Trust, Control, and Risk in Strategic Alliances: An Integrated Framework

Abstract

Trust and control are inextricably interlinked with risk in strategic alliances. Hence, to understand how partner firms can effectively reduce and manage this risk, we need to examine the inter-relationships between trust, control, and risk. In this article, we propose a comprehensive and integrated framework of the three constructs in the context of strategic alliances, contending that trust and control are the two principal antecedents of risk. First, we suggest that the three constructs are each comprised of certain key dimensions. Risk can be considered separately as relational risk and performance risk. The two dimensions of trust are identified as goodwill trust and competence trust, and control is differentiated in terms of the three modes of behaviour control, output control, and social control. Second, we discuss systematically the various linkages between the different types of trust, control, and risk in alliances. Third, we suggest several risk reduction approaches — minimizing relational risk through goodwill trust, behaviour control, and social control, while minimizing performance risk through competence trust, output control, and social control. Fourth, we discuss a number of trust-building techniques and control mechanisms to reduce risk in different types of strategic alliances. Finally, we develop propositions for empirical testing of the integrated framework and offer brief comments on future research directions and managerial implications

The Two Facets of Collaboration: Cooperation and Coordination in Strategic Alliances

“…As a result, partners may reduce their investments in the partnership, contributing to its deterioration and ultimately its dissolution. These unanticipated shifts in partners' support of the joint effort, and specifically changes in the level of their contributions and claims to outcomes, have been designated relational risk (Das & Teng, 2001;Das & Teng, 1996;Noteboom, 1999).…”

The Mediated Effect of Formal and Informal Control on Governance Forms

“…Information transfers, frequent meetings, and communications between contracting partners reduce information asymmetry, the probability of opportunistic behavior, and transaction costs. They indicate goodwill and reduce the need for formal control (Das & Teng, 2001;Dyer, 1997).…”

“…A formal governance structure can guarantee the stability and continuity of a relationship in the future, i.e., formal control mechanisms can act as generators of trust (Das & Teng, 2001;Dekker, 2004;Vázquez, Iglesias, & Alvarez-González, 2005). Therefore, certain forms of governance can change past experiences and drive the selection of a new combination of action-organizing mechanisms and the evolution of the governance form.…”

Understanding the Role of Information Technology for Organizational Control Design: Risk Control as New Control Mechanism

“…The monitoring of the output of the value creation process implements the formal control strategy through analyzing the output of the performed tasks. Implementing output control requires a clear understanding of the results of the value creation process and the ability to evaluate the outcome (Das et al 2001;Ouchi 1979).…”

“…It implements the formal control strategy through evaluating the tasks that are performed by the employee on appropriateness and alignment with the overall strategy. Behavior control requires knowledge of the transformation process and understanding of the involved resources (Das et al 2001;Ouchi 1979).…”