Successful inter-organisational relationships – how do they come about?

While it is commonly accepted that buy-sell relationships develop and evolve over time, research so far has taken a rather static perspective. As a result, little is known about the dynamics of such relationships. How do they develop into committed relationships and what triggers their different stages? A research paper by Professors Ann Vereecke, Evelyne Vanpoucke and Kenneth Boyer provides new insights into the life cycle of inter-organisational relationships and how to make them successful.

More than contractual arrangements

Inter-organisational relationships are long-term collaborations designed to improve the operational performance of both the buyer and the supplier. “They differ from ordinary buy–sell contractual arrangements in that the parties involved are to some extent interdependent,” explains Ann. “There is also on-going, joint participation in key strategic areas such as technology, products or markets, with shared benefits. Typical benefits of such relationships are increased synchronisation of the supply chain, a reduction of total costs and cycle times, improved quality and a stronger competitive position.”

Literature has identified three supply chain integration initiatives to achieve these benefits: (1) knowledge exchange, which in dynamic environments enables partners to be responsive to changing conditions so that they can continue to create customer value and contribute to relationship growth, (2) logistics responsiveness efforts to synchronise the supply chain, e.g. by customising the packaging or by adapting the delivery frequency to each other’s requirements and (3) the use of common resources, such as containers or third-party logistics providers.

Three research questions

Previous research has described several conceptual frameworks for inter-organisational relationship development, but they are based on two seemingly contradicting key assumptions: one school of thought is that they progress in a linear fashion through five stages – awareness, exploration, expansion, commitment and dissolution, whereas the other claims they follow a cyclical process of three iterative stages – negotiation, commitment and execution.

Combining an extensive literature review and six case studies, the research team sought to answer three questions:
1. How do buy–sell relationships develop over time?
2. Which integration initiatives do successful relationships engage in over time?
3. What triggers new integration initiatives and how does this strengthen the relationship in terms of governance and relationship characteristics?

Inter-organisational relationships follow a life cycle process, but develop at their own speed

The study revealed that the existing conceptual frameworks are not contradictory, but in fact complementary. Evelyne: “While in the beginning stages the development process is linear, it becomes a cyclical one as the relationship matures, i.e. once the expansion stage is reached. As a result, the role of a manager changes over time from a contract and price negotiator towards a project manager responsible for synchronising the supply chain together with the other party.” Also, relationships move at different speeds through similar stages. “So, the age of a relationship doesn’t tell you anything about its strength or development stage.”

Continuous effort and innovation are the key to success

In order to remain successful, inter-organisational relationships require continuous effort, as Ann explains: “Our interviewees all confirmed that it’s important to constantly launch new integration initiatives. They feel this keeps the interaction between the parties going and helps to maintain high levels of commitment and trust. Moreover, our cases showed that building these relationships is not all plain sailing. So, you shouldn’t give up on a relationship that hits some difficulties, but see it as an opportunity to start up new integration initiatives.”

Different stages are triggered by different conditions

The case studies also showed that the triggers to start up and continue developing new integration initiatives change during the life cycle of the relationship: while a sufficient level of trust is critical for triggering the expansion stage, the commitment stage is triggered by interdependence. “And as a result of the changed nature of the relationships, the initiatives become broader in scope as relationships grow,” says Evelyne. “The development trajectory usually starts with simple logistics responsiveness initiatives. As the partner’s commitment to the relationship increases, they start sharing knowledge and information, setting up initiatives that require the use of common resources.”

Both formal and informal governance mechanisms matter

The case studies further indicated a shift in the governance mechanisms. Ann: “At the start they all use formal mechanisms, but as the relationships evolve, partners will increasingly rely on informal governance.” The explanation is straightforward: “The more mature the relationship, the more integration initiatives are undertaken, which increases the confidence in each other and in the long-term viability of the relationship. Also, as the relationship matures, it generates other, less tangible benefits that are better managed through informal mechanisms.”

Innovate or die

A final observation is that not only the triggers for starting up new integration initiatives change over time, the motivation to do so changes as well. Evelyne: “Initially, the main driver is cost reduction, but later on, service improvement and growth considerations take over.” This suggests that supply chain partnerships between two organisations show a life cycle pattern similar to that of individual corporations, i.e. as they reach the maturity stage of their product life cycle, there is a need to look for new growth ideas. Ann concludes: “Mature relationships face the same pressure to innovate that individual organisations are facing, the alternative being to die a slow death.”

Source: The full paper ‘Triggers and Patterns of integration initiatives in successful buyer-supplier relationships’ was published in Journal of Operations Management, 32(1-2): 15-33. A version can be obtained from the authors.

About the authors
Ann Vereecke is Professor of Operations and Supply Chain Management at Vlerick Business School and Ghent University. She is also partner and Faculty Dean of Vlerick Business School. Evelyne Vanpoucke is research fellow at Vlerick Business School and Assistant Professor at Maastricht University (the Netherlands). Kenneth K. Boyer is Professor of Operations Management at Ohio State University's Fisher College of Business (USA).

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