STRATEGIC INTERDEPENDENCE, GOVERNANCE EFFECTIVENESS AND SUPPLIER PERFORMANCE: A CASE STUDY INVESTIGATION AND THEORY DEVELOPMENT

Organization theories characterize inter-organizational exchange governance approaches as two broad types: relational and transactional. The efficacy of the two approaches or their combination is however context specific. That is, the relative usefulness of an approach depends on the need and the opportunity for implementing cooperative versus competitive practices. In practice, firms operate in environments where the contextual contingencies do not present ideal conditions for practicing purely relational or transactional approach. It is therefore interesting to investigate how firms choose governance structures in specific contexts. We study the inter-organizational governance mechanisms of an OEM and four of its strategic suppliers that operate in high-end motorbike industry characterized by high product complexity, low volumes, and relatively short product life cycle. Building theory from case studies, it is argued that under these circumstances, firms might deviate from the conventional choices of either transactional or relational governance. The data show that a governance approach that appropriately combines the contractual and relational aspects could be more effective; however, developing the appropriate combination might be quite challenging in practice. The feasibility and effectiveness of combining contractual and relational aspects are discussed. It is found that strategic interdependence between the trading partners is the key determinant of successful implementation of governance practices that lead to superior supplier performance. We identify and discuss key factors that influence strategic interdependence in buyer-supplier dyads.