On the Genesis of Interfirm Relational Contracts

Abstract

Please scroll down for article-it is on subsequent pagesWith 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.) and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to transform strategic visions and achieve better outcomes. For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org STRATEGY SCIENCEVol. 2, No. 4, December 2017, pp. 234-245 http://pubsonline.informs.org/journal/stsc/ Abstract. In a wide range of circumstances, relational contracts can enable strategies that might not otherwise be possible. While most studies focus on the maintenance and performance of existing relational contracts, this paper explores the origins of interfirm relational contracts, focusing on how firms go from no contract to a relational contract. Relying on a microanalytic investigation of the birth of the desktop laser printer industry, we identify a combination of four emergent and deliberate steps that enhance the probability that a relational contract will arise: preexisting personal relationships, capability complementarity, cultural similarity, and pursuit of noncompeting but mutually reinforcing revenue models. We consider how each of these factors helps to undergird the parties' clarity and credibility to increase the probability of the genesis of a relational contract, which in turn enables collaborating firms to undertake successful, difficult-to-imitate strategies.

R&D innovation under uncertainty: a framework for empirical investigation of knowledge complementarity and goal congruence

“…In exploring our research questions, this work extends prior studies by introducing an analytic model that represents a firm’s goals and knowledge as vectors. This model extends previous research into the effects of complementary knowledge, interdependencies and the relatedness of businesses (Llanes et al , 2019; Pontikes and Barnett, 2017; Bennett and Feldman, 2017; Natividad and Rawley, 2016; de Figueiredo and Silverman, 2017; Rahmandad, 2019). Using a vector representation of knowledge enables the use of common proximity measures to quantify knowledge overlap and diversity as dimensions; key innovation antecedents prescribed by absorptive capacity theory while also including the effects of goals.…”

Relational contracting theory and internal audit: Chief audit executives' perspectives on creating and strengthening trust by building credibility and clarity

“…Baker, Gibbons and Murphy (2002, p. 39) define relational contracts as ‘information agreements sustained by the value of future relationships,’ and Gibbons and Henderson (2012a, p. 1350) initially define them as ‘collaboration sustained by the shadow of the future as opposed to formal contracts enforced by courts’ and subsequently observe that the parties to such a contract seek to maximise their roles in and rewards from cooperating—that is, they see value in working together (2012b, p. 681). Relational contracts ‘facilitate collaboration and repeated interactions’ between parties (de Figueiredo & Silverman, 2017, p. 234) and can support achievement of outcomes that may otherwise not be possible (Bernstein, 2015). In short, relational contracts are ‘incomplete agreements’ with agreed common goals but without detailed plans (Macneil, 1978; Milgrom & Roberts, 1992), ‘informal and self‐enforced’ (Halac, 2012, p. 750) and ‘proactive and flexible’ (Cheung, 2001, p. 39), assuming that both parties inherently maximise their benefits by building a trusted and cooperative relationship (Jeffries & Reed, 2000; Williamson, 1991).…”

“…Being able to recognise the existence of such contracts and managing the culture of the organisation is a critical skill for CAEs. Prior studies suggest that the convergence of various factors, such as an implicit understanding between parties, regular communications and reliable commitments, a cooperative and proactive environment, a conductive organisational culture (i.e., one that turns knowledge into a strategic advantage) within a firm (compatible culture between firms), a high level of information exchange among parties within the organisation, strong personal relationships, non‐competing and common goals, complementary capabilities and trust, can create the necessary conditions that allow effective relational contracts to develop (Cao & Lumineau, 2015; Cheung, 2001, 2006; de Figueiredo & Silverman, 2017; Macneil, 1985). Baker et al (2002) emphasise that even formal processes such as internal auditing cannot be fully understood without considering relational contracts.…”