Friends and Profits Don’t Mix: The Performance Implications of Repeated Partnerships

Abstract

Firms use repeated partnerships to gain the benefits of shared experience such as improved coordination, collaboration, and adaptation. However, there are downsides to partnering repeatedly, including vulnerability to opportunistic partners upon whom the firm becomes dependent, muted efficiency incentives, and overlooking better options. This paper unpacks the effects of repeated partnerships by investigating their impact on two distinct types of performance: revenue and profitability. To understand repeated partnerships, we analyze a unique dataset of 580 partnerships that completed 144 bridge construction projects. Controlling for project attributes that affect the level of outsourcing, we posit that a greater proportion of repeated partners and deeper relationships with these partners will result in greater revenue through winning bids, but that the prime contractor will not necessarily garner higher profits. We find support for these predictions, highlighting the trade-offs of repeated partnerships. ABSTRACTFirms use repeated partnerships to gain the benefits of shared experience such as improved coordination, collaboration, and adaptation. However, there are downsides to partnering repeatedly, including vulnerability to opportunistic partners upon whom the firm becomes dependent, muted efficiency incentives, and overlooking better options. This paper unpacks the effects of repeated partnerships by investigating their impact on two distinct types of performance: revenue and profitability. To understand repeated partnerships, we analyze a unique dataset of 580 partnerships that completed 144 bridge construction projects. Controlling for project attributes that affect the level of outsourcing, we posit that a greater proportion of repeated partners and deeper relationships with these partners will result in greater revenue through winning bids, but that the prime contractor will not necessarily garner higher profits. We find support for these predictions, highlighting the trade-offs of repeated partnerships.

The limits of relational governance: Sales force strategies in the U.S. medical device industry

“…Yet firms may change their external sales partner (e.g., from sales company X to sales company Y). Although prior relational governance research and sales‐governance studies suggest switching from one external partner to another is uncommon in part due to the significant switching costs involved (Elfenbein & Zenger, ; Holloway & Parmigiani, ; Weiss & Anderson, ), we cannot rule out such changes. If firms do change external sales partners, our measure of relational capital (i.e., time using external sales) will be an overestimate.…”

“…If firms change external partners during our analysis, we may be overestimating the amount of relational capital. However, given prior research that suggests firms are unlikely to change external partners (Elfenbein & Zenger, ; Holloway & Parmigiani, ), as well as our discussions with industry experts that confirm such changes are unlikely, we believe such mismeasurement is rare. Further, this mismeasurement should bias us against finding any differential effects.…”

“…Trust, shared norms, and routines-the core aspects of relational governance-emerge via repeated exchange, and help to coordinate activity, incentivize investment in relationship-specific resources, and encourage the development and transfer of valuable knowledge (Hoetker & Mellewigt, 2009;Kotabe, Martin, & Domoto, 2003;Poppo & Zenger, 2002). Prior research links established interorganizational relationships with both future partnering choices and performance (Elfenbein & Zenger, 2013;Gulati, 1995;Holloway & Parmigiani, 2016). Firms tend to choose the same external partners instead of identifying new ones (Holloway & Parmigiani, 2016;Mayer, Somaya, & Williamson, 2012), and surprisingly, firms even pay a premium to partner with familiar organizations (Elfenbein & Zenger, 2013).…”

Managing coordination in multiteam systems: integrating micro and macro perspectives

“…We were unable to control or manipulate IFD in this context (e.g., through random assignment to different IFD conditions), because (a) simulation results had tangible implications for participants' career advancement and (b) we expected potential disadvantages associated with IFD (e.g., reduced aspirational behavior). Hence, we used a priori screening criteria to select comparable multiteam systems from the overall research program that had similar opportunities to develop and apply IFD (for similar approaches, see Holloway & Parmigiani, 2014;Reuer & Devarakonda, 2015;Schulze, Lubatkin, & Dino, 2003). Specifically, we included all multiteam systems that had remained (a) intact across all three LDS sessions (i.e., no membership additions or losses), and (b) stable after developing different levels of IFD across the first and second LDS sessions (i.e., no changes in members' functional roles between the second and third sessions).…”

Interpartner Differences and Governance Mode Dilemma: The Role of Alliance Scope

“…On the path to accomplishing such goals, however, transaction cost economics raises the concern of opportunism (Das, 2006;Holloway & Parmigiani, 2016;J. Lee, Hoetker, & Qualls, 2015;Williamson, 1975Williamson, , 1985, arising primarily from such contractual hazards as the holdup, observability, and appropriability problems (Mayer & Salomon, 2006).…”