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 4: How Trust and Contracts Coevolve

Paul W.L. Vlaar

Subjects: business and management, organisational behaviour, strategic management


* While there are numerous examples in the literature where control chases out trust and situations in which trust seems to remove the necessity for control, there are equally as many examples of trust and control being complementary, or going hand in hand. (Bachmann et al., 2001: v) INTRODUCTION In this chapter, I discuss the evolution of trust, distrust and formal coordination and control in interorganizational relationships. I suggest that the degree to which managers trust and distrust their partners during initial stages of cooperation leaves strong imprints on the development of these relationships in later stages of collaboration. This derives from the impact of trust and distrust on (1) formal coordination and control; (2) interorganizational performance; and (3) the interpretations that managers attribute to the behaviour of their partners. Collectively, my arguments give rise to a conceptual framework, which indicates that there is a high propensity for interorganizational relationships to develop along vicious or virtuous cycles. By integrating and reconciling previous work on the trust–control nexus, and by emphasizing the dynamics associated with it, this chapter contributes to a more comprehensive and refined understanding of the evolution of interorganizational cooperation. WHAT WE KNOW ABOUT THE INTERPLAY BETWEEN TRUST AND CONTROL Interorganizational governance issues have attracted growing attention from academics and practitioners owing to the increasing number of alliances, outsourcing relationships and other forms of inter-firm exchange, * An earlier version of this chapter has been published before. I wish to thank Sage Publications for its permission to reprint...

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