Discovering, Creating and Appropriating Value
Chapter 7: Contract Standardization
7. Contract standardization 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...
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