Effect of Formal Contracts, Relational Norms and Trust on Performance of Joint Research and Development Projects

Abstract

This paper examines the effect of governance mechanisms -formal contracts, relational norms and trust -on the performance of exploration and exploitation joint research and development (R&D) projects. While the authors acknowledge the need for a twofold approach, transactional and relational, to understand the interfirm exchange governance, the joint action of formal contracts and relational governance has been caught between the complementary or substitutive forces involved in interorganizational relationships. Using survey data on joint exploration and exploitation R&D projects developed by the European biotechnology companies, the synergies of both mechanisms and their effects in improving project performance are investigated. The analysis suggests that contracts and relational norms and trust act as complementary mechanisms, but while contracts are more effective in exploitation projects, relational norms and trust are more powerful in improving the performance of exploration projects.

Governance of supplier collaboration in technologically uncertain NPD projects

“…This is similar to previous studies, which show that transactional and relational governance complement each other (Arranz & de Arroyabe 2012;Blomqvist, et al 2005;Gulati 1995;. Much of the relational governance took place within the R&D project team and involved the project manager, especially in the projects with high technological uncertainty.…”

“…Yet, the risks related to information asymmetry (when the supplier knows more than the customer), asset obsolescence (when specific investments are made), and switching costs to shift business to alternative suppliers are high (Mahapatra, et al 2010). In these situations, the role of relational governance as a complement and/or substitute for transactional governance increases (Arranz and de Arroyabe 2012;Cannon, et al 2000;Zhou, et al 2008). Consequently, previous research has shown that transactional and relational governance mechanisms are applied simultaneously.…”

“…These are central in relational governance (Granovetter 1985;Heide & John 1992;Ring & Van De Ven 1994). This type of governance is particularly important in circumstances of technological uncertainty , and seems to facilitate high degrees of tacit knowledge exchange (Arranz & de Arroyabe 2012).…”

“…Firms may handle this contradiction by relying on complementary, but different mechanisms. These include transactional mechanisms such as specific contracts, IP agreements and sometimes even specific investments (Arranz & de Arroyabe 2012;Burkert, et al 2012;Jap & Ganesan 2000) and relational mechanisms such as trust, frequent transactions and shared goals .…”

The role of network embeddedness in film success

“…Cattani and Ferriani 2008;Cross and Cummings 2004). Furthermore, those with high JE have been exposed to a broader array of concepts, developmental processes, and collaborative styles (Arranz and Fdez de Arroyabe 2012). A crew with more diverse experiences may also offer greater novelty and breadth in their abilities to apply unconventional ideas, leading to competitive advantages (Cattani and Ferriani 2008).…”