Towards a model of governance in complex (product–service) inter‐organizational systems

Abstract

Traditional business models coped with the complexity inherent in buying complex capital assets that will be operated and maintained over many years by a division of labour based on subsets of the value chain. Recently, customers in a wide range of sectors are not buying subcontract production or construction capacity but procuring business ‘solutions’. As a result, inter‐organizational interactions are changing in terms of their scale, scope and dynamic, requiring us to reconsider those mechanisms that coordinate inter‐organizational behaviour. Correspondingly, a conceptual model is developed that explores how contractual and relational mechanisms interact across different levels of analysis and over time. Reflecting on the implications of the model highlights how contractual and relational governance mechanisms are distinct but inseparable parts of a governance continuum, involving multi‐level interactions and transitions. Given that these interactions/transitions influence the behaviour of exchange partners and impact on the effectiveness of the overall governance mix, these (albeit conceptual) insights should be beneficial to academics, practitioners and policy makers involved in complex product–service systems.

Keywords:

• Product–service systems
• inter‐organizational governance
• contracts
• trust
• complexity

Notes

1. The authors classified four different types of relationships between buyers and suppliers: standardized, specified, translation and interactive. This work builds directly on the Industrial Marketing and Purchasing (IMP) group’s approach to interactions between customer and supplier (e.g. Håkansson, 1982; Håkansson and Ford, 2002).

2. In addition to these structural factors, the bounded rationality of the human actors involved (e.g. TCE and agency theory) also contributes to incomplete contracts (Hart, 1988).

3. Giunipero et al.’s (2008) comprehensive literature review highlights that the number of research studies on trust in buyer–supplier relationships increased dramatically over the last decade.

4. Assuming opportunism and bounded rationality (Rindfleisch and Heide, 1997), transaction cost economics (TCE) asserts that firms attempt to minimize transaction costs by ‘assigning transactions (which differ in their attributes) to governance structures (the adaptive capacities and associated costs of which differ) in a discriminating way’ (Williamson, 1985, p. 18). As a result, firms only internalize activities where adverse costs might arise from operational difficulties in a market exchange, primarily uncertainty, frequency and asset‐specificity.