of modules. Taking inspiration from the privileged
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relationship between Toyota and its keiretsu, Renault proposed a multiannual contract scheme with a limited number of suppliers. These new relationships could not be dissociated from the need for a more instrumented supplier assessment process. Therefore, Renault decided to work on the cer-tification criteria. The scope of the QCD grid was extended to seven criteria: the ability to offer high-quality products, financial management, price competitiveness, innovation potential, and technical collaboration potential, and the capability to export, management, and reliable logistics (Activity Report—management elements 1986). The new evaluation tool, called EAQF,11 “helped us think and act in more thorough and systematic terms. From the moment a supplier had received the same EAQF grade as another, the technical teams could no longer say that it was not suitable.” The EAQF scheme then helped to put in place a formal control system. Purchasers became the liaison point for the company’s relations with its suppliers: “We (at the engineering department) weren’t really allowed to go to the suppliers on our own. With the new organization, we had to inform the purchaser that we wanted to go, and then we would go together” (p. 5). In 1988, approx-imately 300 financial analyses were performed for suppliers. The processes became routine, and the assessment grids evolved continuously to integrate increasingly more criteria to ensure con-tinuous improvement. Finally, the tool helped identify priorities:
There were several general sections on the organization of the supplier, even on the service that analyzed costs and of their financial department. Then, there were chapters for each type of technology, and chapters on their supply chain management. There were four levels of assessment: A, B, C, D. For example, D could be for those who weren’t the critical size. To be an A, they had to score a grade that was above 90%. (p. 1)
During this period, Renault built a purchasing capability that enabled it to fulfill its outsourcing strategy. The purchasing department grew and began working more closely with the other depart-ments (technical, quality, and management control) in an effort to optimize productions processes and reduce purchasing costs. This collaboration was also linked to the need for a new design capa-bility following the development of modules. Modularization meant that purchasers now became involved in the design of operational specifications and in turn the design of new supplier evalua-tion tools to assess and select the best ones. This heralded the era of what Midler (1995) called the “projectification” of Renault. This led to the widespread use of cross-professional communication between internal and external suppliers, a process already initiated during the first half of the 1900s but which only gave the French manufacturer a competitive advantage in the period that followed (Lundin and Midler, 1998). The relational rents that emerged from these changes not only involved short-term operational aspects (procurement issues) but also economic (cost reduction, small innovation, quality, and supplier risk reduction) and non-financial performance (commitment of internal stakeholders, expectation of mid-term continuity for operational cooperation with well-evaluated suppliers) (p. 12).
Mid-1990s to 2001: from supplier evaluation to relational dynamic capabilities
External contexts that pushed toward globalization and modularization. During this period, the auto-mobile industry, similar to most industrial sectors, accelerated the trend toward concentration with brand takeovers, alliances, mergers, and acquisitions to succeed in their international expansion. The common thinking was that globalization would drive consistent sources of profitability for car manufacturers, thanks to new market opportunities and the benefit of high-performing interna-tional suppliers.
Renault’s long-term strategy (15 years), designed by CEO Louis Schweitzer,12 was in line with that trend: “go for globalization.” Its implementation required the privatization of the company,
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which was still 53% owned by the French State,13 thereby raising its performance objectives.14 The strategy was also underpinned by the design of a new organizational matrix-based structure allow-ing collaboration with external and international partners in order to progressively evolve to the position of automotive integrator.
Internal enablers that accelerate changes and the potential for relational rents: re-engineering, dedicated assets, and idiosyncratic tools. Renault’s strategy led to the re-engineering of the purchasing depart-ment. A new Purchasing Director, Jean-Baptiste Duzan, was named in 1994. He capitalized on the work of his predecessors. First, the Purchasing Department was renamed the “Supplier Relations Department”: “… [which] was a way of expressing change in core competence and how the organ-ization was going to change” (p. 13). This transformation was symbolic of a major strategic shift that required a new management team reinforced by the integration of groups of experts in charge of supplier-management strategy, management control, human resources, legal affairs, interna-tional affairs, quality, and supplier development.15 A “purchasing school” was set up internally to train purchasers in their new jobs.
The department also learned a great deal from the experience of the “Twingo” project16 and shifted from a divisional-based organization to a project-based organization. This meant that “Each project had a dedicated purchasing team that reported to the General Manager” (p. 15). Managerial primacy fell to the project managers and strategic primacy to the “supplier relation manager,” who was responsible for the cross-cutting coordination of the matrix from which the manufacturing-engineering/purchasing dichotomy had disappeared. According to Lundin and Midler (1998), Renault was the first manufacturer in Europe to put in place powerful project directors committed to co-designing policies with its main suppliers. All the parties involved in a project were brought together in teams in a new building called the Technocentre:17 “The 25 project purchasers were grouped by geographical function of the vehicle. They were near the engineering, the design offices
and the suppliers’ representatives” (p. 11). The effects of combining the complementary skills of Renault’s staff and those of its suppliers quickly became apparent on four levels: innovation, quality, flexibility, and upstream cost reduction. One manufacturing director from a supplier com-pany that worked on the Twingo project told us,
We worked as a team with them for the first time, discussing technical elements and price at the same time
It was no longer a purchaser onone side and a supplier on the other but instead a team working together on design to innovate and find less costly solutions. Everything went faster and we were able to adapt constantly. (p. 12)
The relational strategy involving suppliers became deliberate and formalized. “Strategic Committees” and an “Upstream Strategic Function Group”18 were set up: “The strategic com-mittee brought the purchasing, engineering, manufacturing and product development depart-ments together to think of long-term strategies (minimum three-year horizon)” (p. 15). Then, to comply with general management’s performance request, the department rolled out a program named the “Synergy 500 program” in 1996.19 The implementation of this program, which was designed to significantly improve profitability and came with the promise of shared gains in productivity for stakeholders, could not be achieved without collaborating with the company’s module suppliers, who represented an increasingly large proportion of the value added being generated by projects.
In this context, the department established an entirely new relational and contractual framework with “partners of excellence.”20 In 1997, a “Partnership Charter” was formulated; its motto was win-win, trust-based, buyer–supplier relationships. The foundation of the Charter was the “Optima”
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program, the principles of which were to “develop trust, technical and financial transparency, soli-darity and complementarities so that each [Renault and the supplier] can meet their strategic goals, mainly financial; resolve problems due to team work; and prevent having to systematically rely on competitiveness.”21 “With Optima, it is both the human and the organizational relations that will ensure the performance of the whole and […] assure the way in which technology transfers are obtained.”22
Optima would not have been possible without an efficient supplier assessment scheme. The EAQF reference implemented during the previous period remained in place, but it underwent some quantitative and qualitative changes: 140 criteria and new processes, including the outsourcing of evaluations by handing responsibility for auditing directly to suppliers: “With this tool, we knew everything there was to know” (p. 6).
The allocation of responsibilities between Renault and Optima suppliers was also formalized. Renault aimed to ensure that it always maintained its contracting ownership while taking into account the suppliers’ skills and contributions. The Optima suppliers were responsible for
development, based on the functional specifications. The supplier acts as an internal engineering department. It seconds a residing engineer to the work with the project team during critical development phases: purchasing, quality and logistics with tier II suppliers, [or] optimizing series products.23
Therefore, the relationship between Renault and its Optima partners is based on reciprocity from upstream design phases.
At the end of 1998, 39 suppliers were chosen to be part of the Optima program. They benefited from a stabilized market share, were not pitted against competitors, shared the car manufacturer’s strategy, and made a commitment to joint programs.24 For Renault, the difference now resided in
the quality and the trust of the relationship between the manufacturer as a whole and its panel, and also
in the way in which technology transfers are obtained […] Therefore, it is the human and the organizational relations alike that will ensure the performance of the whole. (p. 8)
The manufacturer thereby benefited from the innovations of its Optima suppliers and even obtained exclusivity for more models.
Between 1994 and 2001, Renault initiated changes regarding its suppliers. If evaluation remained the anchor point of the method, the range of programs that were implemented after 1994, such as Optima and Synergy 500, illustrated the manufacturer’s intention to delegate, or outsource, a large part of its value creation. These programs founded the supplier management’s dynamic capability; this same capability was offered to Nissan in 2001 with the establishment of the RNPO (valued at €44 billion in 2013). It was designed to be the cornerstone of the two manu-facturers’ future industrial strategy worldwide. It made possible the launch of the CMF program, which consisted of five groups of interchangeable, compatible modules created conjointly with Tier I suppliers (engine bay, cockpit, front underbody, rear underbody, and electrical/electronic). CMF was designed to compete with Volkswagen and gain more flexibility to adapt the vehicles to global/local markets. Finally, the concrete effects of Renault’s relational capability with its supply partners could be seen in the manufacturer’s unique design capability. In a case study on the company’s capacity for innovation, Aggeri and Segrestin (2007) explain that following this period “Renault became a pioneer in the field of design-enhancing strategies” (p. 41). This design capability became the basis for its innovation and modularization know-how, which would “gradually [be] put in place to guide exploration upstream of vehicle projects (Lenfle and Midler, 2001).
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Figure 1. A process model for building relational dynamic capability.
Discussion
The aim of this research was to extend our understanding of the process of building relational dynamic capabilities and thereby enhance dynamic capabilities theory. We defined a relational dynamic capability as the ability to integrate, build, and reconfigure a set of skills, assets, and rou-tines that provide the basis for a firm’s relational rent to address changing environments. In this section, we will review all the elements of the case that best contributed to the emergence of the company’s relational dynamic capability underpinning the relational principles of RNPO. Our intention is not to discuss these elements in detail, but rather to analyze them through the lens of dynamic capability theory and propose a process model for building relational dynamic capability. Figure 1 is a graphic representation of this model.
This model raises three issues. First, our empirical study provides a practical illustration of the proposals made by Brown and Eisenhardt (1997) and later by Eisenhardt and Martin (2000: 1116) regarding the existence of “sequenced steps” or the “step-by-step” process in which the order of implementation of dynamic capabilities should be consequential. Our three-phase sequence-build-ing process is reminiscent of the work of Helfat and Peteraf (2003) and their notion of the “capabil-ity lifecycle” in three stages: founding, development, and maturity. It is also an illustration of the proposals made by Teece et al. (1997), who discuss the combination of three processes (coordina-tion, learning, and reconfiguring).
Second, the model highlights continuity from one phase to another. There is a dominant path, which results from the accumulated learning and existing basic resources, but there are also keys to making the transition from one phase to another. Our case study reveals two of these keys. The first is external to the unit under analysis: it is an economic and financial key. For Renault, on one hand, it was the financial crisis of the mid-1980s which brought it to the brink of bankruptcy, and on the other, it was the introduction to the stock exchange after its privatization in the mid-1990s. The second key is managerial and internal to the unit under analysis: “change agents” were
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appointed to implement a specific project. In the case of Renault, these change agents were the two purchasing directors appointed in the mid-1980s and mid-1990s. To our knowledge, the keys for transition from one phase to another in the construction of a dynamic capability have not yet been explored in the literature on dynamic capabilities.However, the strategic management literature on change management and the trajectories of firms provides a rich source of valuable lessons (Stensaker and Langley, 2010). Our observations suggest that the intersection of both bodies of literature should be explored in order to further the more particular contributions our case affords.
The third issue this model raises pertains to the combinations of shaping factors. The phases observed, which we named the identifying, building, and integrating phases, had specific relational dynamic capabilities, processes, and different combinations of shaping factors unique to each case. Among these factors, one is rarely taken into account in empirical studies but is clearly observable in the Renault case: strategic intent. Helfat et al. (2007) insisted on this issue when defining rela-tional dynamic capability as “the capacity of an organization to purposefully create, extend, or modify its resource base” in order to survive and thrive when faced with change (p. 1).
Let us now discuss the primary structuring components of each of these phases.
Phase 1: identifying
The first period, which we call “identifying,” refers to the moment when Renault “opened up” to the world through formal and informal cooperation with other companies. This was a phase of discovery and growing awareness, in which external triggers were extremely influential. It is clear from the interviews that no actual relational strategy or specific structure for the management of relationships with external parties had been defined, nor had the importance of relational capabili-ties been fully measured. However, some agents had already sensed the need for complementary resources and identified the benefits of serendipitous outcomes that were the fruit of experiences and practices that had not yet been formalized internally.
During this phase, relational capability-shaping factors were primarily external, as Helfat and Peteraf (2003) imagined in their theoretical reflection on the capability lifecycle. These factors have identifiable functions. They stimulate awareness and provide feedback on which the organi-zation can build its learning and knowledge-management processes (Zollo and Winter, 2002). They also reveal internal latent capabilities, that is, capabilities on which an organization will depend in order to change (Pablo et al., 2007). This is revealed in our transcripts, as interviewees discussed the positive effects of discovering external practices.
Given the importance of external stimuli, the implementation of sensing mechanisms to identify opportunities and threats is key. Teece (2007: 1326) detailed the micro-foundations of these mech-anisms. They could be “analytical systems (and individual capacities) to learn and to sense, filter, shape, and calibrate opportunities.” These include processes for tapping complementary suppliers, selecting new technologies or tools, and identifying changing needs. In the case under study, this came in the shape of agents who were sensitive to the need for change and who acted as “sensing factors.” This observation is interesting because the limited studies that demonstrate the role of human resources in the construction of dynamic capabilities focus on the importance of senior managers (Augier and Teece, 2009; Narayanan et al., 2009) but not that of operational agents. However, the latter are more receptive to evolution and change because they are present “in the field” and actively contribute to the many experiences that open doors to future changes (Stensaker and Langley, 2010). Our case also demonstrates that the effects of sensing and experimenting will be reinforced with the implementation of learning mechanisms designed to establish a knowledge base. An illustration of this is the discovery of Peugeot’s purchasing activities and learning QCD evaluation grids by the Renault teams.
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Phase 2: building
The foundations of the company’s future relational dynamic capability were built during the sec-ond phase in which knowledge gained during the first period was exploited and enriched. This brings us back to the idea presented by Eisenhardt and Martin (2000), according to which such a construction follows a sequential order.
This phase is the “seizing capabilities” phase (Teece, 2007), at the end of which the firm was able to evaluate and select its potential suppliers. The organization set goals and codified them in operational plans. These goals were the fruit of the high-quality knowledge accumulated during prior experiences (Helfat and Peteraf, 2003). In this case study, the QCD evaluation grids in the first period helped define the performance criteria of the EAQF tools. The goals set were also linked to the “dominant design” of the industry (Helfat et al., 2007). This is demonstrated in our case because the missions given to actors over this period were similar to those formalized by Lopez for General Motor and Volkswagen.
However, defining goals is not sufficient. These goals have to be understood and accepted by the agents tied directly or indirectly to the companies bound by the alliance (in our case, suppliers). This is why the quality of internal coordination was a key success factor in this period: it was a matter of mobilizing to establish the conditions for collaborative work internally (Teece, 2007) and to combine the abilities that, in our case, helped agents from different units to jointly draft func-tional specifications that met both technical and financial requirements. This internal coordination was all the more necessary given that outsourcing modules requires a perfect alignment of techni-cal constraints. Moreover, economic constraints and pressures on quality were so strong that teams had to work together to ensure the best possible value for money for each product. The study car-ried out by Narayanan et al. (2009) insists on the actions of senior managers, who can either foster or hinder movement toward coordination. It is clear in our case that Michel Collin, the Purchasing General Manager, was able to impose and foster the necessary coordination, made all the easier by the threat of bankruptcy, which left little room for dithering. Finally, this coordination was facili-tated by the development and codification of new tools and work routines, without which supplier assessment processes could not be carried out efficiently. Obviously, the implementation of the EAQF tools and the drafting of multiannual contracts best illustrate this need.
This period was critical in the building process. Its shaping factors were both external and internal, and if strategic intent did exist, it was limited to operational, short-term goals. The strategic vision of the company’s leaders only generated veritable relational dynamic capabilities in the third phase.
Phase 3: integrating
The third period is characterized by the deliberate integration of the assets, skills, and routines that provide the basis for the firm’s sustainable relational rents in changing environments. This phase was much more sensitive to internal triggers because it consisted of aligning all the capabilities with the strategy of the firm and, therefore, of relying on those assets, skills, and routines that foster implementation (Kale and Singh, 2009).
Augier and Teece (2009) stressed the crucial role played by leaders who “articulate goals, help evaluate opportunities, set culture, build trust, and play a critical role in the key strategic decisions” (p. 417). Renault found such characteristics in Louis Schweitzer, the CEO who set out an ambitious 15-year strategy, and in Jean-Baptiste Duzan, the active Purchasing Director.
However, leadership alone is not sufficient to trigger transformation. Structure must be aligned with strategy, and integrative processes need to be rolled out. Referred to as “architectural compe-tence” by Henderson and Cockburn (1994) and “combinative capabilities” by Zanderand Kogut
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(1995), integrative processes comprise organizational structures that allow for the integration and coordination of knowledge and activities across units and people within the firm (Kale et al., 2002: 749). In the case of Renault, this integration came about through the re-engineering of the organi-zation accompanied by a strong symbol: the “purchasing department” changed its name and became the “supplier relations department.” Our analysis is not sufficient to define whether this re-engineering phase is necessary for all firms, but it underlines the key importance of what Kale et al. (2002) called the “alliance function,” that is, a dedicated organizational unit that integrates all alliance-related activities and enhances the firm’s ability to generate relational rents. In this con-text, work relations are structured around complementary skills, as opposed to being built on iden-tical skills. Cross-cutting teams and project teams that integrate the agents of the companies into the alliance are valued (Kale et al., 2001).
The integration phase is part of efforts to implement a transformation of the firm’s organiza-tional processes. Midler (1995) highlighted six changes that follow on from the integration of internal and external suppliers: changes in the integration of technical skills and value-control expertise, changes in integration between management echelons, changes in integrated tools for assessing performance, changes in relative status between different functions, changes in career management, and changes in the professionalism of corporate buyers. By effecting these changes, Renault was able to move beyond its objective to reduce purchasing costs. They laid the founda-tions of reciprocal relationships that developed on a daily basis as part of the company’s vehicle projects—beginning in the initial design phases. From this moment, Renault’s plants and the facili-ties of its suppliers were in a peer-to-peer relationship with the objective of widening the search for technical solutions as part of a shared learning approach.
Our case study offers additional empirical contributions to the work on integrative mechanisms. For example, it is interesting to observe that the alliance function is ensured by one of Renault’s internal units, whereas Kale et al. (2002) saw this function as an entity that should be separated geographically from company headquarters. However, despite being internal, this unit is localized in a building separate from the headquarters: the “Technocentre de Renault,” which is where all parties in the relationship come together physically. The return on investment generated by the Technocentre is obviously impossible to measure, but it is interesting that Renault decided to invest massively in such a specific inter-firm asset that fosters the development of new work routines that facilitate learning. For Dyer and Kale (2007: 70), this type of investment drives relational rents. Finally, Renault’s alliance function was ensured by strategic committees in its supplier-manage-ment department. It is another driver of relational rents identified by Dyer and Kale (2007): effec-tive governance.
Effective relational governance includes safeguards to protect the interests of each side against opportunism. It also encourages the trust-based relationships that are necessary for joint action and continuity (Dyer, 1996). The governance mechanisms implemented by Renault throughout the third period address these goals, the culmination of which is the Charter of Supplier Partnership, which guarantees transparent long-term relations, and the Optima program, in which Renault asserts that it “will not perform systematic controls of the supplier’s activities.” The outcomes of the integrating phase correspond to the capabilities offered through the RNPO. Of all the elements that constitute relational rents, three were deemed crucial by the people we interviewed. In addition to the manufacturer’s satisfaction with regard to the products/modules delivered by its suppliers, it benefited from joint action, trust, and more adaptable processes. Joint action offers innovation potential and new sources of value creation (Heide and John, 1990). Trust reduces control costs for partners and is very positive in times of high uncertainty, when it is hard to feel in control (Das and Teng, 1998). Adaptability offers the flexibility that is so crucial in a world in which “just in time” must be global, technologies are increasingly complex, and investment in specific assets is done
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and undone based on the possibilities dictated by financial markets. However, what Renault got out of this last phase is specifically the dynamic integration of all the assets, skills, and routines that lay less foundations of a learning to learn mechanism.
These foundations enabled the establishment of the RNPO structure in 2001, which in turn gave Nissan the opportunity to learn supplier selection methods (with more than 3000, Nissan had nearly 10 times more large suppliers than Ford), to learn how to implement joint action with Tier I suppli-ers on the design of future modules developed jointly by both manufacturers, and to learn how to set out partnership contracts that commit buyers and suppliers on a long-term basis. Two years after its establishment, the Renault–Nissan alliance had a panel of international suppliers, from which they outsourced more than 80% of their added value. Although Helfat et al. (2007: 140) discon-nected the notion of dynamic capabilities and performance and argued that the former do not nec-essarily lead to competitive advantage, one of our interviewees told us that without these relational capabilities, “Nissan would not have recovered from the crisis it underwent at the end of the 90s so easily, and Renault would not have benefited from the same competitive conditions vis-à-vis its suppliers” (p. 20).
Conclusion
The objective of this research was to extend our understanding of the process of building relational dynamic capabilities. In their editorial essay for Strategic Organization, Giudici and Reinmoeller (2012) called on authors to discuss openly how their work confirms, extends, refines, or challenges the papers in the field (445). Our research answers this call in several ways.
First, the model we offer in this analysis is in line with a process of three perfectly sequenced steps (Helfat and Peteraf, 2003; Teece, 2007). Indeed, some “capabilities are foundational to others and so must be learned first” (Eisenhardt and Martin, 2000). The contribution of this research resides in the refinement of these phases, cross-referencing and dosing triggers and enablers at each step in the construction of relational dynamic capabilities.
The first phase is one of awareness and sensing weaknesses and shortcomings, and during which new needs for complementary resources emerge. It is also a period of learning through experimenting to establish a knowledge base. Stimuli are generated by external factors, whereas strategic relational intentions are not yet well formalized. The second phase acts on operational conditions. Both external sources and internal enablers are mobilized, which contribute to the con-struction and coordination of relational abilities. The goal is to evaluate and select future partners with complementary resources. In the third phase, relational capability is configured in a deliberate strategic framework designed for the long term. It is a phase in which internal enablers become increasingly important. They facilitate the integration of sets of skills, assets, and routines in dedi-cated organizational structures (alliance function). They also contribute to the implementation of effective relational governance. It is during this phase that the first relational rents emerge.
The transition from one step to another is triggered by a situation of economic crisis, and then bya managerial desire to transform the company. This research confirms numerous assumptions regarding the prominent role of managers and employees in the building process (Narayanan et al., 2009). Whereas prior studies have examined roles predominantly at the general management level, the granularity of our analysis allowed us to analyze roles at the unit level, in response to the call formulated by Eriksson (2014).
This study also extends the papers in the field by responding to the call made by authors for additional research on specific dynamic capabilities. Studying capabilities in supplier management is a “hot subject” in the supply chain and operational management literature (Beske et al., 2014; Tang and Rai, 2012; Vanpoucke et al., 2014, 2014; Zhang et al., 2013).
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Consistent with calls for further studies on the micro-foundations of dynamic capabilities (Teece, 2007), our observations extend existing knowledge on how relational dynamic capabilities are deployed using operational tools. Researchers have described broad organizational enablers and have not delved into detailed micro-operational mechanisms. Our research provides evidence on how these enablers work and how they are important in aiding the continuity of the process over time. In this way, this research echoes Pablo et al. (2007), who suggested that “organizations that attempt to use dynamic capabilities as a strategic approach must identify latent capabilities within the organization that are widely accepted as valuable and appropriate for advancing organizational objectives.” For Renault, the basis of these latent capabilities consisted of operational tools widely accepted as valuable.
Interestingly, there is significant variation in the literature regarding the characteristics (degree of velocity, complexity, uncertainty, and volatility) of external environments that are relevant for the development of dynamic capabilities (Barreto, 2010). Our longitudinal study covers three dec-ades. Over this period of time, it was difficult to precisely qualify all characteristics of the environ-ment. However, we confirmed that the inflection years corresponded to challenging environmental situations for Renault.
The limitations of this research suggest some directions for further studies. We were not able to provide significant insights regarding resistance from employees, although Narayanan et al. (2009) suggested that resistance could be considered. This limitation is probably due to a methodological retrospective bias because the retired people we interviewed shared their fond memories. They minimized short-term stumbling blocks and preferred to focus only on long-term outcomes.
Moreover, we did not examine the costs of the process, as Ambrosini and Bowman (2009) and Pablo et al. (2007) suggested. Despite the difficulty we faced in assessing and analyzing relevant data, we encourage additional studies in management control on the costs of dynamic capabilities.
From a methodological perspective, Ambrosini and Bowman (2009) acknowledged that quali-tative studies are time-consuming and funding-dependent and require access to firms and analysis; however, these studies are needed to verify the “abstract and intractable” notion of dynamic capa-bilities (Danneels, 2008).
In conclusion, a great deal remains to be achieved to provide a better understanding of dynamic relational capabilities. However, this is an interesting challenge; the theoretical contributions these capabilities could make are important, and there are obvious managerial applications, given that these capabilities provide keys to the success of alliances.
Acknowledgements
The authors would like to thank the three anonymous reviewers and the Senior Editor, Russel Coff, for their constructive comments.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
Notes
1. See Ambrosini and Browman (2009), Barreto (2010), Eriksson (2014), or Wang and Rajagoplan (2015) for comprehensive literature reviews on the subject.
2. On 27 March 1999, Louis Schweitzer and Carlos Ghosn announced the establishment of the Renault– Nissan Alliance, thereby setting up the largest industrial partnership ever signed between French and Japanese companies.
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3. See Table 2 (Appendix 1) for information about the interviewees.
4. This solution does not solve the problem of retrospective bias, but it improves the reliability of our measures. One of these reviewers was the former director of a supply firm; another was a retired Renault employee and member of the association Renault Histoire.
5. By progressively increasing its participation in American Motors, by 1979, Renault owned as much as 46% of its capital. In 1980, Renault acquired a 15% stake in Volvo Car Corporation, with an option for an additional 5%. The alliance with Volvo came to be seen as a failure because no genuine cooperation happened. This failure is attributed to insufficient appreciation of the cultural differences between the two manufacturers.
6. A quality, cost, and delivery (QCD) product is a product that respects the technical specification for qual-ity, cost, and delivery.
7. In the 1960s, French universities did not offer any type of specialized training for purchasers.
8. A module is “a large chunk of physically adjacent components produced as a subassembly by a supplier and then installed in a single step in an automaker’s assembly plant” (MacDuffie, 2013: 14).
9. According to E. Andrews in an article published in the New York Times: 29 November 1996.
Collin was Purchasing Director until 1994.
Stands for “Évaluation Aptitude Qualité Fournisseurs”: quality aptitude evaluation of suppliers.
CEO from May 1992 to April 2005 and President of the Renault–Nissan Alliance Board from 2001 to 2005. Carlos Ghosn became CEO in 2005.
The privatization became effective on 15 July 1996.
Annual Report, 1996.
Internal note by J.-B. Duzan, 13 January 1998.
The Twingo was launched in 1993.
At the Technocentre, La Ruche (the hive) is a specific architectural structure designed to integrate the flow of information: the building is circular, and the open-plan spaces are placed around wells of light. Circular balconies go all around the inside of the hive, and each car project has a designated level. Everyone can see everyone else, and it is easy to get around.
In French: Groupe Stratégique de Fonction Amont (GSFA).
Renault took examples from the experience of other manufacturers. As early as 1989, Chrysler had launched the SCORE (Supplier Cost Reduction Effort) program. Honda, Ford, and Toyota followed their lead.
Interview with Jean-Baptiste Duzan in La Tribune Desfossés, “Renault: pour le moindre coût, oui à la délocalisation des fournisseurs,” Friday, 13 October 1995, p. 10.
Internal document, “Partnership Charter,” November 1997.
Internal Memo by the Key Account Manager for Purchasing Strategy, 10 July 1995.
Internal document, “Partnership Charter,” January 1998.
Slide show for a presentation by one manufacturing director (p. 8), Purchasing Department, April 1998.
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