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 7: Contract Standardization

Paul W.L. Vlaar

Subjects: business and management, organisational behaviour, strategic management


Social psychology is replete with theories that take for granted the ‘fact’ that people think [. . .]. They all start with the assumption that people attend to their world and derive behavioural strategies based on current information. (Langer et al., 1978: 635) Mindlessness often overshadows human thought when it comes to actual decision making. (Sharps and Martin, 2002: 272) INTRODUCTION The application of standard contracts and standard procedures for negotiating and contracting is omnipresent in interorganizational transactions. However, only a few studies on interorganizational governance actually consider how standardization influences interorganizational relationships. In this chapter, I present an overview of the benefits and drawbacks of contract standardization. A review of the literature indicates that standardization enables an efficient and expeditious effectuation of transactions. Moreover, standard contracts are considered relatively legitimate, robust and easy to interpret compared to tailor-made contracts. However, they also tend to be very generic or non-specific. Probably even more significant, the application of standard contracts is frequently preceded by negotiation and contracting procedures that hardly contribute to the creation of shared expectations. Standardization is therefore argued to prohibit the ‘meeting of minds’ and to encourage ‘mindlessness’ during negotiation and contracting practices. This assertion is empirically assessed by analysing contracting practices in a large sample of buyer–supplier relationships. Structural equation modelling seems to indicate that the use of standard procedures for negotiation and contracting generally diminishes parties’ attention to the substantive details of a transaction, and that it reduces the impact of contracting...

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