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 5: Functions of Negotiation and Contracting

Paul W.L. Vlaar

Subjects: business and management, organisational behaviour, strategic management

Extract

* the focus in much of organizational theorizing is to homogenize what is essentially a pluralistic world. On balance, organizational theorists have tended to emphasize the unifying principles that lend cohesion, focus, legitimacy, and identity; the result has been to problematize (or often overlook) the variety embedded in pluralism. (Glynn et al., 2000: 726) The formal process of negotiating enables, perhaps even forces, the parties to engage in sensemaking. (Ring and Van de Ven, 1989: 185) INTRODUCTION Research on interorganizational governance focuses primarily on problems of coordination, control and, to a lesser extent, legitimacy. In this chapter, I develop a complementary perspective, proposing that contracting enables interorganizational participants to give, make, demand and break sense. I further contend that these sociocognitive processes contribute to value creation not only by helping participants in interorganizational relationships to cope with problems of understanding, but also because they facilitate the transfer of pre-existing understandings and the co-creation of novel understandings. This chapter thus emphasizes an alternative theoretical perspective on the functions, benefits or positive consequences of contracting practices and formalization in general, departing from mainstream research (see the non-shaded areas in Figure 5.1). By doing this, I attempt to ‘provide more creative, innovative, and insightful ideas, facilitating new theory generation and enhancing the level of disciplinary maturity’ (Robson et al., 2002: 392) in the interorganizational governance field. I also answer calls from, among others, Glynn et al. (2000) to use pluralism and paradigmatic eclecticism more explicitly in organizational theorizing. * An earlier version of this...

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