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Do Formal Contracts and Relational Governance Function As Substitutes or Complements?
Abstract
Relational exchange arrangements supported by trust are commonly viewed as substitutes for complex contracts in interorganizational exchanges. Many argue that formal contracts actually undermine trust and thereby encourage the opportunistic behavior they are designed to discourage. In this paper, we develop and test an alternative perspective: that formal contracts and relational governance function as complements. Using data from a sample of information service exchanges, we find empirical support for this proposition of complementarity. Managers appear to couple their increasingly customized contracts with high levels of relational governance (and vice versa). Moreover, this interdependence underlies their ability to generate improvements in exchange performance. Our results concerning the determinants of these governance choices show their distinct origins, which further augments their complementarity in practice. Copyright © 2002 John Wiley & Sons, Ltd.
... This not only creates room for alliance portfolio restructuring but also encourages alliance partners to maintain their competitiveness. Second, termination provisions provide a financial incentive for meeting performance expectations because, in the event of termination, relationship-specific investments are lost (Poppo & Zenger, 2002;Williamson, 1983). In other words, the mere threat of costly termination can discourage opportunistic behavior (Heide & Miner, 1992;Panico, 2011). ...
... In contrast, Hypotheses 4 and 5 add a sociological perspective and posit that the trade-off tilts against the inclusion of termination provisions when there are prior ties and indirect ties between the partners, which stabilize the relationship and could be harmed by signaling distrust (Lawler & Yoon, 1996). By including these hypotheses, we also account for an alternative explanatory pathway that has been emphasized in the relational governance literature (Cao & Lumineau, 2015;Poppo & Zenger, 2002). ...
... In addition to technology-induced uncertainty, prior ties with a partner have been found to exert a significant impact on governance decisions, as such ties can reduce behavioral uncertainties and enhance interorganizational trust (Abdi & Aulakh, 2017;Poppo & Zenger, 2002). Prior relationships enable partners to form clearer expectations of each other's behavior (Gulati, 1995), thus reducing the need for contingency planning and postcontractual adaptation. ...
Termination provisions establish vital governance mechanisms in alliances, offering essential safeguards and incentives by providing the flexibility to exit (underperforming) partnerships. However, they can also foster distrust and instability by potentially undermining commitment and continuity. We argue that the motivation behind termination provisions lies in the need to address safeguarding and flexibility concerns arising from increases in alliance scope, upfront payments, and technological uncertainty. Conversely, alliances with strong relational commitment and social embeddedness stemming from prior and indirect ties tend to omit termination provisions. Drawing on an analysis of 1,576 biopharmaceutical alliance contracts, we scrutinize various conditional and unconditional termination rights, along with their partner-specific allocations. Among other findings, we observe a positive association between broad alliance scope and termination rights for patent challenge, for lack of reasonable effort, and for specific countries assigned to the research and development (R&D) firm contributing technological expertise and, furthermore, termination rights for convenience for the client firm sponsoring the alliance. Larger unilateral upfront payments increase the likelihood that the client firm receives termination rights for lack of reasonable effort and for convenience. Higher technological uncertainty is associated with termination rights for convenience for the client or R&D firm. In contrast, prior ties negatively correlate with termination rights for convenience for the client firm, while indirect ties show a negative association with termination rights for convenience and specific countries for the R&D firm. Conceptually, our study highlights the relevance of termination provisions as elastic governance mechanisms that enable partners to accommodate postcontractual disturbances.
... Against this background, the present study combines transaction cost theory (Williamson 1985(Williamson , 1991 and governance value analysis (Ghosh andJohn 1999, 2005) to determine how governance mechanisms affect cooperation performance contingent on channel organization forms. Drawing on transaction cost theory, managers may employ governance mechanisms in response to exchange hazards by restraining opportunism (Carson, Madhok, and Wu 2006;Mesquita and Brush 2008) and facilitating cooperation (Hausman and Johnston 2010;Li et al. 2010;Poppo and Zenger 2002). Following the logic of governance value analysis emphasizing the interaction between firms' channel resources and governance forms (Ghosh andJohn 1999, 2005), we develop alignment effects between channel organization forms and governance mechanisms. ...
... Extant research on governance mechanisms provides mixed results. For example, although some empirical studies have supported that the contractual mechanism could improve performance by reducing opportunistic behaviors (Carson, Madhok, and Wu 2006;Chi et al. 2020;Li et al. 2010;Mayer and Nickerson 2005;Mesquita and Brush 2008;Wei, Zhuang, and Li 2022) and encouraging cooperation among channel members (Li et al. 2010;Mesquita and Brush 2008;Poppo and Zenger 2002), other studies have suggested that contracts might have no significant impact (Cannon, Achrol, and Gundlach 2000;Lusch and Brown 1996). We investigate whether the channel organization form functions as an exchange context and specify which governance mechanism is effective and efficient in a certain channel organization form. ...
... Such costs are attributed to specialized asset investments, difficult measurement of performance, and uncertainty (Williamson 1985(Williamson , 1991. Transaction cost theory has emerged as a common framework for adopting governance mechanisms to reduce transaction costs and promote interfirm cooperation (Ketokivi and Mahoney 2020;Li, Feng, and Zhuang 2021;Poppo and Zenger 2002). ...
Purpose: Multichannel marketing has become the norm for distributing goods and services, and manufacturers and distributors operate in various channel organization forms. Drawing on transaction cost theory and governance value analysis, this study introduces channel organization forms as focal design elements of multichannel settings and aims to align governance mechanisms with these forms.
Design/Methodology/Approach: Survey data are gathered from four sub-samples of 295 Chinese manufacturers. Ordinary least squares regression analysis is used to test the hypotheses.
Findings: Depending on the multichannel design of manufacturers, the performance effects of contractual, normative, and authoritative mechanisms vary in the four channel organization forms: corporate, franchised, managerial, and relational. Moreover, in each organization form, there is a specific governance mechanism that positively affects cooperation performance, indicating alignment.
Research Implications: This study advances governance literature by demonstrating the alignment between channel organization forms and governance mechanisms, while the channel organization form serves as a contextual factor that explains the inconsistency of performance effects of governance mechanisms. In addition, extending prior research comparing differences between multichannel and nonmultichannel settings, this study explores variation within a multichannel context from a channel-organization-form perspective.
Practical Implications: It is critically enlightening and instructive for manufacturers to choose governance mechanisms based on their channel organization forms and thus improve cooperation performance within multichannel settings.
Originality/Value: This study's findings address the gap in governance literature concerning whether the performance effects of governance mechanisms are contingent on different channel organization forms.
... Unfortunately, empirical research on how family governance affects k e is missing so far. Therefore, we investigate in this study the relationship between Family Governance Practices (hereafter FGP) and private family firms' k e from an evolutionary stages lens, building on arguments from the relational governance (Mustakallio et al., 2002;Poppo & Zenger, 2002;Sundaramurthy, 2008) and institutional perspectives (Melin & Nordqvist, 2007;Parada et al., 2020;Scott, 2001). FGP exist as a range of distinct practices (Suess, 2014), such as informal family meetings (Bloemen-Bekx et al., 2021), formal family councils-defined as "a forum where the owner-family's relations to and issues with the business should be discussed" (Melin & Nordqvist, 2007, p. 325)-and family constitutions-defined as "a document that articulates the family policies that guide the relationships between family, ownership, and business roles in a family firm" (Botero et al., 2015, p. 219). ...
... Second, we blend theoretical arguments of the relational governance literature with arguments from the institutional perspective. As specified above, the relational governance perspective (Poppo & Zenger, 2002) advances that the elementary components of effective family governance consist of social interactions and processes, formal communications forums, and a formal protocol (Mustakallio et al., 2002;Sundaramurthy, 2008;Villalonga et al., 2015). However, recent research building on the institutional perspective pointed to the potential ceremonial adoption of family councils, which may drive a wedge between the implementation and their functionality/effectiveness (Parada et al., 2020). ...
... Establishing a relationship between the FGP stages and k e raises the question about the governance effectiveness of each stage. A first answer to this question can be found in the relational governance perspective (Gnan et al., 2015;Mustakallio et al., 2002;Poppo & Zenger, 2002). Indeed, a distinctive feature of family firms is the unique nature of the social relationships among key (family) actors in ownership and management (Mustakallio et al., 2002), making the relational governance perspective a highly relevant lens. ...
This paper examines the relationship between the family governance evolutionary stages and the rate of return required by family businesses' shareholders (k e), building on an institutional and relational governance lens. We make the distinction between the informal stage, the family council stage and the family constitution stage. Findings from a sample of Spanish private family firms reveal that family firms in the family constitution stage have a lower k e than family firms in the family council stage and the informal stage. Surprisingly, family firms in the family council stage seem to have a higher k e than family firms that are in the informal stage, which points to ceremonial adoption effects and a mismatch between governance needs and practices in the family council stage. We also find that the effect of different family governance stages on k e is conditional on the number of family shareholders.
... Interorganizational governance mechanisms provide three functions: coordination of goals, controlling the opportunity for opportunism through cooperation mechanisms, and collaboration, which involves delineating roles and responsibilities and setting up structures for communication and joint problem solving (Castañer and Oliveira 2020;Lumineau et al. 2015;Roehrich et al. 2020). Depending on the situation, these functions are fulfilled by a combination of formal mechanisms, which are legally enforceable rules of exchange, and informal mechanisms, which are based on relational norms of flexibility (adaptation to unforeseen events), solidarity (commitment to joint action through mutual adjustment), and information sharing (Poppo and Zenger 2002) (Table 3). ...
... Historically, the literature on interorganizational governance viewed formal and informal mechanisms as substitutes, but there is increasing evidence that they are complementary under a wide array of contexts (Cao and Lumineau 2015;Liu et al. 2009;Poppo and Zenger 2002). This is because most situations entail some amount of environmental, partner, and workflow uncertainty, which makes designing formal mechanisms that successfully account for every possible outcome infeasible. ...
In recent decades, there has been considerable research into how infrastructure systems and sectors mutually rely upon each other, how a single failure in one system can cascade and affect numerous systems, and how collective restoration sequences should be conceived. However, lacking in these discussions are how individual decision-making heuristics, intraorganizational structure and priorities, and interorganizational conflict influence infrastructure operator decisions, and how this, in turn, influences the collective performance and reliability of coupled infrastructure. Building upon literature on intra- and interorganizational conflict and governance, we develop a conceptual framework for contextualizing the operational and strategic decision patterns of operators of complex interdependent systems during situations of high uncertainty. This enables us to pinpoint (some) sources of conflict that, if addressed and resolved, could induce multiple beneficial collective outcomes. These benefits, in principle, include faster outage recoveries and better reliability. The framework is demonstrated in proof-of-concept case study of outages of an interdependent infrastructure system (electrical power, steam, water, and information technology) at a large university campus in the US. Using cognitive task analysis, system operators were interviewed about their experiences with outage events. The resulting qualitative data were assessed for patterns using the framework. We find that (1) improved communication to reduce ambiguity, (2) stronger relational norms, and (3) alternative contractual incentives and penalties may induce better coordinated maintenance and operations across the systems. Because interdependent infrastructure modeling often examines only incentives and penalties, our results highlight how qualitative analysis of individual and organizational conflict and governance can provide complementary insights.
... Buvik and Grønhaug (2000) found that substantial asset specificity combined with high environmental uncertainty leads to less degree of vertical co-ordination in buyer-seller relationships. Poppo and Zenger (2002) argue that exchange partners are less able to solve contract issues when specialized assets and technological uncertainty are present. We expect this effect on technological uncertainty to be stronger in advanced/structured emerging economies because such economies will wish to capitalize on a high level of formalization and less degree of adaptation. ...
... high technological variations will reduce the influence of buyer asset specificity on relational adaptation due to the risk of being trapped with old technologies. technology variations tend to have advantages and disadvantages for both sides of the relationship Poppo and Zenger (2002). For a buyer having a technological change, it means the opportunity to improve efficiency and lower cost. ...
Inter-firm relations plays a significant role in business performance especially within the international context. Several studies have attempted to understand how inter-firm relational adaptation is shaped through the use of various theoretical frameworks. What has been missing from the current understanding is the degree to which contextual (institutional) dynamics (variations) influence inter-firm adaptation, a subject which this paper intends to address. This study has used a setup of data from two distinctive emerging markets which have different institutional arrangements to examine how institutions determine inter-firm relational adaptation. The framework of the research uses business-to-business relationships, which have existing formal transactional governance setup. We use transactional, relational, and institutional theories in developing the paper. The study used manufacturing firms in Poland, focusing on the buying side of the relationship. Surveyxact software was used to collect the responses. Firms were selected from a targeted sample frame of 1800 respondents. A sample of 201 respondents was used, which is about 33% response rate (computation of response rate included the partially completed questionnaires). In Tanzania the questionnaires were delivered physically to a targeted sample frame was 750 firms and a final sample extracted with completed questionnaires received was 240 making a response rate of around 31%. Findings has indicated that the institutional dynamics/variations influences the inter-firm relational adaptation. Specific findings indicated that the effect of supplier asset specificity on inter-firm relational adaptation is stronger in less structured than in structured emerging markets. Volume uncertainty decreases strongly the effect of asset specificity on adaptability in structured than in less structured emerging markets. The study is limited due to the fact that it used few dimensions from transaction cost theory and relational governance perspectives. In addition, we employed data from a single context. This study provides a unique approach in understanding the influence of institutions on the inter-firm relational adaptation in the context of heterogeneous emerging markets. The unique contribution of this study is in two folds. First is that it uncovered the influence of transactional dimensions of inter-firm relational adaptation and second is that it used institutional differences in emerging markets.
... legal clauses) or relational (i.e. informal norms stemming from social interactions) (Poppo and Zenger, 2002). Significant efforts have been devoted to demonstrating the impact of diverse arrangements for supplier governance on the financial and operational performance of the SC, and specifically of the focal firm (Wacker et al., 2016;Grover and Malhotra, 2003). ...
Purpose-This study analyzes the performance implications of adopting blockchain to support supply chain business processes. The technology holds as many promises as implementation challenges, so interest in its impact on operational performance has grown steadily over the last few years.
Design/methodology/approach-Drawing on transaction cost economics and the contingency theory, we built a set of hypotheses. These were tested through a long-term event study and an ordinary least squares regression involving 130 adopters listed in North America.
Findings-Compared with the control sample, adopters displayed significant abnormal performance in terms of labor productivity, operating cycle and profitability, whereas sales appeared unaffected. Firms in regulated settings and closer to the end customer showed more positive effects. Neither industry-level competition nor the early involvement of a project partner emerged as relevant contextual factors.
Originality/value-This research presents the first extensive analysis of operational performance based on objective measures. In contrast to previous studies and theoretical predictions, the results indicate that blockchain adoption is not associated with sales improvement. This can be explained considering that secure data storage and sharing do not guarantee the factual credibility of recorded data, which needs to be proved to customers in alternative ways. Conversely, improvements in other operational performance dimensions confirm that blockchain can support inter-organizational transactions more efficiently. The results are relevant in times when, following hype, there are signs of disengagement with the technology.
... A significant amount of literature suggests that relational and contractual governance are complimentary (Arranz and de Arroyabe 2011;Cao and Lumineau 2015;Poppo and Zenger 2002;Roehrich 2009;Zheng et al. 2008). Benitez-Avila et al. (2018) and Bygballe et al. (2014) highlight the statement that contractual elements provide the guidelines for relational elements, and then, relational governance, in turn, neutralize the limitations of contractual governance. ...
A public-private partnership (PPP) project generally spans across a period of 30 years or more and is exposed to uncertainties. The possibility that a PPP contract can cover all events affecting different stakeholders in the future, particularly the public agency and the concessionaire, is low. Therefore, a need to effectively manage relationships has been identified in the literature to complement contractual arrangements. Relationship Management (RM) is a relatively new approach which aims at changing the perception of an organization towards creating and maintaining relationships. RM is a more proactive approach towards developing coordination and trust within teams to achieve desired project outcomes. The aim of this paper is to review studies pertaining to RM in PPP projects through 2018 to identify research trends as well as suggest areas for future investigation. Studies examining relational contracting in construction projects were also reviewed given their relevance to the subject. Four major themes were identified in the literature review: the need for relationship management, the complementarity between contractual and relational governance, the identification of critical factors enabling or inhibiting strong relationships, and proposal of qualitative or quantitative frameworks to measure relationship strength. The four themes identified are linked in a three staged linear structure. The findings also suggest that the factors affecting relationship management can be organized into three major categories: intra-organizational, inter-organizational and other factors. Four directions of future research have also been proposed in the paper.
... Models and formal management processes aim to eliminate or reduce the broad range of heuristics leading to bias in human centered decision processes, and to ensure a certain behavioral stability. Many argue, therefore, for a balance between formal management systems and informal mechanisms (Atkinson et al., 2006;Poppo & Zenger, 2002). Jørgensen and Messner (2009) states that formal management procedures that enable employees to deal more effectively with the work process and inevitable changes, are beneficial to overcome the challenges and risks of uncertainties. ...
Research Question: How to extend the Last Planner System ® to planning the entire project? Purpose: To provide one planning and control system for both project and production, and to improve project level planning. Research Method: Design science research method Findings: Project execution planning is the appropriate focus for extending the Last Planner System ® because it responds to the question 'If this project can be delivered with acceptable risk' and provides a plan for project execution. Three primary weaknesses in current project planning were found: failure to involve the right people in planning, being overly deterministic in the face of uncertainty, and over reliance on the ability to predict probability of occurrence of risk events. This research report includes countermeasures for each of the three weaknesses. Limitations: This research provides a proof of concept for building options into project schedules, but full validation requires implementation and refinement of the proposed planning process on projects. Implications: Traditional project planning a) is overly deterministic, despite high levels of uncertainty faced by most projects, b) fails to involve the right people in planning, and c) is overly reliant on buffers as a means for mitigating risks, despite the fact that effective buffering requires the ability to calculate buffer size and that can be done only for risks that are statistically predictable. Value for practitioners: Practitioners are provided a method for building options into project schedules and evaluating the impact of various options on project performance.
... In recent years, trust has taken center stage in management (Rousseau et al., 1998;McEvily et al., 2003;Dirks et al., 2009) and entrepreneurship studies (Welter and Smallbone, 2006;Welter, 2012;Scarbrough et al., 2013;Pollack et al., 2017). Trust involves confident expectations about the intentions and behaviors of another party and the willingness to accept vulnerability (Rouseau et al., 1998: 394). 1 Firms favor collaborating with parties they trust because of the positive consequences of trust on performance for interorganizational collaborations (Granovetter, 1985;Uzzi, 1997;Poppo and Zenger, 2002;Lado et al., 2008;Luo, 2008). ...
... Relational governance is defined as a non-legal sanction that depends on trust and normative behavior to operate as a self-enforcing precaution in mitigating the risks of opportunism (Dyer et al., 2018;Krishnan et al., 2006;luo, 2008;Poppo & Zenger, 2002;Poppo et al., 2008;Zhong & sun, 2020Zhong & sun, ). carson et al., (2006 divided relational government into three primary forms: reputation, trust, and continuity. ...
This study examines the impact of CEO psychological biases (narcissistic and hubristic) in CEOs on a firm’s performance measured by long-term investor value appropriation (LIVA) in Malaysia. Based on a sample of 560 Malaysian firms for 2007–2022, we find the negative effect of CEO narcissism and hubris on firm performance. In comparative terms, the impact of CEO narcissism is more pronounced. Furthermore, we tested the moderating role of CEO attributes. CEO-duality and ownership moderate the CEO-narcissism/hubris LIVA negative relationships, whereas CEO tenure curtails the relationship. Furthermore, we also tested the role of governance in curtailing the effect of CEO narcissism/hubris on LIVA. The findings show that gender critical mass, foreign ownership, and group affiliation substitute the negative impact of CEO narcissism/hubris on LIVA. However, board independence and strategic alliance only weaken the negative effect of the psychological biases (narcissistic and hubristic) on LIVA. In additional analyses, gender critical mass is a substitution mechanism for the direct impact of foreign ownership and group affiliation on LIVA. This study enhances the existing knowledge on CEO narcissism and hubris by illustrating that CEO personality qualities impact the firm performance in the emerging context of Malaysia.
... Instead, it serves primarily as a modularity element of the design process, an integrator of production logics, and a'bargaining chip' for 'the orderly division of rights among producers of complementary technologies' . 72 As such, IP licensing locks lead firms and IP vendors into contractual relationships that paralyse the bargaining power of the less powerful parties and prevent them from 'upgrading' their role in the GVCs. Nonetheless, lead firms may wish to synchronize all elements of the design processes and opt for bringing IP capacity in-house either through mergers and acquisitions (M&A) or through building in-house chip design capabilities from scratch, a pattern that seems to have become a strategic priority for Big Tech. ...
The governance of artificial intelligence (AI) is at a historical juncture. Legislative acts, global treaties, export controls, and technical standards are now dominating the discourse over what used to be a predominantly market-driven space. Amidst all this frenzy, this paper explains why none of these projects will achieve ‘alignment’ of AI with the prospect of a sustainable model of production authentically committed to the rights and freedoms of people and communities. By reflecting on the role of law in consolidating the visions and logics of few multinationals in the global value chains of AI, it warns against the peril of regulating AI without looking at the methods and logistics of its material production. Following a detailed overview of the various (techno-)legal ways through which law enables the flow of materials, capital, and power from Global South to Global North, and from small players to lead firms, the paper concludes with some preliminary thoughts on a transformative agenda for the transnational regulation of infocomputational production.
... In recent years, trust has taken center stage in management (Rousseau et al., 1998;McEvily et al., 2003;Dirks et al., 2009) and entrepreneurship studies (Welter and Smallbone, 2006;Welter, 2012;Scarbrough et al., 2013;Pollack et al., 2017). Trust involves confident expectations about the intentions and behaviors of another party and the willingness to accept vulnerability (Rouseau et al., 1998: 394). 1 Firms favor collaborating with parties they trust because of the positive consequences of trust on performance for interorganizational collaborations (Granovetter, 1985;Uzzi, 1997;Poppo and Zenger, 2002;Lado et al., 2008;Luo, 2008). ...
This study proposes a hybrid model of initial trust formation that highlights the role of social categorization and its interplay with both institutional trust and the individuating information about the party. Using data on 1,474 corporate venture capital (CVC) investments in European ventures and a case-control research design, we find that ventures more likely form initial CVC ties with investors whose parent companies are located in countries considered more trustworthy. This effect is weaker but does not disappear when social defenses safeguard ventures from misplacing trust and when there are social ties between CVC investors and ventures’ independent VC investors.
... More broadly, our fixed effects absorb the determinants of interfirm collaboration studied in the management literature. For example, they control for majors' and regionals' capabilities (e.g.,Hoetker, 2005; Mayer and Salomon, 2006) and technological complementarities (e.g.,Mowery, Oxley & Silverman, 1996;Bercovitz, Jap & Nickerson 2006); the structure of their contracts (e.g.,Sampson, 2004; Reuer and Devarakonda, 2016); similarity in their organizational cultures(Lioukas and Reuer 2015); their use of output and/or behavior monitoring (e.g.,Heide et al., 2007; Poppo and Zhou, 2010), and repeated interactions and learning between them (e.g.,Gulati and Singh, 1998;Poppo and Zenger, 2002;Argyres, Bercovitz & Mayer 2007). In addition, our major-airport and airport-day fixed effects control for relevant transaction and environmental characteristics such as the demand for the buyer's products(Bercovitz et al., 2006) and the pace of environmental change(Grewal et al., 2013). ...
One of a firm's key strategic decisions is whether to concentrate its input purchases in a small number of suppliers versus spreading them among many suppliers. We propose that supplier concentration solves an interfirm free-riding problem: by internalizing externalities between suppliers, it incentivizes buyer-supplier cooperation. Guided by a simple theoretical model, we investigate this hypothesis on slot exchanges between major airlines and their outsourced regional airline partners during inclement weather, a setting where externalities between suppliers are ubiquitous. We find robust evidence that a regional airline engages in more frequent slot exchanges with its major airline partner when it operates a larger share of the major's outsourced flights. We also find that this positive effect of concentration on mutual cooperation increases in the size of the externalities between regionals. Our results suggest that, in contrast with Porter's classic five forces framework, supplier concentration can serve as a governance instrument for buyer-supplier collaborations. More broadly, our paper provides novel evidence on task concentration as a tool to solve free-riding problems in multi-agent settings.
... According to Poppo and Zenger (2002), relationally governed exchanges are guided by the fulfillment of obligations, expectations, promises, and social processes, which are supported by flexible and supportive norms and the exchange of information. In this way, such flexibility speeds up adaptation to unpredictable events, where problem-solving occurs in bilateral and mutual actions. ...
The governance model established in an organization is directly related to the type of transactions it carries out. These transactions are marked by transaction costs, inherent to behavioral assumptions (opportunistic behavior and limited rationality) and other transaction factors (asset specificity, frequency, and uncertainty). The relationship between partners should be beneficial when there is a perception of fairness, especially at the initial stage of the relationship, when those involved are not yet completely familiar with the other partners' working methodologies. In this sense, the perception of fairness in the relationship improves and the predisposition to business should increase. Therefore, this study aimed to review scientific works in the international literature and how they dimension the impact of perceptions of organizational justice and relations between agents and the governance of organizations. The pattern of publications worldwide highlights the participation of developed countries in North America and Europe in the subject study, such as the United States, the United Kingdom, and Denmark, for example. This research identified the characteristics of the agents that guide the relationships linked to the main theme of this paper, such as commitment, trust, insecurity, cooperation, and positive and negative feelings, for example. According to the authors, organizational justice has a positive impact on the relational governance performance of rural cooperatives. Likewise, they state that improving the level of governance is directly linked to the positive participation of members in the institution's internal governance.
... However, a substantial amount of research has demonstrated that detailed contract drafting positively influences trust. Poppo and Zenger [23] showed that detailed contract drafting positively influences trust. Ryall and Sampson [27] also found that the degree of detail of a contract is positively related to the frequency of transactions and trust between the parties. ...
The successful implementation of Enterprise Resource Planning (ERP) systems is significantly predicated on establishing customer trust, a challenge particularly accentuated in mainland China due to its distinct business and legal environment and a noted high failure rate of ERP projects. Whereas contracts and transaction-specific investments are common strategies to build this trust, their effectiveness remains contested in the existing literature. Specifically, the underlying mechanisms through which detailed contracts influence trust are still not clearly understood. To address these gaps, our study employs signaling theory to conceptualize a model that elucidates how contract completeness, vendor contract compliance, and transaction-specific investment act as trust-building signals in ERP vendor-vendee relationships within the Chinese context. Furthermore, we introduce ownership type as an additional variable, evaluating its influence in shaping customer trust. Our empirical analysis draws on data from 208 Chinese organizations engaged in ERP implementations, revealing nuanced findings. Notably, the vendor's ownership type, quantified by the degree of foreign ownership, negatively moderates both the results of contract completeness on contract compliance and the subsequent mediation effect on trust, thereby highlighting the critical influence of cultural factors. This study is among the pioneering empirical investigations into the synergistic roles of contract compliance and ownership type in mediating the relationship between contract completeness and trust. Our insights provide a robust foundation for understanding the complexities of contractual and relational governance in ERP vendor-vendee relationships, and we recommend targeted strategies for both vendors and customers to enhance trust in this critical business domain.
... We first contacted 600 manufacturing firms randomly from the government list via telephone and email to seek for their participation, 284 of them offered agreement. It was suggested that a study can be based on data from a single informant if the informant's cognitive perspective is sufficient for the research questions (Poppo and Zenger, 2002). Therefore, we collected data from a single informant in each firm. ...
Purpose
This study aims to investigate how relationship conflict (RC) hinders green customer integration (GCI) and which strategy could be developed to alleviate the negative effect of RC.
Design/methodology/approach
The authors use a sample of 206 Chinese firms to examine hypothesized relationships drawing on social exchange theory and buyer-supplier relationship perspective. Methods including exploratory factor analysis and confirmatory factor analysis are used to assess reliability and validity. Hypotheses are tested using hierarchical regression analysis. Post hoc analysis is adopted to evaluate the robustness.
Findings
The results show that RC negatively relates to GCI. Normative commitment partially mediates the relationship between RC and GCI, while the mediating role of instrumental commitment is insignificant. In addition, coercive influence strategy positively moderates the RC-normative commitment and RC-GCI relationships.
Research limitations/implications
While this study clarifies the mechanism of how RC impedes GCI and how to address RC in buyer-supplier relationships, it could be more meaningful to extend the current research and figure out how to address RC in different supply chain relationships. Besides, it will make sense to conduct longitudinal studies and explore the dynamic nature of RC in supply chain relationships.
Practical implications
In practice, firms find it challenging to achieve GCI owing to the ubiquitous existence of RC. The findings reveal that RC detriments GCI partially through normative commitment, and the use of coercive influence strategy mitigates the detriments of RC. Thus, the authors provide solutions for firms to address RC for achieving GCI.
Originality/value
RC is unavoidable in organizational interactions. Prior studies have not revealed the processes through which RC relates to GCI. The authors bridge the gap by exploring the mediating role of organizational commitment and the moderating role of influence strategy, which offers a better understanding of how RC is associated with GCI, and add knowledge of addressing RC for achieving GCI.
... ITO is defined as the practice of transferring IT assets, leases, staff, and management responsibility for the delivery of IT services from the internal department to third-party vendors (Hirschheim & Lacity, 2000). The literature has investigated reasons for ITO failures and difficulties surrounding the complexity and causal ambiguity of coordinating projects across diverse outsourcing activities, particularly in the relationships between a client firm and its outsourcing vendors (e.g., Barthelemy & Quelin, 2006;Poppo & Zenger, 2002;Ravindran et al., 2015). Many ITO studies have also focused on the role of the contracts from a transactional or a financial lens (e.g., Ang & Straub, 1998;Aubert et al., 2004;Lacity & Willcocks, 1998;Wang, 2002). ...
The demand for information technology outsourcing (ITO) providing large-scale professional services has developed into a mature and essential industry for many organizations. Against this backdrop, managing the internal workplace relationship and organizational commitment levels between the vendor firm providing critical ITO services and the vendor’s employees performing the work for the external client is a significant emerging challenge for all involved parties. Contracts in various formats and structures (transactional or psychological) are often applied as a universal tool to govern the complex ITO relationship. However, the formal or transactional contract may not be enough to ensure employee commitment to position the ITO relationship for success. This paper investigates the impact that the psychological contract has on organizational commitment across different matching patterns between the outsourcing vendor and the vendor's employees. Building upon empirical findings and theoretical perspectives of a systematic grounded theory-based literature review, business observations, and best practices, we develop a theoretical framework that categorizes the matching patterns of the vendor-employee psychological contract into four types: Vendor Dominant, Employee Dominant, Mutual Relational, and Mutual Transactional. Our findings from an analysis of 562 survey participants demonstrate that the employee's relational psychological contract has a higher positive influence on organizational commitment than the employee's transactional psychological contract in both matching and mismatching situations. The implications and future research avenues of study are discussed.
... D'abord, du point de vue de la gouvernance contractuellesoulignant l'importance des contrats dans la réduction de l'incertitude, des comportements opportunistes et des conflits et promouvant la coopération entre les participants (Benítez-Á et al., 2018;Quanji et al., 2017;Rouhani et al., 2018). Ensuite, la perspective sur les mécanismes International journal of applied management and economics Vol : 2 , N° 05 , Novembre 2023 ISSN : 2509-0720 de gouvernance des PPP se concentre sur la gouvernance relationnelle (à savoir la confiance), qui est établie en maintenant les relations entre les organisations et en promouvant les objectifs des parties (Müller et al., 2017;Poppo & Zenger, 2002). Par conséquent, les études antérieures concernant les mécanismes de gouvernance des PPP se sont principalement axées sur des aspects tels que la répartition des risques et des avantages, la performance de la gouvernance, et l'efficacité de la gouvernance relationnelle, comme en témoignent les travaux de Lee et Cavusgil (2006), Lu et al. (2015), et Xue et al. (2017). ...
Les partenariats public-privé (PPP) sont populaires à l’échelle mondiale, mais leurs performances suscitent des débats. En effet, en tant qu'outil stratégique, ces PPP ont émergé comme des catalyseurs potentiels pour l'innovation et la réalisation des Objectifs de Développement Durable (ODD), mettant ainsi en lumière la nécessité impérieuse d'une gouvernance publique efficace et novatrice. Cette étude s'engage à examiner de près comment l'innovation au sein de la gouvernance des PPP peut contribuer de manière significative à l'atteinte des ODD, en se penchant sur les enseignements tirés des expériences des PPP en Afrique pour identifier les meilleures pratiques et les leçons apprises, à travers une Analyse par Théorisation Ancrée basée sur des études de cas de différents PPP axés sur les ODD conclus entre 2017 et 2023 dans 21 pays africains, afin de développer notre modèle type de gouvernance, orienté vers la création d'un cadre de compréhension spécifique des PPP en Afrique, et permettant de capturer la complexité des dynamiques entre les acteurs publics et privés, les facteurs de succès, les obstacles rencontrés et, surtout, la manière dont l'innovation dans la gouvernance peut être intégrée pour optimiser la contribution des PPP aux ODD. Les résultats de cette analyse ont indiqué qu’une « Gestion de la gouvernance des PPP » est nécessaire pour fournir un cadre structurel et décisionnel aidant les partenaires publics et privés à collaborer, innover et créer des synergies pour atteindre les objectifs du projet de manière conforme et stratégique. Cette étude ambitionne de contribuer activement au renforcement des capacités décisionnelles des parties prenantes.
The presence of independent directors on corporate boards is often seen as an important means of monitoring to address principal-agent problems and of providing external resources and advice to management. In joint ventures (JVs), however, shareholder-management frictions can be lessened by appointing insiders to management and board positions, whereas access to valuable expertise, resources, and networks are provided by the partners themselves. A natural question, then, is why and when do partners appoint independent directors to JV boards? We argue that the appointment of independent directors to joint venture boards is primarily driven by principal-principal conflict considerations, which are unique in the joint venture context compared with conventional widely held corporations. Consistent with this argument, we find that the likelihood of appointing independent directors increases when JVs face more exchange hazards due to the competitive overlap between partners and the broader functional scope of the JV. However, given that JVs also have alternative governance mechanisms to mitigate shareholder conflicts, we also find that more complex contractual agreements can potentially substitute for independent directors on JV boards. Although relational governance is often highlighted as a key facet of JV governance, we do not find such a substitution effect for this supporting governance mechanism. Overall, our research therefore highlights several interesting domain translation issues when applying existing corporate governance insights to the joint venture setting. Our paper concludes with a call for future research on independent directors serving on JV boards, as JVs represent an organizational form that has been neglected in corporate governance research.
Purpose
This study aims to investigate how indigenous socio-cultural (ISC) practices within informal networks, such as guanxi and wasta, provide benefits beyond mere access. Specifically, the authors explore their global impact on B2B relationships, focusing on reciprocity. A multiregional sample extends research on ISC practices in B2B relationships by examining contingency effects of informal network ties.
Design/methodology/approach
The authors surveyed 404 buyers in two developed (Hong Kong and Portugal) and two emerging economies (Kuwait and Colombia), and also categorized by strong and weak informal network ties. Using structural equation modeling, the authors examined a relationship marketing (RM) model from a typology (Clubs, Sociocracies, Clans and Compadres) for assessing contingency effects.
Findings
The study reveals that in developed economies with strong formal institutions, negative aspects of favor reciprocity norms intensify unless informal networks are driven by strict sociomoral obligations. This supports research indicating that contractual governance competes rather than complements relational governance. Moreover, trust-building processes are crucial in regions with low uncertainty tolerance to mitigate adverse effects.
Practical implications
Suppliers from developed nations need more than cultural communication insights when engaging in business in emerging markets. We acknowledge changes buyers may expect adherence to reciprocity rules embedded in the ISC practices of their informal networks.
Originality/value
This study pioneers a typology of social structures to analyze ISC practices across buyers with varying formal institutional strength and informal network ties. It sheds light on institutional dynamics, trust-building processes, and nuances surrounding both positive and negative aspects of reciprocity practices. Furthermore, it broadens the scope of RM to Asia, Europe, Latin America and the Middle East.
Research Summary
The impact of multimarket contact (MMC) between partners on strategic alliance survival is unclear, even though recent studies have suggested that MMC increases the likelihood of alliance formation. Our study investigates this issue by integrating two mechanisms occurring between multimarket firms: mutual forbearance and technological resource imitation. We argue that MMC between partners deters opportunism in alliances via mutual forbearance, resulting in a positive effect on the likelihood of strategic alliance survival. We also suggest that the positive effect is weakened in two settings with higher risks of technological resource imitation: technological overlap between partners and the presence of R&D activities in an alliance. Evidence from strategic alliances in the global semiconductor industry supports these conclusions.
Managerial Summary
Recent research has shown that firms encountering each other in multiple markets are more likely to form strategic alliances, but it is unclear whether these firms are likely to stick together. Our theory suggests that the threat of broad retaliation limits opportunism and increases the likelihood of alliance survival when partners encounter each other in multiple markets. Nonetheless, in settings where partners have similar technologies, or in alliances involving R&D activities, their ability and incentives to copy each other's technological resources offsets the positive effect of multimarket contact on alliance survival. We study strategic alliances in the global semiconductor industry and find evidence consistent with these arguments.
This chapter focuses on research contributions to understanding supply chain management through the processes, flows, roles and behaviours that occur within supply structures. Supply processes and flows are tangible and intangible. SCM and logistics research has focused more on tangible flows of materials and information, whereas purchasing and supply management have focused on relational aspects, particularly within the dyadic relationship. Historically there has been more SCM research attention to large, high-volume manufacturers able to influence other organisations in the supply structures they operate in. Less is understood about the supply processes of smaller and less influential organisations. In some supply situations it is possible to be managerial but in others supply chain managers have to cope and react. There has been very little research in the field of SCM on supply markets, their structures and processes, and how large organisations, confederations and governments may influence supply markets.
Purpose
Digital transformation misalignment refers to disparities in digital transformation levels between suppliers and buyers across the production and operation process. It has negatively affected supply chain stability. However, the existing research concerning the economic consequences has not been adequately addressed. Therefore, this paper aims to investigate whether such digital transformation misalignment increases supplier financial risk and to identify the factors influencing this relationship.
Design/methodology/approach
This paper examines binary combinations of suppliers and buyers listed on China’s A-share market between 2011 and 2021. This group constitutes a sample to empirically test the influence of digital transformation misalignment on the supplier’s financial risk, as well as the moderating effect of the geographical and organizational distances.
Findings
The paper’s findings demonstrate that digital transformation misalignment has indeed a significant increase in the supplier’s financial risk. Moreover, the impact is more intense when the geographical or organizational distance between the supplier and the buyer is relatively large.
Originality/value
The existing literature rarely explores the potential risks arising from digital transformation misalignment between supply chain partners. Therefore, this paper fills a notable gap as it is the first to study the impact of digital transformation misalignment on the supplier’s financial risk and the specific applied mechanisms. The contribution significantly improves the field of corporate digital transformation, particularly, within the context of supply chain management.
Purpose
This study aims to investigate the conflicting views in supply chain and strategic management literature regarding cooperative supply chain relationships (CSCR) and firm performance. Supply chain literature suggests a universally positive impact of CSCR on performance, irrespective of a firm’s strategy. In contrast, strategic management literature contends that the effectiveness of CSCR depends on their alignment with the firm’s competitive strategy. The research aims to clarify this disparity, offering insights into the strategic use of CSCR for enhancing firm performance.
Design/methodology/approach
This paper theorizes the integration of perspectives for the impact of CSCR on firm performance by examining the relationships considering the alignment of cost leadership and product differentiation strategies with supplier and customer relationships. Plant-level survey data is analyzed using regression techniques to test four hypotheses.
Findings
All four main relationships (cost leadership, product differentiation, supplier relationship and customer relationship) on firm performance are statistically significant. However, cost leadership firms are better aligned to their chosen strategy when they have strong relationships with suppliers, whereas similar relationships with customers create misalignment, negatively influencing firm performance. In contrast, product differentiators benefit by investing in relationships with customers rather than with suppliers.
Practical implications
A firm’s performance does not solely depend on its CSCR efforts but on aligning them with the firm’s overall strategy. Therefore, managers need to be cognizant of the firm’s competitive strategy when investing in CSCR. Failing to do so could negatively impact firm performance and, eventually, its ability to compete in the marketplace.
Originality/value
Scholars have advocated for the importance of examining competing perspectives of phenomena, both within and across various bodies of literature, as cross-disciplinary analysis often brings enhanced focus and depth, leading to improved understanding. This research is one of the initial efforts to empirically analyze the varying perspectives on CSCR in supply chain and strategic management literature. This cross-disciplinary approach can yield a more integrated perspective.
To understand the effects of bidder’s strategies on contractual modifications, this study utilized econometric methods and a database containing 5,434 engineering service contracts from Brazilian federal government. The results demonstrate the effects arising from the trade-off between the low prices presented in the contractor selection phase and the contractual performance measured by contract modifications. Competition among bidders in a reverse auction with multiple rounds of bid submissions can exacerbate this trade-off, potentially incentivizing risk-taking strategies by bidders. Subsequently, this may lead to the need for contract modifications to facilitate the ongoing execution of the contract.
We introduce a model in which people exchange some goods and services informally in their community and others formally on a market. We show that enforcement by informal communities and a formal market are complements: If communities ostracize individuals who are caught cheating on the market, this bolsters incentives to comply with exchanges in both settings. Although transactions within a community generate lower gains from trade than those on the wider market, the enhanced incentives from simultaneously transacting in communities and on the overall market can be welfare-enhancing compared with either extreme. We discuss the implications of informal community exchanges in a country’s development as well as how moral or religious beliefs enhance the complementarity between community and formal enforcement.
Previous research on learning to contract and contracting capabilities suggests that firms in interorganizational relationships adopt contractual designs that economize on transaction costs, and over time learn to govern their relationships in a more efficient manner by incrementally aligning contractual terms with transaction attributes based on new experiences made in their relationships. We augment the learning to contract literature by highlighting the role of organizational design as a factor that may impact contractual learning and the development of heterogeneous contracting capabilities. Specifically, we suggest that the level of specialization and structural integration across the firm’s technical, commercial, and legal functions may affect the effectiveness of contractual learning and the type of learning likely to occur. We also outline boundary conditions for our model in terms of potential interactions between the contractual environment, organizational design, and contractual learning.
Purpose
This study aims to (1) validate the efficacy of contractual and relational governance in enhancing operational performance and (2) explore the influence of product complexity on the effectiveness of these governance mechanisms, thereby determining the optimal approach for varying levels of product complexity.
Design/methodology/approach
By utilizing a comprehensive theoretical framework encompassing transaction cost economics, social exchange theory and contingency theory, this research explores the intricate interplay between governance mechanisms, product complexity and operational performance, drawing insights from a dataset comprising 246 responses within Mainland China’s manufacturing sector. To rigorously test the proposed hypotheses, this study employed a hierarchical regression analysis.
Findings
The findings of this study are summarized as follows: (1) while both contractual governance and relational governance have a significant impact on operational performance, relational governance is found to be more effective than contractual governance in enhancing operational performance; and (2) the moderation effect of product complexity is evident, as it weakens the impact of contractual governance while simultaneously enhancing the positive influence of relational governance on operational performance.
Originality/value
The study uncovers a moderation effect of product complexity on the relationship between governance mechanisms and operational performance. This finding adds an original contribution to the literature by highlighting how product complexity can interact with governance strategies, providing practical insights for industries dealing with varying levels of product complexity.
Purpose
This paper studies the optimal decision-making and coordination problem of a dual-channel fresh agricultural product (FAP) supply chain. The purpose is to analyze the impact of information sharing on optimal decisions and propose a coordination mechanism to encourage supply chain members to share information.
Design/methodology/approach
The two-echelon dual-channel FAP supply chain includes a manufacturer and a retailer. By using the Stackelberg game theory and the backward induction method, the optimal decisions are obtained under information symmetry and asymmetry and the coordination contract is designed.
Findings
The results show that supply chain members should comprehensively evaluate the specific situation of product attributes, coefficient of freshness-keeping cost and network operating costs to make decisions. Asymmetric information can exacerbate the deviation of optimal decisions among supply chain members and information sharing is always beneficial to manufacturers but not to retailers. The improved revenue-sharing and cost-sharing contract is an effective coordination mechanism.
Practical implications
The conclusions can provide theoretical guidance for supply chain managers to deal with information asymmetry and improve the competitiveness of the supply chain.
Originality/value
This paper combines the three characteristics that are most closely related to the reality of supply chains, including horizontal and vertical competition of different channels, the perishable characteristics of FAPs and the uncertainty generated by asymmetric demand information.
Purpose
The principal research objective entails examining the nexus between green supplier selection and green performance while scrutinizing the moderating role of governance mechanisms, specifically process control and outcome control, in shaping this association.
Design/methodology/approach
To assess our hypotheses, this study obtained data from Chinese manufacturing sectors and utilized regression analysis on a dataset consisting of 295 samples.
Findings
This study enriches the sustainable supply chain management literature by emphasizing the influence of green supplier selection on a firm’s green performance and the moderating effects of outcome and process control, offering practical insights for industry professionals.
Originality/value
This study enriches the sustainable supply chain management literature by emphasizing the influence of supplier selection on a firm’s environmental performance and the moderating effects of outcome and process control, offering practical insights for industry professionals.
Ülkemizde kamu yönetimi biliminin farklı uygulama ve yöntemlerin kısa zamanda takip edilerek uygulandığı bir yer olarak bilinmektedir. Özellikle gelişmiş ülkelerde kamu özel ayrımına uygun olarak geliştirilen uygulama ve yöntemlerin sistematik olarak uygulanmasından çok kopyalanarak alınması çok alışılmış bir durumdur. Bu durumda birçok farklı eksik ve hatalarında olması kaçınılmazdır. Günümüzde farklı ülkeler arasında kamu yöntemi uygulamalarının alınarak uygulanması çok karşılaşılan bir durum olsa da aslında sistematik uygulamalar ile sistemlerin geliştirilmesi gerektiği düşünülmektedir. Çalışmada kamu yönetimi içinde yeni kamu yönetimi uygulamasının bel kemiği olan dış kaynak kullanımı, taşeronlaşma kavramı ele alınarak kavramın çıkışı, detaylı tanımı, uygulama alanındaki yapının teorik temelleri ve önemli değişkenleri ele alınarak detaylı olarak incelenmiştir. Çalışma ülkede kullanılan kavram ile ilgili yapısal akademik temellendirmeye cevap olabilmek için yapılmıştır.
When a firm collaborates with its suppliers, it expands its access to external know-how and thus can enhance its innovation performance. Such collaborations are common and argued to have significant impact on the firm's market outcomes. However, such collaborations also expose the firm to various transactional hazards, including knowledge spillovers and opportunism. This trade-off looms over the firm's commitment to a market positioning strategy and the functional capabilities it draws on to generate its strategy dividend. Recent accounts suggest that the verdict on supplier collaborations is noisy and that partner perceptions of these collaborations do not align on key issues of governance, strategy, and value generation. To investigate this, the authors study 202 formal codevelopment contracts of high-tech original equipment manufacturers that collaborated with suppliers from 1985 to 2016. Drawing on the governance value analysis framework, the authors show how misalignment between the firm's codevelopment contracts, capabilities, and market positioning strategy significantly erodes its innovation performance. Thus, blanket prescriptions for one type of contract or the other are misdirected, their effectiveness being a contingent outcome dependent on the firm's market positioning strategy and functional capabilities. This research presents one of the most complete tests of the governance value analysis framework to date.
This article examines the effect of formal and informal institutional settings and of the governance of inter-organizational relationships on innovation at the cluster level. The research primarily relies on quantitative methods, utilizing data obtained from a survey involving 115 firms and 12 in-depth interviews. Supplementary qualitative information from the interviews has also been incorporated into the analysis. The results support the hypothesis that innovative firms should consider not only the impact of different governance modes but also how these modes align with the existing local contexts. Failure to do so may result in firms becoming entrenched in the prevailing practices and products of a specific location.
Interorganizational relationships play a vital role in sustaining a firm's competitive advantage, but these relationships must continuously adapt to evolving conditions and unexpected circumstances. In this chapter, we synthesize a fragmented literature about interorganizational disruptions, which we organize around integrative taxonomy to help assess received wisdom and point directions for future research. We detail a research agenda to push the frontiers of the literature about processes value creation, managing internal and external stakeholders and critical contingencies.
A substantial body of literature on the market for technology has highlighted the role of formal institutions on intellectual property rights. However, limited focus has been given to informal institutions when formal institutions are not well established. This study draws on the transaction cost perspective and theory of geography of innovation and examines the effect of inter-region bilateral trust on technology transfer between pairs of provinces in China. We use data on all cross-province patent licensing deals in China between 2009 and 2019 and find that bilateral trust has a positive effect on the probability and size of interprovincial patent licensing. In addition, we find a stronger role of bilateral trust in facilitating the licensing in strategic emerging industries and with science-based patents. We also find that the effect of bilateral trust is stronger for distant patent licensing compared with neighboring ones. Our findings contribute to studies on the innovation outcomes of social trust by revealing the asymmetry side of trust in the market for technology.
Appointing individuals drawn from suppliers and customers to a firm's board of directors is an increasingly popular practice that can enhance the interorganizational relationship and generate relational rents. Yet, such board members may act in the best interest of their primary employer rather than the shareholders of the firm whose board they serve on, thus creating potential agency conflicts. Drawing on the relational view and agency theory, we explore the tension between rent generation and agency costs and consider how a firm can design governance mechanisms to effectively leverage customer or supplier representation on the board of directors. The associated hypotheses are tested using a large panel dataset constructed from multiple archival sources, and our findings suggest that supplier and customer board members are a double‐edged sword: While they generate value in some instances, they can also be associated with lower performance depending on the levels of two key governance mechanisms—the number of inside directors on the board and the proportion of outcome‐based board member compensation.
This chapter explores the challenges of collaborative innovation strategies for firms, focusing on partners’ features and governance choices. The distributed innovation context increases the complexity of cooperation and coordination, posing governance challenges. The analysis considers three levels: the dyad, IORs portfolio, and network, highlighting how governance mechanisms vary in value depending on partner nature, portfolio characteristics, and network structure. Previous research has examined how relational and contractual governance mechanisms interact, affecting performance and exchange hazards in IORs. Exchange hazards, associated with uncertainty and transaction-specific investments, are particularly relevant in collaborative innovation contexts. The conclusion reveals that the value of governance mechanisms differs across levels of analysis, emphasizing the need for firms to develop relational capabilities to explore the complexities of collaborative innovation effectively.
This chapter investigates the interorganizational relationships and dynamics of innovation within the automotive industry, characterized by a hierarchical structure involving original equipment manufacturers (OEMs) and specialized suppliers. This structure fosters extensive information sharing and close collaboration among the actors. The results emphasize the importance of making effective governance choices and developing strong relationships for Italian automotive suppliers in order to navigate technological transitions successfully and achieve collaborative innovation performance. The study reveals that governance choices, which are influenced by contextual factors and organizational practices, can either facilitate or impede innovation outcomes. While informal mechanisms have traditionally played a vital role in collaborative innovation, their effectiveness may be diminished in contexts of high technological uncertainty and intense industry competition. The findings underscore the critical need to comprehend governance choices and interorganizational relationships for suppliers operating in the innovation-driven automotive industry, particularly during periods of significant change.
Consider the following stories regarding the performance of outsourced of IT services (Lacity & Willcocks, 2001):
A US Food company paid twice the original contract price due to excess fees triggered by undocumented requirements. In hindsight, participants believe the wrong activity was outsourced. They perhaps should have bought-in supplier expertise to work on an in-house project development team, rather than contract management and delivery of the system to a third party.
A United Kingdom public sector body (PBS) signed a fixed-fee for service, tenyear, £ 1 billion contract for most of PSB 1’s product and services. In 1994, the IT Director referred to the supplier as a “strategic partner”. By 1995, excess fees included £ 100,000 for unexpected software license transfer fees, an additional £5 million a year to cover inaccuracies in the original tender documents, and an additional £15 million a year for hardware maintenance. Furthermore, PSB could not meet some of the contractual terms, such as specifying requirements for 48 skill types 13 months in advance.
Recent conceptualizations of trends in the structure of U.S. industry have focused on the relative importance of markets, hierarchies, and hybrid intermediate forms. This paper advances the discussion by distinguishing three ideal-typical forms of organization and their corresponding coordination mechanisms: market/price, hierarchy/authority, and community/trust. Different institutions combine the three forms/mechanisms in different proportions. Economic and organizational theory have shown that, compared to trust, price and authority are relatively ineffective means of dealing with knowledge-based assets. Therefore, as knowledge becomes increasingly important in our economy, we should expect high-trust institutional forms to proliferate.
A review of trends in employment relations, interdivisional relations, and interfirm relations finds evidence suggesting that the effect of growing knowledge-intensity may indeed be a trend toward greater reliance on trust. There is also reason to believe that the form of trust most effective in this context is a distinctively modern kind—“reflective trust”—as opposed to traditionalistic, “blind” trust. Such a trend to reflective trust appears to threaten the privileges of currently dominant social actors, and these actors' resistance, in combination with the complex interdependencies between price, authority, and trust mechanisms, imparts a halting character to the trend. But the momentum of this trend nevertheless appears to be self-reinforcing, which suggests that it may ultimately challenge the foundations of our capitalist form of society while simultaneously creating the foundations of a new, postcapitalist form.
A phenomenon of the last 20 years has been the rapid rise of the network form of governance. This governance form has received significant scholarly attention, but, to date, no comprehensive theory for it has been advanced, and no sufficiently detailed and theoretically consistent definition has appeared. Our objective in this article is to provide a theory that explains under what conditions network governance, rigorously defined, has comparative advantage and is therefore likely to emerge and thrive. Our theory integrates transaction cost economics and social network theories, and, in broad strokes, asserts that the network form of governance is a response to exchange conditions of asset specificity, demand uncertainty, task complexity, and frequency. These exchange conditions drive firms toward structurally embedding their transactions, which enables firms to use social mechanisms for coordinating and safeguarding exchanges. When all of these conditions are in place, the network governance form has advantages over both hierarchy and market solutions in simultaneously adapting, coordinating, and safeguarding exchanges.
This paper advances a theoretical model that explains organizations' nonresponse to surveys as a predictable aspect of organizational behavior and structure. We argue that survey researchers must take into account the authority, capacity, and motive to respond of both the organizations sampled and the designated respondent within the organization. Our analysis identifies a series of organizational sources of nonresponse that have clear consequences for final sample bias. These include resource independence from the environment, subsidiary status, information dispersal in large establishments, and lack of staff dedicated to information processing. We provide suggestions for future organizational survey design and for analysis strategies to cope with sample selection bias.
A conceptual challenge in exploring the role of trust in interorganizational exchange is translating an inherently individual-level concept-trust-to the organizational-level outcome of performance. We define interpersonal and interorganizational trust as distinct constructs and draw on theories of interorganizational relations to derive a model of exchange performance. Specifically, we investigate the role of trust in interfirm exchange at two levels of analysis and assess its effects on negotiation costs, conflict, and ultimately performance. Propositions were tested with data from a sample of 107 buyer-supplier interfirm relationships in the electrical equipment manufacturing industry using a structural equation model. The results indicate that interpersonal and interorganizational trust are related but distinct constructs, and play different roles in affecting negotiation processes and exchange performance. Further, the hypotheses linking trust to performance receive some support, although the precise nature of the link is somewhat different than initially proposed. Overall, the results show that trust in interorganizational exchange relations clearly matters.
Theories of alliance behavior and outcomes have tended to emphasize either partner or relationship characteristics. This study integrates the two perspectives and examines their separate and combined effects on alliance outcomes. The research involved analysis of 98 alliances through a two-stage survey design. Findings support a positive relationship between partner firms' benefits from alliance participation and partner reputation, shared decision making, and strategic similarities between partners.
In this article we offer a view that suggests that a firm's critical resources may span firm boundaries and may be embedded in interfirm resources and routines. We argue that an increasingly important unit of analysis for understanding competitive advan- tage is the relationship between firms and identify four potential sources of interor- ganizational competitive advantage: (1) relation-specific assets, (2) knowledge- sharing routines, (3) complementary resources/capabilities, and (4) effective governance. We examine each of these potential sources of rent in detail, identifying key subprocesses, and also discuss the isolating mechanisms that serve to preserve relational rents. Finally, we discuss how the relational view may offer normative prescriptions for firm-level strategies that contradict the prescriptions offered by those with a resource-based view or industry structure view. Scholars in the strategy field are concerned fundamentally with explaining differential firm performance (Rumelt, Schendel, & Teece, 1991). As strategy scholars have searched for sources of competitive advantage, two prominent views have emerged regarding the sources of super- normal returns. The first-the industry structure view-associated with Porter (1980), suggests that supernormal returns are primarily a func- tion of a firm's membership in an industry with favorable structural characteristics (e.g., rela- tive bargaining power, barriers to entry, and so on). Consequently, many researchers have fo- cused on the industry as the relevant unit of analysis. The second view-the resource-based view (RBV) of the firm-argues that differential firm performance is fundamentally due to firm heterogeneity rather than industry structure (Barney, 1991; Rumelt, 1984, 1991; Wernerfelt, 1984). Firms that are able to accumulate re- sources and capabilities that are rare, valuable, nonsubstitutable, and difficult to imitate will achieve a competitive advantage over compet-
Recent trends in industrial markets indicate that buyers and sellers are increasingly supplanting conventional "arm's length" arrangements with "alliances" involving closer ties. The authors develop a theoretical model of industrial buyer-supplier ties that presents joint action as a key aspect of closeness. Whereas conventional ties emphasize a clearly defined division of labor, these newer relationships are distinguished by more tightly integrated roles based on undertaking activities jointly. Drawing primarily on a normative theory of transaction costs, the authors identify the conditions under which these relationships are useful. The utility of the relationships derives from an ability to safeguard relationship-specific investments and to facilitate adaptation to uncertainty. Using data from a sample of industrial firms and their suppliers, the authors test these predictions. The results show good support for the model. Consequences for research and practice in marketing are drawn.
This paper combines institutional economics with aspects of contract law and organization theory to identify and explicate the key differences that distinguish three generic forms of economic organization-market, hybrid, and hierarchy. The analysis shows that the three generic forms are distinguished by different coordinating and control mechanisms and by different abilities to adapt to disturbances. Also, each generic form is supported and defined by a distinctive type of contract law. The cost-effective choice of organization form is shown to vary systematically with the attributes of transactions. The paper unifies two hitherto disjunct areas of institutional economics-the institutional environment and the institutions of governance-by treating the institutional environment as a locus of parameters, changes in which parameters bring about shifts in the comparative costs of governance. Changes in property rights, contract law, reputation effects, and uncertainty are investigated.
The purpose of this work is to develop a systematic understanding of embeddedness and organization networks. Drawing on ethnographic fieldwork conducted at 23 entrepreneurial firms, I identify the components of embedded relationships and explicate the devices by which embeddedness shapes organizational and economic outcomes. The findings suggest that embeddedness is a logic of exchange that promotes economies of time, integrative agreements, Pareto improvements in allocative efficiency, and complex adaptation. These positive effects rise up to a threshold, however, after which embeddedness can derail economic performance by making firms vulnerable to exogenous shocks or insulating them from information that exists beyond their network. A framework is proposed that explains how these properties vary with the quality of social ties, the structure of the organization network, and an organization's structural position in the network.
Do organizations and markets govern transactions differently? This question has motivated a large body of research that has reached divergent conclusions. Proponents of transaction cost theory (Williamson, 1985) have found that organizations and markets differ in their governance capabilities. Other authors (Eccles & White, 1988; Granovetter, 1985; Stinchcombe, 1983), however, believe that the transaction cost argument is stated too strongly, .and they argue that organizations and markets are not discrete institutions to which the theory can be straightforwardly applied. A central hypothesis of transaction cost theory is that interunit relationships in which supplier assets are specialized have lower transaction costs inside an organization than when the relationship is between organizations (Demsetz, 1988; Klein, Crawford, & Alchian, 1978; Riordan & Williamson, 1986). Asset specialization will increase the buyer’s loss if the supply relationship is terminated. The potential for a higher loss gives the supplier an opportunity to bargain for a greater share of the value of the relationship. Thus, as the supplier’s assets become specialized, it should be more reluctant to bear the costs of adapting to changes in the buyer’s needs
In 1937, Ronald H. Coase published The Nature of the Firm, a classic paper that raised fundamental questions about the concept of the firm in economic theory. Coase proposed that the comparative costs of organizing transactions through markets, rather than within firms, are the primary determinants of the size and scope of firms. This volume derives from a conference held in 1987 to commemorate the fiftieth anniversary of the publication of Coase's classic article. The first chapter gives an overview of the volume. It is followed by a re-publication of the 1937 article, and by the three lectures Coase presented at the conference. These lectures provide a lively and informative history of the origins and development of his thought. Subsequent chapters explore a wide range of theoretical and empirical issues that have arisen in the transaction cost economic tradition. They illustrate the power of the transaction cost approach to enhance understanding not only of business firms, but of problems of economic organization generally. Contributors: Ronald H. Coase, Sherwin Rosen, Paul Joskow, Oliver Hart, Harold Demsetz, Scott Masten, Benjamin Klein, Oliver Williamson, and Sidney Winter.
Purchasing arrangements for repetitively used industrial supplies assume many different forms. Drawing on transaction cost analysis, the authors advance a conceptual framework that organizes these arrangements along a continuum of relationships. They use data from a survey of 140 OEM purchasers of bearings to demonstrate that performance in terms of acquisition costs is enhanced when, under conditions of uncertainty, firms introduce more relational elements into their purchasing arrangements. Possession cost performance improved when larger volumes of bearings were purchased. Implications for theory and practice are discussed.
Transaction cost analysis is rapidly becoming an important theoretical paradigm in marketing. However, the accumulation of transaction cost studies has been accompanied by a growing body of criticism, primarily directed toward its underlying behavioral norm of opportunism. That norm is a serious theoretical deficiency, not only because it may be descriptively inaccurate, but also because it limits the applicability of the theoretical framework. The authors show that norms play a very significant role in structuring economically efficient relationships between independent firms. In the absence of supportive norms, it is not possible for parties whose specific assets are at risk to acquire vertical control as per the transaction cost prescription. Instead, those parties lose control because of their dependence. An empirical test of the conceptual model in a sample of manufacturer-supplier relationships shows good support for the authors’ hypotheses.
Firms boundary choices have undergone careful examination in recent years, particularly in information services. While transaction cost economics provides a widely tested explanation for boundary choice, more recent theoretical work advances competing knowledge-based and measurement cost explanations. Similar to transaction cost economics, these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance. These theories, however, offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make–buy choices. Traditional empirical specifications of make–buy models are unable to comparatively test among these alternative theories. By developing and testing a model of comparative institutional performance rather than institutional choice, we examine the degree of support for these competing explanations of boundary choice. Hypotheses are tested using data on the governance of nine information services at 152 companies. Our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex, requiring integration of transaction cost, knowledge-based, and measurement reasoning. © 1998 John Wiley & Sons, Ltd.
Reading the above quotations, one might reasonably conclude that no progress at all had occurred in the development and testing of transaction cost arguments in the interval between Fischer’s and Simon’s appraisals. But while Fischer may have been justified in his criticism, Simon clearly is not. Economists’ initial pessimism about the prospects for deriving testable implications from transaction cost reasoning has turned out to be grossly misplaced. Theoretical advances beginning in the 1970s spurred a profusion of empirical research that continues unabated. As recent surveys amply document (see Joskow, 1988; Shelanski, 1992; Crocker and Masten 1994), “the research that must be performed to estimate the exogenous parameters and to test the theory” is well underway.
Transaction cost theorists have generally neglected to consider the implications that the invisible hand of the market mechanism can have for the risk of opportunism. In the long run, the invisible hand deletes actors whose behaviors are habitually opportunistic. Consequently, as markets move toward the state of competitive equilibrium, the risk of opportunism will be low, even for transactions supported by specific asset investments. Therefore, in many contexts the transaction cost rationale for internalization has been overstated.
Transaction cost theorists have generally neglected to consider the implications that the invisible hand of the market mechanism can have for the risk of opportunism. In the long run, the invisible hand deletes actors whose behaviors are habitually opportunistic. Consequently, as markets move toward the state of competitive equilibrium, the risk of opportunism will be low, even for transactions supported by specific asset investments. Therefore, in many contexts the transaction cost rationale for internalization has been overstated.
Transaction cost analysis is rapidly becoming an important theoretical paradigm in marketing. However, the accumulation of transaction cost studies has been accompanied by a growing body of criticism, primarily directed toward its underlying behavioral norm of opportunism. That norm is a serious theoretical deficiency, not only because it may be descriptively inaccurate, but also because it limits the applicability of the theoretical framework. The authors show that norms play a very significant role in structuring economically efficient relationships between independent firms. In the absence of supportive norms, it is not possible for parties whose specific assets are at risk to acquire vertical control as per the transaction cost prescription. Instead, those parties lose control because of their dependence. An empirical test of the conceptual model in a sample of manufacturer-supplier relationships shows good support for the authors' hypotheses.
This paper addresses criticisms of transaction-cost theory that it overstates the effect of asset specialization on vertical integration and understates the costs of managing interunit relationships within an organization, particularly for nonstandard organizations and markets. We apply the theory simultaneously to decentralized supply relationships in a manufacturing corporation and to the corporation's relationships with single-source suppliers. Our results support the core proposition of the theory-that specialized assets have lower transaction costs within the organization. However, the hybrid characteristics of these supply relationships challenge both the theory's basic assumptions and its predictive power. Corporate decentralization and relational contracting in the market diminish the role of asset specificity as a necessary condition for low transaction costs in-house and as a sufficient condition for high transaction costs in the market. Therefore, how the theory should be used as a predictor of shifts in the current boundaries of the corporation is unclear.
This study of automotive transaction relationships in the U.S.A. and Japan offers data which
indicate that transaction costs do not necessarily increase with an increase in relationship-specific
investments. We empirically examine the conditions under which transactors can simultaneously
achieve the twin benefits of high asset specificity and low transaction costs. This is possible
because the different safeguards which can be employed to control opportunism have different
set-up costs and result in different transaction costs over different time horizons. We examine
in detail the practices of Japanese firms which result in effective interfirm collaboration.
While some argue that incomplete incentive contracts facilitate the self-enforcement of informal dealings, other authors submit that they substitute for or "crowd out" social norms supporting informal arrangements. We use experimental evidence to test these theories by manipulating the extent to which individuals transact repeatedly and the level of contract costs. We find that, by enforcing contractible exchange dimensions, contracts facilitate the self-enforcement of non-contractible dimensions. This complementarity effect is particularly important when repetition is unlikely and thus self-enforcement is difficult. Although our data suggest the existence of reciprocity as an alternative, informal enforcement mechanism, evidence that contracts substitute for this social norm is not robust.
This empirical study suggests that Japanese competitive advantage in complex-product industries is at least partly due to differences in value chain governance and interfirm asset co-specialization. Comparative data are offered which indicate that U.S. firms rely largely on markets and hierarchies to facilitate exchange, whereas Japanese firms rely largely on "hybrid" governance or alliances. The empirical findings suggest that Japanese automotive firms (value chains) have been able to achieve a competitive advantage over their U.S. counterparts by effectively using hybrid/alliance governance for three primary reasons: (1) Japanese automotive value chains are characterized by greater interfirm asset co-specialization than U.S. chains. In particular, greater human asset co-specialization between firms results in superior coordination, information sharing, and learning which is critical in complex-product industries, (2) hybrids/alliances as employed by Japanese automakers realize virtually all of the advantages of hierarchy (e.g., asset co-specialization) without the disadvantages (e.g., loss of market discipline, loss of flexibility, higher labor costs), and (3) Japanese automotive value chains incur lower transaction costs than U.S. value chains. Thus, alliances, as structured in Japan, simultaneously realize the benefits of decentralization and competition without sacrificing economies of scale, coordination, or co-specialization of assets. These findings support transaction cost theories which suggest that effectively aligning governance structures with transactions will result in efficiency advantages. However, inconsistent with extant transaction cost theory, findings from this study suggest that: (1) hybrid governance may be more efficient than hierarchical governance under conditions of uncertainty, and (2) transaction costs do not necessarily increase with an increase in asset specificity.
Firms' boundary choices have undergone careful examination in recent years, particularly in information services. While transaction cost economics provides a widely tested explanation for boundary choice, more recent theoretical work advances competing knowledge-based and measurement cost explanations. Similar to transaction cost economics, these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance. These theories, however, offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make-buy choices. Traditional empirical specifications of make-buy models are unable to comparatively test among these alternative theories. By developing and testing a model of comparative institutional performance rather than institutional choice, we examine the degree of support for these competing explanations of boundary choice. Hypotheses are tested using data on the governance of nine information services at 152 companies. Our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex, requiring integration of transaction cost, knowledge-based, and measurement reasoning.© 1998 John Wiley & Sons, Ltd.
This article focuses on the predominance of obligated relational contracting in Japanese business. Consumer goods markets are highly competitive in Japan, but trade in intermediates, by contrast, is for the most part conducted within long-term trading relations in which goodwill give-and-take is expected to temper the pursuit of self-interest. Cultural preferences explain the unusual predominance of these relations in Japan, but they are in fact more common in Western economies than textbooks usually recognize. The growth of relational contracting in labour markets especially is, indeed, at the root of the rigidities supposedly responsible for contemporary stagflation. Japan shows that to sweep away these rigidities and give markets back their pristine vigor is not the only prescription for a cure of stagflation. The Japanese economy more than adequately compensates for the loss of allocative efficiency by achieving high levels of other kinds of efficiency. Relational contracts are just a way of trading off the short term loss involved in sacrificing a price advantage, against the insurance. As for relational contracting between enterprises, there are three things to be said. First, the relative security of such relations encourages investment in supplying firms. Second, the relationships of trust and mutual dependency make more for a rapid flow of information. Third, a by-product of the system is a general emphasis on quality.
Purchasing arrangements for repetitively used industrial supplies assume many different forms. Drawing on transaction cost analysis, the authors advance a conceptual framework that organizes these arrangements along a continuum of relationships. They use data from a survey of 140 OEM purchasers of bearings to demonstrate that performance in terms of acquisition costs is enhanced when, under conditions of uncertainty, firms introduce more relational elements into their purchasing arrangements. Possession cost performance improved when larger volumes of bearings were purchased. Implications for theory and practice are discussed.
A model of distributor firm and manufacturer firm working partnerships is presented and is assessed empirically on a sample of distributor firms and a sample of manufacturer firms. A multiple-informant research method is employed. Support is found for a number of the hypothesized construct relations and, in both manufacturer firm and distributor firm models, for the respecification of cooperation as an antecedent rather than a consequence of trust. Some implications for marketing practice are discussed briefly.
The explosive growth of the information technology (IT) industry led to the creation of a highly competitive environment which forced many companies to outsource the bulk of their operations. Outsourcing enabled these companies to choose from a number of IT suppliers that assisted them in enhancing their competitiveness. It also provided them with a powerful tool for easily recognizing and exploiting changes in their respective markets.
This study tests a comprehensive model of group effectiveness with 100 sales teams in the communications industry. Results indicate that traditional theories of group effectiveness match the implicit theories of team members. These theories account for 90 percent of the variance in team satisfaction and self-reported effectiveness but none of the variance in the teams' sales performance. The findings suggest that theories of group effectiveness need to be revised to include the way in which teams manage interactions across their boundary and the impact of the organizational context.
Exploring the factors that explain the choice of governance structures in interfirm alliances, this study challenges the use of a singular emphasis on transaction costs. Such an approach erroneously treats each transaction as independent and ignores the role of interfirm trust that emerges from repeated alliances between the same partners. Comprehensive multiindustry data on alliances made between 1970 and 1989 support the importance of such trust. Although support emerged for the transaction cost claim that alliances that encompass shared research and development are likely to be equity based, there is also strong evidence that repeated alliances between two partners are less likely than other alliances to be organized using equity.
Preliminary findings indicate that businessmen often fail to plan exchange relationships completely, and seldom use legal sanctions to adjust these relationships or to settle disputes. Planning and legal sanctions are often unnecessary and may have undesirable consequences. Transactions are planned and legal sanctions are used when the gains are thought to outweigh the costs. The power to decide whether the gains from using contract outweigh the costs will be held by individuals having different occupational roles. The occupational role influences the decision that is made.
Relationship management rapidly is becoming a central research paradigm in the marketing channels literature. A growing body of conceptual and empirical literature addresses different aspects of interfirm relationships, building in part on recent theoretical developments in organization theory, law, and economics. Interestingly, however, some of these theoretical frameworks make radically different assumptions about the nature of interfirm relationships, though these differences to date have not been examined systematically in the marketing literature. The author reviews these theoretical perspectives and develops a formal typology of approaches to relationship management. Specifically, he develops a typology of three different forms of governance, which vary systematically in terms of how specific interfirm processes are carried out. He also discusses the antecendents of different relationship forms and shows the results of a preliminary empirical test.