Alliance Governance Mechanisms in the Face of Disruption

Existing academic literature has discussed contracts and relational governance as the key mechanisms that help alliance partners address problems of cooperation and coordination. However, when an alliance undergoes disruption, the nature and extent of such problems may change and therefore the value of these mechanisms may change. This study advances a dynamic perspective on alliance governance by examining the impact of disruption and subsequent adjustment on the value of alliance governance mechanisms. To this end, we longitudinally studied a revelatory case of a research and development alliance in the veterinary drug industry that experienced disruption triggered by an internal restructuring at one of the partner companies. We approached the evidence with a fine-grained typology that builds on two dimensions that underlie governance mechanisms: the means to enforce their ruling principles (contractual versus relational) and the level of codification of these principles (formal versus informal). Based on our findings, we (1) show the significance of this revised typology, which suggests that contractual governance is not necessarily formal and relational governance is not necessarily informal; (2) provide a more systematic discussion of the tradeoffs that the various mechanisms entail and how these are altered through disruption and adjustment dynamics; and (3) analyze how the interplay between different types of governance mechanisms evolves following disruption and adjustment. Overall, our study brings the concept of disruption to the dynamic perspective of alliance governance and highlights the contingent value of alliance governance mechanisms.

For a long time research on the management of IS outsourcing projects viewed relational and contractual governance as substitutes. However, subsequent studies provided empirical evidence for the complementary view. Recently, some authors supported the notion that relational and contractual governance mechanisms can simultaneously be complements and substitutes. Given these inconsistencies the question arises how contractual and relational governance become substitutes or complements. We investigate whether the relationship between governance mechanisms is the outcome of distinctprocesses of interaction between contractual and relational governance. For that purpose, we conduct an exploratory multiple-case study of five IS outsourcing projects at a leading global bank. We identify three archetypical processes illustrating how the interaction between relational and contractual governance can result in a complementary relationship. In addition, we discover one process explaining their substitution. The results of our study propose a shift in perspective. While former studies focused on explaining whether contractual and relational governance are complements or substitutes, we answer the question how and why they become complements and substitutes. Based on our findings, we give implications for further research.

PurposeAs outsourcing continues to grow, supplier management becomes critical to the success of manufacturing firms. Transaction cost economics (TCE) suggests that firms should choose supplier governance mechanisms to ensure fulfillment of contractual obligations and safeguard against opportunism for their outsourcing activities. Accordingly, the purpose of this paper is to examine how buying organizations govern supplier contracts to improve manufacturing competitiveness and financial performance. The relative effectiveness of two primary governance mechanisms, contractual governance (CG), and relational governance, are examined.Design/methodology/approachExpanding upon previous studies, this study delineates three relational governance mechanisms (negotiation efficiency (NE), problem solving relations, and information sharing (IS)) that are conceptually, statistically and pragmatically different. Based on the TCE literature, a conceptual model is developed to decipher the relationships between pre-contract conditions (supplier asset specificity and environmental uncertainty (EU)), governance mechanisms, performance ambiguity (PA), and performance. Using the data collected from 987 firms, the statistical results present several important findings that would advance current theory and practice in outsourcing.FindingsThe authors find empirical support for the effects of contractual and relational governance in improving manufacturing and financial performance. The governance of supplier contracts clearly facilitates manufacturers’ ability to leverage their resources to improve performance. The relative effectiveness of these two governance mechanisms is related to the levels of EU and supplier asset specificity. Relational governance displays greater influence on performance than CG does. However, CG appears to be complementary to relational governance.Research limitations/implicationsThe interplays between supplier asset specificity and EU should be examined in the future. The relationships among NE, IS, and problem solving should also be examined to facilitate the development of relational governance.Practical implicationsManagers should be aware of the situational performance of governance mechanisms. Moreover, it is important to realize how differently each of the three relational governance mechanisms and CG contribute to performance.Originality/valueThis study extends the academic discussion of supplier governance by investigating the alignment of governance mechanisms (relational governance and CG) with pre-contract conditions to reduce PA and, thereby, enhance manufacturing performance. Under the theoretical framework of TCE, the direct and indirect effects of pre-contract conditions and governance variables are fully examined and discussed. Moreover, relational governance involves multiple mechanisms that are conceptually and pragmatically different, and future studies should not treat it as one single construct.

PurposeThis paper aims to investigate how relative contractual and relational governances impact seller’s value appropriation via buyer’s trust, perceived justice and opportunism in the context of industrial buyer–seller relationships.Design/methodology/approachSurvey data from 232 matched buyer-seller dyads of Chinese business-to-business (B2B) firms was used to test the conceptual model and research hypotheses. The confirmatory factor model and structural equation model were tested by using Lisrel 8.80.FindingsThe findings show that relative contractual governance and relative relational governance have opposite consequences on B2B relationship and value outcomes. Relative contractual governance generates higher level of buyer’s opportunist behavior because it reduces buyer’s trust and perceived justice, therefore harms seller’s value appropriation. By contrast, relative relational governance enhances buyer’s trust and perceived justice, therefore curbs buyer’s opportunism and improves seller’s value appropriation.Originality/valueThis study makes significant contributions to theory development of value appropriation and inter-firm governance mechanism by extending dyadic view to network view. It proposes the concept of relative governance and explores its role in shaping a business partner’s perception and behavior. It also provides insightful implications for B2B companies on capturing more benefits from the relationship with buyers by leveraging relative governance strategies.

PurposeThe purpose of this paper is to study the mechanisms governing dynamic changes in relational and contractual governance at different stages of government-funded mega construction projects (MCPs) by studying their different effects on project performance and participants’ opportunism.Design/methodology/approachPartial least squares structural equation modeling was used to test eight hypotheses based on data collected from 147 respondents in different participating organizations in Chinese MCPs.FindingsFirst, contractual governance has a stronger positive impact on project performance than relational governance in the early stage of MCPs, while relational governance exerts more positive effects on project performance than contractual governance in the middle and late stages. Second, opportunism is a mediator variable between governance mechanisms and project performance, and relational governance is more effective than contractual governance in restricting opportunism.Originality/valueIn contrast to a static analysis of project governance mechanisms, this study examines dynamic changes in the governance mechanisms of MCPs in the Chinese context by considering the mediating role of opportunism as well as guanxi as an element of relational governance, thus filling in gaps in the literature on MCP governance and contributing to the development of MCP management theory.

The effectiveness of relational and contractual governance in new product development collaborations: Evidence from Korea

Relational governance and control mechanisms are important means of managing interfirm relationships. Yet, the effectiveness of different governance mechanisms remains equivocal, especially in the international context. In this study, the authors investigate the value of relational and control governance across relationship length. Using a survey of 217 export ventures from China, they find that relational governance is not effective for short-term relationships but that it becomes effective in the long run. Output control improves export performance across short- and long-term relationships, whereas process control has its limits and weakens export performance for short-term relationships. In addition, the findings show that relational governance positively moderates the effects of output and process control on export performance for long-term relationships.

In recent years scholars have discussed the relationship between contractual and relational governance in information systems (IS) outsourcing. Findings regarding this relationship are still mixed. Some hint at a substitutional relationship, others at a complementary relationship. Moreover novel investigations favor another argument: relational and contractual governance mechanisms can simultaneously be complements and substitutes.If governance mechanisms can be both, substitutes and complements, the question arises whether the relationship between different types of governance mechanisms is the outcome of distinct processes of interaction. To answer this question we conducted an exploratory, multiple-case study of five IS outsourcing projects at a leading global bank. We identified four archetypical interaction processes (archetypes): Three archetypes yield complementary relationships, one yields a substitutional relationship. Based on these findings, we searched for patterns in the occurrence of the archetypes as well as for their underlying reasons.Our analysis revealed three salient patterns in the occurrence of the archetypes, each representing a sequence of archetypes: In the first two patterns sequenced archetypes reinforced each other leading to either a “success” (pattern 1) or “failure path” (pattern 2). Pattern 3 - the “interrupted path” - demonstrates how a success path is broken and turned into a failure path induced by an external stimulating event.Our major contribution is a shift in perspective. We show that the relationship between governance mechanisms is not static but dynamic. Dynamic interactions between governance mechanisms facilitate or corroborate perceived quality of IS outsourcing governance. Our findings pave the way towards a process-theoretic view on IS outsourcing governance.KeywordsRelational GovernanceContractual GovernanceComplementsSubstitutesIS OutsourcingIS Offshoring

The present paper aims to extend the discussion in the governance literature about whether structural and relational governance mechanisms complement or substitute each other in innovation alliances. Where structural governance mechanisms refer to the division of tasks within the alliance and to upfront contractual and non-contractual input, output and risk-related agreements, relational governance mechanisms refer to trust, using informal norms and rules for coordination purposes. In innovation literature much attention has been paid to relational governance, which is expected to offer more of the flexibility needed for innovation than the regulations in structural governance that are perceived as rigid. However, the authors argue that the essential role of structural governance as a solid basis for creating trust, especially in alliances in which the partners do not know each other, is clearly underexposed in management literature. To fill this gap, a model conceptualizing the innovation alliance from inception to performance was tested using Partial Least Squares, employing a cross-sectional dataset of 94 innovation alliances in the Netherlands, Belgium, Germany and Austria. The results do indeed show the essential role of structural agreements in creating a platform for trust on which relational governance can strive, while a clear task division can help to reduce the complexity of the inter-organizational innovation process, by reducing the interdependency of the partners. Both structural mechanisms ease communication among the alliance partners, leading to a higher level of knowledge exchange, and ultimately leading to better alliance performance.

Since the 1960s, new Information Systems (IS) have been routinely associated with a capacity for resolving coordination and cooperation problems. A coordination problem refers to the difficulty in creating expectations of mutuality about the enactment of information, identities and authority. A cooperation problem, on the other hand, refers to the difficulty in overcoming tendencies of self-interest and opportunism. Despite the pervasiveness of magic bullet discourse in managerial practice, the following questions have remained unanswered. Who exactly in companies has been using magic bullet discourse since the 1960s and with what purpose? What, if any, is the historical relation between the use of such discourse in IS projects and the actual resolution of coordination and cooperation problems? Finally, if there exists a significant historical relation, how and why does it develop? Drawing on the historical case-study of a large European bank, I demonstrate how successive generations of change agents used magic bullet discourse in IS projects, with the support of top management, and with different purposes. A first generation of change agents used such discourse to resolve a coordination problem. Coordination issues were still used in the magic bullet discourse of successive generations, albeit increasingly for fronting purposes only. With time, the actual purpose of change agents shifted to resolving a cooperation problem. In terms of an historical relation, I find that the repeated exaggeration of the coordination capacity of new IS in change agents' discourse, institutionalized cooperation problems across different generations of IS projects. Drawing on a critical realist methodology, I analyse how this negative historical relation between magic bullet discourse, coordination and cooperation problems developed. I find that the use of magic bullet discourse increases the likelihood of successive generations of change agents making the same misjudgement about how to control mechanisms of politicization: through unrealistic expectation building. Although there is no necessary causal relation between magic bullet discourse and misjudgements, I find that once such a misjudgement is made in the presence of magic bullet discourse, a negative relation sets in which is easily institutionalized across different generations of projects and agents. Highly problematic is that, beyond a tipping point of institutionalization, any kind of change discourse - realistic or not - is considered cheap. From that moment onwards, the capacity of change agents to contribute positively to the resolution of coordination and cooperation problems through discursive means is marginal.

In previous research, it has been debated whether uncertainty moderates the relationship between asset specificity and governance mechanisms. The relationship between the owner and contractor is a typical interorganizational collaborative relationship, with contractual and relational governance as key mechanisms. Based on transaction cost theory and relational exchange theory, this paper establishes a competitive conceptual model of construction project transaction characteristics on contractual and relational governance to test the moderating role of uncertainty in interorganizational relationships. The questionnaire data were analyzed with partial least-squares structural equation modeling (PLS-SEM) to verify the theoretical hypotheses. This paper finds that there is a significant positive correlation between asset specificity and both contractual governance and relationship governance, with uncertainty as a moderator significantly enhancing the correlation between asset specificity and relational governance. The conclusions of this paper support the predictions of relational exchange theory and transaction cost theory. The findings enhance the understanding of project governance mechanisms and interorganizational collaborative relationships. Faced with high uncertainty, the owner and contractor are advised to adopt relational norms such as trust rather than designing more formal contractual terms to resolve conflicts caused by asset specificity.

Purpose– The purpose of this paper is to examine the direct and interaction effects of relational governance and two control mechanisms, output control and process control in the context of international exchange relationships. Cross-border exchange relationships receive growing attention in the literature. Yet extant research has mainly examined single governance mechanisms. Among the few studies that investigate the interaction effects of relational governance and control mechanisms, some believe that the two mechanisms have conflicting effects, whereas others argue that they are complementary in nature.Design/methodology/approach– Based on a sample of 184 Chinese export ventures, the empirical paper adopts the hierarchical moderated multiple regression approach.Findings– The authors find that relational governance contributes positively to export performance, while output control leads negatively to export performance. The findings further suggest that output control complements relational governance to enhance export performance when combined. However, process control and relational governance substitute each other and reduce effectiveness when used simultaneously.Research limitations/implications– The study sheds new light on the ongoing debate about whether control mechanisms substitute or complement relational governance.Originality/value– The study is novel in addressing the issue of how relational governance interacts differently with two control mechanisms in the international exchange relationships.

Buyer‐supplier relationships are regarded as a source of competitive advantage, as suppliers can contribute valuable but imperfectly tradable resources. To coordinate these resources in the course of joint value creation and mitigate the risks of opportunism, buyers are required to establish transactional and relational governance mechanisms. While recent research showed that these mechanisms are intertwined with each other, little is known about the effects of different governance mechanisms in relationships with captive suppliers. Especially in case of captive suppliers, which are highly dependent on the buyer, the governance approach of the buyer affects the relationship and the supplier on a long‐term base. Based on unique data of 101 suppliers in the aviation industry, we show that transactional and relational governance mechanisms exert different effects on the efficiency and effectiveness of relationships with captive suppliers. While transactional governance is primarily suited to foster buyer‐supplier efficiency (e.g. cost or lead time reduction), relational governance strengthens buyer‐supplier effectiveness (e.g. product customization or joint innovation). Additionally, the choice of a governance mechanism indirectly affects the strategic innovation orientation of captive suppliers. Focusing on buyer‐supplier effectiveness stimulates strategic innovation orientation of captive suppliers; high buyer‐supplier efficiency leads to opposite effects. Our paper emphasizes that misalignment of governance mechanisms and the objective of buyer‐supplier relationships can limit strategic innovation orientation.

PurposeThis study aims to understand how firms in developing economies acquire knowledge about social sustainability by leveraging the social capital embedded in firms' social network, through optimally governing relationships with network members. The study proposes that relational and contractual governance mechanisms interact with various structural facets of the network, resulting in varying degrees of social sustainability related knowledge acquisition.Design/methodology/approachPrimary data collected with a multiple respondent survey design from 204 manufacturing firms located in major industrial cities in Pakistan were used. Confirmatory factor analysis (CFA) followed by hierarchical regression analysis is used to test the hypotheses.FindingsThe study finds that both relational and contractual governance mechanisms are positively related to a firm’s social sustainability-related knowledge acquisition, but their effectiveness is impacted by the structural facets of the network. Network size positively moderates the relationship between relational governance and social sustainability related knowledge acquisition, whereas both network range and strength of ties negatively moderate the relationship between contractual governance and social sustainability related knowledge acquisition.Practical implicationsPractitioners with resource-constrained firms should interact with their social network to leverage the knowledge and resources embedded within. The findings prescribe optimal governance strategies for different combinations of network structure variables to gain maximum knowledge about social sustainability.Originality/valueThe literature lacks information on the effect of network structure on the relationships between social network governance and social sustainability-related knowledge acquisition for resource-constrained firms in the developing economy context, making this study’s contributions unique.

Big data analytics capability and decision making performance in emerging market firms: The role of contractual and relational governance mechanisms