Interorganisational Coordination and Performance 1 Introduction

The literature described so far in this chapter addresses both the theoretical rationale and the operational forms of interorganisational alliance activity. Principal typologies of operational forms are identified and these distinctions now represent a basis for examining the empirical literature relating to the coordination of interorganisational alliances. The main coordinating approaches echo those operational forms of activity already outlined. However, a tighter description is arrived at and viewed exclusively from a coordination perspective.

The relative merits of one coordinating approach over another, the efficacy of an approach, is generally measured according to alliance outcomes. The treatment of alliance performance in the literature as a key outcome is discussed along with coordinating approaches in this section.

2.5.2 Formal Coordinating Approaches 2.5.2.1 Neoclassical Contract

Neoclassical contract law differs from classical contract law by allowing for uncertainty. Classical contingent claims contracting on the one hand is comprehensive in describing and discounting future contingencies and is based on ‘legal rules, formal documents, and self-liquidating transaction’ (Williamson 1979). The law governing contract then gives remedy for breach of promise (deviation from the terms of the contract), and recognises a duty of performance (Macneil 1980). Neoclassical contract law on the other hand recognises that not all contingencies can be

anticipated, appropriate adaptations will not be evident until the situation arises, and that ‘hard contracting’ may give rise to ‘veridical disputes’ (Williamson 1979). The common strength of both forms of contracting is the calculative framework that economics lends to the perspectives. In neoclassical contract law therefore, and under conditions of uncertainty, this calculativeness also represents something of an ‘Achilles’ heel’ since it cannot address all possible circumstances (Williamson 1993). The idea that calculativeness and relationalism can be combined in a single approach introduces a hybrid form of contract-based alliance coordination. From a transaction cost perspective this approach recognises the reality of transaction contexts and factors in the environment with the transaction by allowing for human behaviours including opportunism and bounded rationality (Williamson 1975). From a relational exchange theory perspective this allows for the effect of relational norms, principally solidarity, role integrity, and mutuality (Kaufmann and Stem 1988; Macneil 1980).

The distinction between classical and neoclassical contract law is particularly significant for the present efforts to apply a typology to approaches of alliance coordination. Any departure from discrete contracts signals the substitution of relational coordination to some degree (Heide 1994). Neoclassical contracting therefore represents a less pure form of coordination by contract, incorporating a degree of relational coordination. One may argue that a continuum exists with this form of alliance coordination at one end, and a purer form of relational coordination with little formal contract, at the other (Kaufmann and Stem 1988; Macneil

1980). However what is not clear is whether coordination approaches are positioned along such a continuum by degree, or whether distinct approaches can be identified which act concurrently and discretely. A third option is that categorical forms may exist at threshold points along the continuum which can be described and measured.

Thus neoclassical contracting can be differentiated from other forms of alliance coordination approaches by its characteristic formality and principal reliance on the contract for the terms of conduct and as a control mechanism. Deviation from terms caused by unforeseen circumstances may be guided by general terms in the contract and rely on relational interaction, or negotiation. There is little evidence in the literature that classical contract law operates effectively as a singular coordinating approach. Classic contracting neither ‘serves nor reflects’ reality and provides limited safeguards (Gundlach 1994). Neoclassical contract law provides a coordinating approach through which the ‘skeletal promises’ of the contract can be augmented through relational coordination (Yovel 2000).

Importantly a neoclassical contracting approach to alliance coordination is that it purports to present safeguards against opportunism and the effects of bounded rationality. At this level it functions to support the make and sell approach and defend it against anticompetitive behaviour and asymmetric advantage (Joskow 2002; Porter 1980; Williamson 1975). Thus the alignment between neoclassical contract law and the transaction cost approach is clear.

2.5.2.2 Procedural dependence

Under circumstances of greater power symmetry and perhaps lower uncertainty, formal alliance coordination approaches may be less driven by the operation of safeguards and more by the effective exchange according to prescribed roles. The contingent circumstances which may lend themselves to this scenario can involve non-hierarchical alliances such as co-marketing alliances, strategic alliances, and joint ventures (Luo 2008a; Robson and Dunk 1998; Varadarajan and Rajaratnam 1986; Venkatesh et al 2000).

It may be reasoned that under these circumstances a greater degree of relationalism will occur and may manifest as cooperative behaviour such as adaptation. If this coordination approach is positioned at a midpoint along the continuum outlined above then there is little reason to consider that partners will act with excessive forbearance and benevolence and therefore that any adaptation will need to be reciprocated (Ganesan 1994). Power asymmetry is frequently derived from unilateral asset specific investment thus under procedural dependence, conditions are likely to be characterised by mutuality in asset specific investments where they occur, as well as adaptation (Kale et al 2000; Williamson 1991).

2.5.3 Relational Coordination

Relational coordination is the ‘antithesis of discreteness’ (Macneil 1980) and so operates at the opposite end of the continuum and involves ‘highly complex roles’ rather than discrete transactions (Kaufmann and Stem 1988). The logical extension to this is that contracts are seen to be

ineffective and substituted wholly by relational norms and social capital (Uzzi 1996). However laws still exist and contracts, albeit generic or implicit will still occur such that formal governance may operate as a background or remote form of co-ordination. This is therefore a relational- based coordination approach. In essence relational coordination is more concerned with the exchange of information than of rights as would be the case in neoclassical contract coordination (Sobrero and Schrader 1998).

It is important to note that the heterogeneity of perspectives on alliance coordination brings with it some semantic inconsistency. In particular the description of relational coordination here is close to what Sobreo and Schrader (1998) term procedural coordination in their meta­ analysis. Semantic variation is therefore inevitable and is only remarked upon here to issue clarity and remind the reader that terms used in this text are used consistently with the descriptions given here.

An established position within the literature is that trust operates as a substitute to control (Madhok 1995; Nooteboom 2007). This position is however widely challenged by those who consider that trust operates in conjunction with control (Das and Teng 1998; Poppo and Zenger 2002). Others consider that the complementary function is contingent on the type of trust (Lui and Ngo 2004; Fryxell et al 2002). While these perspectives vary they do however provide tentative support for the position set out above that elements of contractual co-ordination operate remotely under relational-based coordination.

Trust is a key element of relational alliance co-ordination and an important safeguard which acts to maintain successful relational exchanges

(Fryxell et al 2002; Lui and Ngo 2004; Morgan and Hunt 1994). In particular trust promotes information exchange either indirectly by contributing to close tie formation which moderates information sharing (Reagans and McEvily 2003), or as a safeguard by which alliance partners can have confidence that the knowledge exchanged will not be misused (McEvily et al 2003). It is erroneous however to regard trust as a one dimensional construct. Trust is both multidimensional and multilevel. Two dimensions of trust are identified in the literature, goodwill and competence trust (Fryxell et al 2002; Lui and Ngo 2004; McAllister 1995). The multidimensional nature of trust is of particular importance in the appropriation of trust interaction and operates at both interorganisational level and the interpersonal level (Zaheer et al 1998).

2.5.4 Alliance performance

In determining the relative efficacy of a given alliance co-ordination approach some measure must be taken of its outcome. Alternatives among outcome measures abound. Acquisition costs (Noordewier et al 1990), strategic performance and market performance (Lee and Cavusgil 2006), financial performance (Lado et al 2008) all represent valid albeit unidimensional measures. In an overview of the development of marketing measures over time Clark (1999) identifies a clear progression from financial measures to non-financial measures, the latter of which includes market share, customer satisfaction, and input measures. Multiple measures are a somewhat later development and facilitate a multidimensional development of the performance measure.

The use of a multidimensional construct of alliance relationship performance has the advantage of allowing the development of a measurement scale which is appropriate to the specific research context. The application of the multidimensional performance construct has become increasing common in the empirical literature (Fergusen et al 2005; Krishnan et al 2006; Lui and Ngo 2004; Sarkar et al 2001). This further facilitates measurement of the specific unit of analysis under investigation, i.e. the alliance relationship.

2.5.5 Section Summary and the Research Implications for the Current Study.

There is a tendency among the literature considered here to report positive outcomes and associations. The extant literature adequately demonstrates the effective operation of contractual-based coordination approaches. These approaches operate under conditions associated with transaction cost perspectives. Hierarchical make and sell arrangements are shown to be served well by the contractual based approach to alliance coordination. As the conditions which characterise the transaction cost approach are replaced with other, more equitable, conditions such as power symmetry and cooperative intent, the emphasis on contract is reduced and that of relational coordination increased.

A continuum is described along which this progression can be plotted and for the convenience of typological explanation, and because the empirical literature lends itself to the arrangement, three discrete relational approaches are described. Contract-based coordination is followed by

procedural coordination, and finally by relational coordination. Relational alliance coordination is characterised by a preponderance of relational emphasis with contractual coordination operating, so to speak, in the background. While evidence is provided for the increasing link between relationalism and alliance performance at this end of the continuum little empirical evidence is provided for the role and performance outcomes of the limited contractual coordination. In line with the assumptions of transaction cost perspectives, contractual coordination appears to be largely presumed to function. The absence of empirical evidence for this presents a significant and substantial avenue for further research into the function of contractual coordination under cooperative alliance conditions, in which relationalism is predominant.

2.6 Conclusion

The literature on interorganisational alliances is extensive, multidisciplinary, and progressively divergent. This chapter identifies the theoretical anchors for the field, maps out the contemporary empirical literature and imposes an alliance coordination lens to limit the focus and describe a specific context and rationale for future research in general and the current investigation in particular.

The theoretical anchors are described in sections 2.2 and 2.3, institutional economics, and social exchange theory respectively. The institutional economics section takes the theoretical underpinnings of the alliance literature and describes the economic decision making origin. Section 2.2 is largely a discussion of the supplanting of neoclassical

economics by transaction cost theory which is argued to be more realistic in respect of its marketing context. The section is dominated by a discussion of transaction cost theory and the method by which the transaction costs framework establishes the relative merit of pursuing market transactions over internalising activities.

Social exchange theory is in many ways antithesis to institutional economics. Section 2.3 describes the principal development of the theory and goes some way in identifying areas of commonality between the two meta-theories. Also described are the principal differences between the theories. It is established that institutional economics carries an assumption of futurity only where a rationale case exists for it. Social exchange theory meanwhile facilitates future exchange where market imperfection exists and the rational case is difficult to make.

The broader alliance literature draws on the theories of institutional economics and social exchange theory to a large extent. Other theoretical perspectives such as resource dependence theory are also in evidence and in section 2.4 the alliance literature is described, and an attempt is made to establish a typology. The merging and overlapping of the literature is brought into focus by relating it to the principal antecedent theories already discussed. From this a two dimensional typology is established with a make and sell alliance perspective on the one hand and a more cooperative perspective concerned with co-produced solutions on the other (Hunt 2004). Of particular importance in this section is the establishment of a duality which extends beyond the perspectives outlined and to the logic underpinning them. The concept of a new dominant logic is used to inform

the discussion of these perspectives and is linked with the evolving marketing environment to address the direction of developments in alliance co-ordination theory (Vargo and Lusch 2004). A further element of futurity to emanate from this section is the description of the effect on boundary conditions of the trend in cooperative interplay between organisations.

The penultimate section is a focus on the coordinating approaches to alliance activity and their operational function. These approaches are described in the context of a continuum ranging from a broadly contract- based approach at one end to a broadly relational-based approach at the other. An intermediate condition is identified providing a trichotomous typology of discrete coordinating approaches. The absence of specific treatment of contract co-ordination within the relational-based approach is identified as an area for attention in future research generally and this research in particular.