Performance Implications of Mismatched Governance Regimes across External and Internal Relationships

Abstract

This article examines how a manufacturer's governance of an external supplier relationship affects its performance toward a downstream retail customer. In line with sociological and economic theory, a manufacturer's reliance on supplier norms and incentives, respectively, promotes performance. However, the performance effect of each external governance mechanism weakens in the presence of a different governance regime within the manufacturer firm itself. Specifically, internal incentives weaken the effect of external norms, and internal norms weaken the effect of external incentives. From a practical standpoint, these findings point to the difficulty of managing sets of relationships that involve different parties and mechanisms. From a theoretical standpoint, they point to the complex interplay between social norms and economic incentives in driving performance outcomes.