Converging and Diverging Governance Mechanisms: the Dynamic Interplay of (Dys)function

Abstract

This paper explores governance mechanisms and the dynamic interplay of functional and dysfunctional behaviour, what we term '(dys)function', in long-term inter-organizational relationships. Using two longitudinal cases of warship commissioning we argue although varying degrees of formalization is important when managing long-term relationships, organizations should learn not only to contract or build up trusting relations but consider both together as semi-coupled in terms of the impact such interplay has on performance. We discuss governance mechanisms as moving beyond notions of complementarity and substitution towards a more nuanced view where governance of inter-organizational relationships can be convergent or divergent. Our findings show that what is functional behaviour for one side of the dyad can be dysfunctional for the other party, also that relationships can exhibit functions and dysfunctions across forms of governance simultaneously. Our conclusions suggest that mismatches in governance mechanisms can be positive as well as negative, and it is the overall relationship atmosphere that determines the direction of the (dys)function. In building a context dependent understanding of governance we both summarise the (dys)functions associated with formal and informal governance mechanisms, and explore their impact on relationship exchange performance over time.