Resources, Transactions and Rents: Managing Value Through Interfirm Collaborative Relationships

Abstract

This paper offers a theoretical explanation for why interfirm collaborations form yet fail, and further suggests how firms might manage them for a more positive outcome. Based on a perspective of value, we explain how a more inclusive and integrative perspective, one which combines elements from transaction costs and resource-based theory, provides more robust insight into collaboration formation, management, and instability. In doing so, we differentiate rent-yielding firm-specific assets at the core of the resource-based view from the transaction-specific assets at the core of transaction cost theory. The paper makes a crucial distinction between the potential value attainable through collaborations and its actual realization. The crux of our argument is that firms enter into collaborative relationships because these are expected to yield superior value relative to alternate organizational forms in certain situations, offering potentially synergistic combinations of complementary resources and capabilities, yet such relationships are frequently prone to failure because the partner firms tend not to recognize ex ante the nature and extent of transaction-specific investment that is required in the collaborative relationship to attain these synergies. In our argument, critically, the relationship between organizations is seen not simply as a governance structure of a hybrid nature but, more importantly, as a productive resource for value creation and realization. In this light, transaction-specific investment in what we term relational specificity becomes imperative. In the search for value, we explain why the transaction costs incurred in the exchange of resources are not independent of the nature of resources to be transacted and, similarly, why the returns realized from these resources are not independent of the relationship- and transaction-specific expenditures incurred in effectively combining them and maintaining the combination. The interdependence between the two, mediated by the quality of the relationship, has direct implications for the earning of rents through collaborations. These relationship-specific expenditures can be of an internally generated nature, endogenous to the alliance form itself, and need not exceed alternative forms, while the associated benefits have the capacity to potentially exceed the alternatives. This translates into potentially superior value. The paper contributes in three key related ways: (a) the explicit recognition of the relationship as a value-bearing asset embedded in a larger and endogenous institutional context, namely a system of resource relationships—both intraorganizational and inter-organizational—among partner firms and the collaboration, (b) the recognition of the evolving relationship between production and exchange which, at the level of the collaboration, is directly dependent on the nature, evolution, and dynamics of the relationship among the parties to the transaction, and (c) the provision of a nontrust explanation for why firms might knowingly forego opportunities to take advantage of their partners. Drawing from this, the paper occasions (a) a shift in focus from the form to the process of governance, which has direct implications for value creation and realization and (b) a shift in the primary identity of transaction-specific and relationship-specific expenditures from cost to investment in future value.

Outcome-based contracts as new business model: The role of partnership and value-driven relational assets

“…From the review of a diverse set of theoretical literature in operations, OBHRM, strategy and marketing, we integrate the literature with our qualitative findings and propose five value-driven and partnership constructs we consider to be relational specific assets (cf. Madhok and Tallman, 1998) for outcome-based contracts. We hypothesise the relationships between the constructs and contract performance, with two intervening variables from OBHRM literature.…”

Supplier strategies to compensate for knowledge asymmetries in buyer-supplier relationships: implications for economic upgrading

“…The higher degree of flexibility could also bring in increased economic efficiency for the MNEs (cf. Madhok and Tallman, 1998). On the contrary, this higher degree of flexibility translates into greater uncertainty for the suppliers.…”

The structure and evolution of inter-sectoral technological complementarity in R&D in Germany from 1990 to 2011

“…Crucially, R&D collaboration is considered to be especially effective when giving access to similar and/or complementary (knowledge) resources (Powell et al 1996;Eisenhart and Schoonhoven, 1996;Madhok and Tallman, 1998;Stuart, 1998;Makri et al 2010). 2 Herein, complementary resource collaborations combine resources that are substantially different (Gulati, 1998;Das and Teng, 2000).…”

“…Partner selection in R&D however "does not occur in a vacuum" (Hitt et al, 2000, p. 449). Collaboration configurations differ in their probability to generate value and sometimes may even induce value-destroying effects (Zajac and Olsen, 1993;Madhok and Tallman, 1998;Khanna et al, 1998;Das and Teng, 2000). Hence, choosing the right partner is crucial in this context.…”

“…Amongst others, the literature suggests that combinations of complementary (knowledge) resources are particularly useful in this respect (Madhok and Tallman, 1998;Mowery et al, 1998;Miotti and Sachwald, 2003).…”