“Meglio soli che male accompagnati.”
(Better alone than in bad company.)
An Italian proverb
This article is motivated by the increasing concern about the ever-declining security of pharmaceutical products due to the abundance of counterfeit network actors. We argue that if networks are effective mechanisms for criminal organizations to infiltrate into any value chain, then networks should also work for responsible businesses in their quests to counter this phenomenon of value destruction, which is ultimately detrimental to the value co-creation process. Thus, this article demonstrates a nuanced understanding of the strategic impact of corporate responsibility of actors in networks on value co-creation.
The current discourse on value co-creation in business networks is structured in such a way that it precludes its inherent corporate responsibility component even though they are not mutually exclusive. Moreover, research on value co-creation aimed at the proactive and responsible defence of a network substance via value co-protection has been mostly scant. We propose a model of value-optimization through value co-protection and ethical responsibility. This way of theorizing has several implications for both policy making and managerial decision making in the pharmaceutical industry and beyond.
An age-old African proverb says, “If you want to go fast, go alone. If you want to go far, go together with others.” This still rings true and explains why “no business is an island” as epitomized in Håkansson & Snehota’s (1989) seminal work. This mode of going together (in mutual interest) with others to co-create value is referred to as “networks” in business parlance. Firms do not exist in isolation nor indeed are other business and social actors self-sufficient without firms, at least not in contemporary times. With the changing business landscape, firms are inextricably interlinked with various actors at every step of their functions and operations along the value chain, both at home and across borders, for the co-creation of value (Freeman & Velamuri, 2006; Grönroos, 2008). Thus, business relationships are indispensable; however, such relationships should be with the right actors (i.e., those with matching values and practices) in order to ensure a productive process of value co-creation. We strongly press this point because the presence of sinister actors in a network leads to value destruction and hence competitive disadvantage for the other actors.
The main premise of this article is that, far from being an afterthought, value co-creation does not only involve product and service development activities with other business actors and consumers but also their protection along the value chain, which comes about through corporate responsibility and specifically the ethical values of the actors. Analytically, it becomes too rigid and unconstructive to separate value co-creation from corporate responsibility because value must be co-protected – first, to bring it into existence and second, to maintain such existence in the long term. Value protection is fundamental to value co-creation, which is mostly highly effective within a strategic scenario of ethically responsible socio-economic network substance, thus, actors, resources, and activities (Håkansson & Snehota, 2006).
A relevant question is how do we explain the co-creation of value among actors in science and innovation contexts such as pharmaceutical firms? Our conceptual contribution is motivated by the increasing concern about the ever-declining security of pharmaceutical products due to the abundance of counterfeit networks. We argue that if networks are effective mechanisms for criminal organizations to infiltrate into any value chain, then networks should also work for responsible businesses in their quests to counter this phenomenon of value destruction. The value destruction in business networks comes about mainly via: i) shirking and secret information leakage to infringe on intellectual property rights and ii) contamination of the value chain with adulterated goods and services that affect reputation, pilfer customers, lower profitability, and send mixed messages to consumers about brand identity and product quality, thereby ultimately being detrimental to the value co-creation process. The value destruction in essence creates competitive disadvantage for the affected actors. This has huge implications for the performance of startups especially.
We argue that the construct of value co-creation presents some form of social ambiguity when used in the classic sense without its ethical component. Given the complexity of network organizations and managerial opportunism within such relationships, we agree with Nielsen (2003), who argues compellingly that: “just as it is not possible to have an organizational form without an at least implicit ethical or normative foundation, it is also not possible to actualize social ethics without an organizational form.” This ethical preference is even more complex for business networks to foster sustainable innovation and competitiveness. This is to propose value co-protection as an integral and strategic aspect of value co-creation which can be applied in empirical studies whilst offering managerial guidelines and policy recommendations to policy makers. Now, we argue that the key to long-term success is ethical behaviour not only constrained by one firm but as an aggregate of acceptable social actions among its network of actors. We propose a model of value-optimization through value co-protection and ethical responsibility, as well as a redefinition of value co-creation to comprehensively capture the responsibility component.
The notion of value destruction in networks can be exemplified in how, in the pharmaceutical industry, business and non-business actors’ interests and activities converge as inhibitors or enablers of value co-creation. Irresponsibility on the part of one actor has a very high potential for value destruction. The effect is even more damaging in the case of incongruence in actor motives, resources, activities, and the affected actors’ inability to defend themselves against irresponsible behavior by others. There is certainly a strategic impact of corporate responsibility in business networks on value co-creation. We operationalize corporate responsibility as the ethical (shared value systems), social (trust, bonds, and ties), and environmental defense and protection of each member and the economic obligations of all strategic network actors in the value co-creation process. Institutional and market dynamics make networks an interesting concept to study. That notwithstanding, global socio-economic, cultural, environmental, and technological changes have meant that several sophisticated criminal networks also pervade economic activities by infiltrating into global distribution and logistics value chains in ways that destroy value for all actors. Criminal networks refer to organized crime built on tight and often impermeable networks guided by an illegal, unethical, and irresponsible business mission (Gummesson, 1994).
The Concept of Business Networks
For Håkansson and Snehota (2006), the organizational context can be viewed as a “social symbolic reality in which the firm chooses to exist, and does so by framing it.” The framing of the context and a firm’s structural and social process with dynamic characteristics is the basis of defining the firm’s identity. This comes about through learning and routines, as well as institutionalization, that guide future behavior (Fletcher, 2008). Networks are web-like sets of relationships connected with other sets of relationships (Håkansson & Snehota, 2006). They can be explained in terms of actors, activities, and resources. For Easton (1992), networks can be explained in terms the structure, positions, and processes of relationships. A more complex definition by Achrol and Kotler (1999) posits that “a network is an independent coalition of task and skilled economic actors operating without hierarchical control but embedded in a dense connection, mutuality and reciprocity in a shared value system that defines the ‘membership’ roles and responsibility.”
The Strategic Impact of Networks on Value Co-Creation
For Håkansson and Snehota (2006), “managing strategy thus means managing the process whereby the pattern of activities to be performed by an organization is conceived (that is strategy formulation) and then creating the conditions to ensure that these activities are carried out” (i.e., strategy implementation). This process is continuous given the dynamic nature of the environment. On the strategic impact of networks, Thorelli (1986) asserts that networks serve as alternatives to vertical integration and diversification as well as a means to reaching new clients in different geographical areas.
The strategic impact here refers to the long-term competitive disadvantage created by sinister actors. The analysis of networks must include non-business actors such as non-governmental organizations (NGOs), institutions, governments, and the wider society, which stand to gain by prioritizing ethics or operating with the lack thereof in a dynamic global economy. The significance of the strategic impact is still dependent on the core actors’ corporate responsibility commitment. The social capital in networks such as trust, bonds, and ties allow the prevention of value destruction from within or outside the business network. This in turn encourages ethical behavior since the consumer’s ethical concerns cannot be ignored in the co-creation process.
Co-Protection in the Actualization of Network Actor Core Values
If value is either destroyed or created in a network relationship (Ritter & Gemünden, 2003) then the activities of counterfeiters and several other external actors may pose potential hindrance to the expected outcome of the co-creation process. This is exemplified in how, in the pharmaceutical industry, the actors’ interests, roles, and activities converge in value co-creation, but the value chain can also be destroyed by illegal profit-seeking groups across the value chain. Actors include specialized pharmaceutical firms and contract research organizations. Distributors include hospitals, pharmacies, and other smaller outlets linking consumers. Others are active pharmaceutical ingredient suppliers, NGOs, venture capitalists, etc. Resources are mainly scientific expertise, technology, and finance which converge at the activities of R&D, discovery, formulation, and clinical trials on human subjects, as well as tests on animals. Clinical trials are sometimes off-shored to contract research organizations in emerging economies where operations are cost-effective and regulatory demands are flexible. Nevertheless, institutions have the power to obstruct clinical trial processes if they do not meet the good clinical practice (GCP) and if trial subjects are not treated according the regulations. The interface of both business and non-business actors may delay the authorization for commercialization by European Medicines Agency (EMA) or Food and Drug Administration (FDA) in the United States, and competitors will enter the market first. This will eventually affect general performance of all the actors; the reverse is also valid (Reich, 2000).
All this has a positive and negative effect on the co-creation of value, which helps to explain the importance of corporate responsibility on the part of all the actors within a network context. The roles of FDA, EMA, and NGOs, for example, are typically normative and regulatory in a pharmaceutical network context, but they can exert great force on strategy implementation. This means they are not necessarily economic actors, which contradicts the popular view that all actors in a network have an economic motive. Their role as institutional structures is to safeguard resources (tangible and intangible) and intellectual property, prevent supply chain risk in international markets and to co-create more value with and for the consumer. Mpedigree for example is a technology-support actor that permits patients to call a toll-free number to verify the authenticity of pharmaceutical products after purchase. This is strictly value co-protection input, but without it the value co-creation cannot be guaranteed for consumers.
Value co-creation is an activity-based dynamic relationship whereby actors’ core values and responsibilities are embedded in creating and protecting or safeguarding the service or product that is of worth to the consumer; the ultimate goal of such relationship-driven process is to satisfy the different mutual expectations of the actors with the firm as the nucleus.
The contribution of the present work lies in the re-orientation and re-conceptualization of value co-creation in a network context for value co-protection via corporate responsibility. The establishment and maintenance of a network relationship is a resource and hence a value in itself. Moreover, value is created in terms of: i) economic gains (incremental turnover; due to competitive advantage created by perceived value of offers) and ii) social capital (bonds, ties, trust, and commitment), which represents an “ethical cheque” or core values for the future or long-term concerted efforts by actors to exploit opportunities through innovation, learning, and value protection. Most importantly, value consists of the implicit ethical responsibility of actors to commit to making optimal value propositions to consumers in cooperation with strategic (core) network-actors with the aim of meeting their needs sustainably by protecting such value co-creation processes.
Value co-creation without a network substance for value co-protection is tactically possible but strategically deficient; therefore, it will lower the networks’ ability to combat or decrease value destruction which is a constant internal and external threat. Cooperation with committed network actors seems to be a plausible direction with positive results and a matter of necessity for value co-protection. Any deviation from that would be pointless.
Networks achieve their aim when they are both proactive and reactive in the value co-creation in aligning actor core values, value co-creation, and value co-protection activities with the process of providing consumer solutions with and for the consumer. Value co-creation in networks is therefore not measurable in monetary terms only, but in socio-cultural, economic, institutional, reputational, and environmental terms. Most importantly, the future potential of all the above requires value protection from any sinister bunch or saboteurs who may hinder the ultimate desired value of network actors and consumers. Value protection is hence dependent on prioritizing the selection of actors with matching values, for it is better to be alone than to be with sinister actors in a network.