Evolving Functions of Interorganizational Governance Mechanisms

Abstract

Through a longitudinal case study, this article examines the evolution of the twofold function of formal governance mechanisms, for control and coordination, as an interorganizational relationship evolves. We ask whether all formal governance tools develop simultaneously, or whether each mechanism is designed and used for only one function; whether different mechanisms' attributes foster one function rather than the other; and whether different mechanisms are developed over time in order to provoke both functions' evolution. Finally, we explore whether the interorganizational relationship evolution in part explains the evolution of the two functions, or vice versa. Copyright © 2012 John Wiley & Sons, Ltd.

Complementarity Between Formal and Relational Governance Mechanisms in Inter-organizational Networks: Combining Resource-Based and Relational Governance Perspectives

“…However, the need for knowledge creation, knowledge integration and communication is high in business environments where the tasks of the network partners are highly interdependent (Galbraith 1973;Gulati and Singh 1998;Thompson 1967). In this situation, formal and relational governance mechanisms have both a knowledge creation and communication function (Sánchez et al 2012) that facilitate value creation.…”

Inter-organizational relationships and firm performance: A study of the US equity underwriting market in the investment banking industry

“…For example, scholars in economics and strategy have emphasized resource complementarity, cost defrayment, risk sharing, and value creation between firms (Eisenhardt & Schoonhoven, 1996; Walter, Ritter, & Gemünden, 2001; Dussauge, Garrette, & Mitchell, 2004; Lin, Yang, & Arya, 2009; Rice, Liao, Martin, & Galvin, 2012) and scholars in social network have emphasized social endorsements, creation of legitimacy, and learning in inter-organizational relationships (Stuart, Hoang, & Hybels, 1999; Chung, Singh, & Lee, 2000; Baum, Rowley, Shipilov, & Chuang, 2005; Suseno & Ratten, 2007; Ahuja, Polidoro, & Mitchell, 2009; Kim & Choi, 2014). On the other hand, research on the competitive side of inter-organization relationships concerns the impact of opportunism such as potential resource misappropriation and value appropriation between firms on inter-organizational relationships (Li, Eden, Hitt, & Ireland, 2008; Sánchez, Vélez, & Álvarez-Dardet, 2013). For example, an inter-organizational relationship is almost always partly competitive, the larger firm often attempting to capture the technology of the smaller one, to transfer it to its own operations, and, ultimately, to appropriate it (Doz, 1988: 32).…”

“…de Arroyabe, 2012). For instance, a firm can misrepresent its capabilities or resources during the partner selection process, can fail to contribute what it promised during the inter-organizational relationship, or can misappropriate the resources that it gains from the relationship (Sánchez, Vélez, & Álvarez-Dardet, 2013). Therefore, the conventional view held by students of transaction cost economics is that a firm adopts transactional governance mechanisms such as intensive contracts and/or a number of partners to reduce transaction costs and to prevent from its partners behaving opportunistically in an inter-organizational relationship.…”

“…de Arroyabe (2012) find that transactional mechanisms such as formal contracts entail an ex ante way to make explicit both payoff and task coordination in the operative stage of the project, while relational mechanisms such as relational norms complement the contract in the face of conflicts and unforeseen situations. Empirically, managers combine different mechanisms to govern inter-organizational relationships (Sánchez, Vélez, & Álvarez-Dardet, 2013); thus, research could prevent studying only a specific mechanism in isolation from other parts of the inter-organizational governance in order to reveal complete results.…”

Governance of Franchising Networks, Cooperatives, and Alliances: An Introduction

“…In ‘Evolving Functions of Interorganizational Governance Mechanisms’, Sánchez, Vélez, and Álvarez‐Dardet () investigate the evolution of control and coordination function, as an interorganizational relationship evolves. Whereas control tends to mitigate agency costs, coordination serves the effective actual management of the interorganizational relationship, thereby facilitating value creation.…”