Contracts and Trust in Alliances

Contracts and Trust in Alliances

Discovering, Creating and Appropriating Value

Paul W.L. Vlaar

Paul Vlaar contends that strategic alliances and other forms of cooperation, such as buyer–supplier relationships, joint ventures and offshoring initiatives, increasingly stand at the basis of competitive advantage. Although contracts and trust play a crucial role in such relationships, prior studies on both governance solutions are generally confined to single theories, paradigms and viewpoints. Drawing on an in-depth case study, survey data and conceptual developments, the author advances a more integrative framework. He probes issues such as: • the tension between the need and the ability to contract • trust and contracts as co-evolving and self-reinforcing phenomena • contractual functions other than coordination and control • dialectical tensions stemming from contract application • standardization of contracting practices. By exploring these topics, the book offers novel perspectives on the role of trust in interorganizational relationships, shifting our attention and creation to the discovery of value by collaborating partners.

Chapter 3: Need versus Ability to Contract

Paul W.L. Vlaar

Subjects: business and management, organisational behaviour, strategic management


The less was the measurability of supplier performance, the wider the use of inter-firm coordination mechanisms. (Delmestri, 1998: 660) INTRODUCTION In this chapter, I focus on the non-shaded parts of the research framework, as depicted in Figure 3.1. I observe that research on contracting in interorganizational relationships either focuses on the need or on the ability to govern input, outcomes and behaviour (see Gerwin, 2004; Geyskens et al., 2006; Helm and Kloyer, 2004). I reconcile both perspectives by proposing that a higher need to contract is generally accompanied by a lower ability to do so. Managers are expected to cope with this apparent paradox by, amongst other things, investing in information processing and sensemaking activities. I empirically test my hypotheses by means of multiple regression analyses on a sample of 911 buyer–supplier relationships. From the results it accrues that higher levels of asset specificity and complexity, smaller firm sizes and an absence of prior experience with the same partner produce gaps between the need and ability to contract, propelling participants in interorganizational relationships to invest, amongst other factors, in information processing and sensemaking activities. Need to govern Positive consequences Antecedents Organization level Exchange level Context level Governance Contracting Trust Performance Value discovery Value creation Value appropriation Ability to govern Negative consequences Figure 3.1 Research framework: focus of theme one 65 66 Contracts and trust in alliances The study presented in this chapter allows for the integration of separate views on the relationships between contracting and its antecedents....

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