Relationship Management: Evaluation, Integration and Governance

1
Relationship Management Evaluation, Integration
and Governance

• Dr. Beverly B. Tyler
• Associate Professor
• North Carolina State University
• Presentation at the Manchester Business School
• June 21, 2006

2
Historical Roots

• Psychological/Sociological Perspective
• Behavioral Approach to Strategy Making
• Decision Making, Information Processing
• Transaction Cost/Resource Based Theories
• Integration of Theories to Understand Complex
  Organizational Decision Contexts

3
Current Research

• Top Executives Evaluations of Equity Alliances
• Intra-organizational Knowledge Management (shared
  understanding and organization effectiveness)
• Inter-organizational Knowledge Management (i.e.,
  contracting effects of transactional and
  relational attributes in alliances to foster
  innovation)
• Supplier Development (cognitive, structural, and
  relational capital and performance improvements)

4
The Relationships Between Supplier Development,
Commitment, Social Capital Accumulation and
Performance Improvement

• Daniel R. Krause, Arizona State University
• Robert B. Handfield, North Carolina State
  University
• Beverly B. Tyler, North Carolina State University
• Forthcoming in JOM, special Issue on
  Organizational Theory and Supply chain Management

5
Agenda

• Motivation Research Questions
• Review Supplier Development Theory
• Discuss Social Capital Theory
• Propose Hypotheses to be Tested
• Describe Method and Study Results
• Contributions, Limitations and Implications

6
Motivation

• Companies are beginning to recognize the
  importance of developing key suppliers in order
  to gain competitive advantage
• Commitment to a long-term relationship is
  important to performance improvement
• Research has yet to specify what aspects of
  social capital influence which improvement goals

7
Questions of Interest

• What activities have U.S. firms undertaken in an
  effort to develop key suppliers?
• What specific forms of returns are gained from
  investments by U.S. firms in supplier development
  activities?

8
Supplier Development

• Definition Any effort by an industrial buying
  firm to improve the performance or capabilities
  of its suppliers (Krause, Handfield, Scannell,
  1998)
• This practice is well documented in Japan
• Reciprocal interdependence results due to
  investments (relation-specific assets and
  knowledge sharing routines) necessary for
  non-routine tasks

9
Supplier Development

• TCE - Transactional controls are needed to assure
  relational investments are made
• Relational view emphasizes the long-term nature
  of these relationships
• Specific development activities of U.S. firms and
  their performance effects are not well understood

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Supplier Development
Buyer Performance Goals

• Lower costs
• Quality improvement
• Reliability of delivery delivery speed
• Manufacturing flexibility

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Supplier Development

• Performance improvement is dependent on buyers
  commitment to a long-term relationship with key
  suppliers
• Hypothesis 1 There is a positive relationship
  between buying firms commitments to long-term
  relationships with key suppliers and buying
  firms performance improvements

H1
Buyer Commitment
Buyer Performance Improvement
12
Social Capital Theory

• Three dimensions cognitive, structural, and
  relational (Nahapiert Ghoshal, 1998)
• SCM OT research recognizes the effects of
  structural and relational capital on performance
  (Burt, 1992 Granovetter, 1973 Moran, 2005)
• Supplier development literature acknowledges the
  need for inter-firm knowledge-sharing routines to
  transfer factual tacit knowledge
• Social capital theory provides insights into
  activities associated with knowledge transfer

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Cognitive Capital

• Defined Resources providing the parties with
  shared representations, interpretations, and
  systems of meaning (Nahapiert Ghoshal, 1998)
• Shared vision, collective goals and aspirations
  (Tsai Ghoshal, 1998 Inkpen Tsang, 2005)
  should enhance knowledge transfer and improve
  buyer performance (Hult et al., 2004)
• Incongruent goals values gt misinterpretation,
  conflict, dissatisfaction, limiting information
  sharing between buyers and suppliers (Zaheer et
  al., 1998)

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Cognitive Capital

• Hypothesis 2 There is a positive relationship
  between buying firms perceptions of shared
  values and goals with key suppliers and buying
  firms performance improvements

H2
Cognitive Capital(Values)
Buyer Performance Improvement
15
Structural Capital

• Information sharing is central to the acquisition
  of capabilities through inter-firm ties
• Factual and tacit knowledge must both be shared
• Includes sharing of production information,
  supplier evaluation and direct involvement
  supplier development activities (Krause et al.,
  2000)
• Different supplier development efforts may be
  associated with different structural means of
  information sharing (Daft Lengel, 1986 Hult et
  al, 2004)
• Knowledge sharing needs differ by type of
  performance improvement sought (Daft, et al.,
  1993)

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Structural Capital

• Hypothesis 3a There is a stronger positive
  relationship between efforts to share information
  and evaluate suppliers to achieve buyers cost
  performance improvements, than between buyers
  direct involvement supplier development
  activities and cost performance improvements.
• Hypothesis 3b There is a stronger positive
  relationship between buyers direct involvement
  supplier development activities with key
  suppliers to achieve performance improvements in
  quality, delivery and flexibility, than between
  buyers efforts to share information and evaluate
  suppliers to achieve buyers cost performance
  improvements, and these performance
  improvements.

H3b QRFIEltD
H3a CostIEgtD
Buyer Performance Improvement
Structural CapitalInformation, Evaluation,
Development
17
Relational Capital

• Increased interaction is related to established
  routines (Nelson Winters, 1982), co-specialized
  assets and bilateral dependence (Teece, 1986)
• Experience raises collaborative expectations and
  stimulates learning and readjustment cycles
• History reduces expectation of opportunism and
  perception of exchange hazards
• Prior exchanges may substitute for explicit
  contracts (Dyer Singh, 1998 Gulati, 1995)

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Relational Capital

• Interactions improve communication, distribution
  of tasks, establish common language and make
  partners less likely to act opportunistically
  (Hoetker, 2005)
• Trust develops that persists despite changes in
  the individuals involved (Zaheer et al. 1998)
• Supported in studies of buyer-supplier
  relationships (Heide Minor, 1992 Stuart et
  al., 1998) so can be expected to affect buyer
  performance associated with supplier development
  initiatives.

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Relational Capital

• Hypothesis 4a There is a positive relationship
  between the length of buying firms relationships
  with key supplier and buyers performance
  improvements.
• Hypothesis 4b There is a positive relationship
  between buying firms perceptions of buyer and
  supplier dependency on the relationship and
  buyers performance improvements.

H4a LH4b D
Buyer Performance Improvement
Relational CapitalLength, SB Dependence
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Hypotheses
Social Capital
Cognitive CapitalShared Values
H2 V
H1 BC
Buyer Commitment
Buyer Performance Improvement
Structural CapitalInformation, Evaluation,
Development
H3a CostIEgtD
H3b QDFIEltD
H4a LH4b D
Relational CapitalLength, SB Dependence
21
Method

• Sent survey to 1,500 purchasing executives in
  automotive and electronics asked to report on
  relationship with a key supplier
• 392 responses, information for 124 suppliers
• N370, 20 items compared early and late
  respondents suggested no non-response bias
• Supplier response N75, correlations suggest
  similar perceptions of long-term relationship

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Method

• Dependent variable 6 items, 1-7 Likert scale
  cost, total cost, product quality, delivery times
  and reliability, flexibility (exploratory factor
  analysis)
• Independent variables buyer commitment, shared
  values, information sharing, supplier evaluation,
  supplier development, length of relationship
  (years), buyer and supplier dependence
  (exploratory factor analysis)
• Controls perceptions of obsolescence and
  relative change of technology, annual sales (high
  large)
• Supplier response N75, correlations suggest
  similar perceptions of long-term relationship

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Scale Results
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Regression Results
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Hypotheses
Social Capital
Cognitive CapitalShared Values
H2 VYes
H1 BCYes
Buyer Commitment
Buyer Performance Improvement
Structural CapitalInformation, Evaluation,
Development
H3a CostIEgtD No
H3b QDFIEltD Yes
H4a L NoH4b D Mixed
Relational CapitalLength, SB Dependence
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Contributions

• Verified importance of commitment to supplier
  development success
• Support for application of social capital theory
  to buyer-supplier development research
• Different dimensions are useful exploratory
  constructs in a supply chain context
• Different dimensions have unique effects
  depending on performance goals

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Contributions

• Improvements in cost related to shared values and
  buyer and supplier dependence
• Improvements in Q/R/F related to shared values
  and direct involvement supplier development
  activities
• Suggests Q/R/F requires structural interaction
  that encourages exchange of tacit knowledge
• Argues that maybe cost concerns are best
  addressed at the negotiation table during
  periodic contracting

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Limitations

• Single data source - survey
• Single respondent for organizational variable
• U.S. automotive and electronic assemblers
• Limited supplier data to substantiate buyer
  perceptions

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Implications for Research

• Are these findings generalizable to other
  countries and industries?
• When is the length of the relationship related to
  performance improvements? Is it a curvilinear
  function? Is it related to only certain
  performance measures? Does it moderated by other
  factors?
• How is trust related to the length or frequency
  of the relationship? Is trust one dimension of
  relational capital?
• When does dependence positively effect
  performance improvements and when are the effects
  negative?
• How are the three dimensions of social capital
  related to performance improvement? Does
  cognitive capital serve as a moderator of
  structural and relational capital?

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Implications for Practice

• How do you determine the level of your buyers
  commitment? How do you contract in order to
  protect yourself from opportunistic behavior on
  the part of your buyer?
• How do you verify that your goals and values are
  consistent with your buyers?
• How do your structure information flow between
  your firm and your buying firms? What formal and
  informal structures do you use to assure that the
  appropriate information is shared? How do you
  protect the information that you have determined
  is outside the relationship?
• How is your contracting and formal and informal
  structuring of the relationship influenced by
  prior interaction with a particular buyer? Do you
  avoid buyer dependence? What aspects of the prior
  relationship influence contracting and structured
  interaction?

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Conclusions

• Increase in outsourcing has fueled interest in
  the benefits associated with buyer-supplier
  relationships.
• Increased cooperation and collaboration between
  buyers and suppliers suggest long-term
  relationships and more effects related to social
  embeddedness.
• Little is known regarding the different
  dimensions of social capital and their unique
  contributions to various dimensions of
  performance in the context of buyer and supplier
  relationships.
• This study provides some initial understanding
  and hopefully will motivate future research.