strategic alliance and trust
TRANSCRIPT
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Business Relationships and Networks CS10A0151
Lecture 4
18.4.2013
Professor, Ph.D. (Tech.) Anne Jalkala
Department of Value Network Management
Department of Value Network Management
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Content of the lecture
− Strategic alliances
− Approaches to managing alliances
− Trust in interorganizational relationships
− Collective real options
− Interconnectedness of business relationships
− Relationship atmosphere
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Strategic alliances
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Strategic alliances
− “Voluntary arrangements [among two or more organizations] involving the exchange, sharing, or co-development of products, technologies, or services” (Gulati, 1998: 293)
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Factors influencing alliance success
− Environmental uncertainty
− Lack of information about the market and task environment
− Social uncertainty
− Lack of information about the intentions of alliance partners
− Alliance partners may fear they cannot trust each other to do what is best for the alliance
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Managing alliances
Two different approaches:
− Structural / Contractual approach:
− Agreements in writing between two of more parties, which are perceived as legally binding (Lyons and Mehta, 1997)
− The initial structural design is the most crucial factor in explaining alliance performance
− Contracts minimize the risk of opportunistic behavior and help coordination of tasks between the partners
− Relational approach:
− Importance of trust for safeguarding and coordinating alliances
− Ongoing relational management (fostering communication and trust) is important in explaining alliance performance
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Structural and relational approaches
/ 7 (Faems et al., 2008)
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Managing alliances
− Structural and relational approaches are inherently linked and mutually reinforce each other, both within and between trascactions
− Good contracts can trigger positive relational processes
− Replacing key individuals / teams can revitalize relationships
(Faems et al. 2008)
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Trust in Interorganizational Relationships
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Group exercise about building trust
1. Discuss and suggest different ways to build and foster trust in interorganizational relationships
2. Write your suggestions down and present them to other groups
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Trust in interorganizational relationships
− Trust is an individual’s “expectations, assumptions or beliefs about the likelihood that another’s future actions will be beneficial, favorable or at least not detrimental” to the individual (Robinson, 1996: 576)
1. Competence trust
− Expectations about a partner’s ability to perform according to an agreement
2. Goodwill trust
− Expectations about a partner’s intentions to perform according to an agreement
− Trust reduces the need for formal contracts?
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Trust in interorganizational relationships
− Trust is formed through social interaction
− Through social interaction each individual attempts to:
1) Assess the perceived values of the other
− “Does the individual have integrity?”
1) Know whether others have met his or her expectations
− “Did they cooperate or not?”
1) Use his or her current emotions and moods as indicators to assess the quality of the relationships
− “How do I feel based on how others treated me?”
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The formation of trust
− Trust evolves through interaction when
− Values are perceived as congruent
− Positive expectations are met
− Positive emotions and moods are experienced based on how an individual has been treated by others
(Jones & George, 1998)
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Social dilemma in alliances (McCarter et al. 2011)
− An alliance partner might underinvest in alliance initiatives for two reasons:
− Offensive defection
− An alliance partner may attempt to “free ride”— enjoy the created public good without contributing toward its creation.
− Defensive defection
− An alliance partner may underinvest or, in the extreme, not contribute at all—to avoid wasting resources if the alliance partner believes others also will underinvest
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Solutions for increasing trust in alliances (McCarter et al. 2011)
− Structural approach
− Sanctions (e.g. monetary fines) and contracting
− Unable to cover every possible ‘free-riding’ loophole
− Danger: partners trust the contract rather than each other
− Motivational approach
− Altering how alliance partners perceive each other by communicating cooperative intent
− Danger: verbal reassurance viewed as ‘cheap talk’
− Collective real option
− Partners agree to make a small initial investment of resources to uncover the possible success of a subsequent larger-scale alliance initiative.
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Collective real options (McCarter et al. 2011)
− Collective real options (initial small joint investments) create opportunities for a relational small win.
− “Concrete, complete, implemented outcomes of moderate importance”
− Small wins leads to increased trust