4. Research design and methods
4.5. Measurement
4.5.2. The measure
4.5.2.1. Dependent variables
Mode of governance is the single dependent variable in the first sub-model (see Figure. 3.1).
Variables for mode of governance are hierarchical and relational governances. However, these two variables are independent variables in the second sub-model. The only dependent variable of the second sub-model is relationship performance.
Hierarchical governance
Hierarchical governance is defined as the degree towhich one exchange partner has the ability to develop rules (e.g. dispute resolution mechanisms), give instructions (i.e., formalization), and, in effect, impose decisions on others, and to the degree to which the exchange partners follow the agreed-on rules and procedures during the execution of the exchange (Geyskens et al., 2006; Haugland & Reve, 2004; Stinchcombe, 1985). This study conceptualizes hierarchical governance as higher-order concept centralization of formalization and centralization. These two elements are useful in reducing uncertainty because they provide insight into the internal structure used to govern the exchange.. A scale is developed based on the inter-organizational literature, and adjusted to the appropriate object of analysis and context. There seems to be agreement in the literature about operationalization of the formalization, though it is inconsistent regarding centralization. Indicators of formalization are developed based on Haugland and Reve (2004) and Sunde (2007). Items reflecting centralization are developed based on Heide and John (1992), using a nine-item, seven-point scale, anchored from “strongly disagree” to “strongly agree”. Note that hierarchical governance is also an independent variable for the model in the second phase.
• Formalization
1. Either our company or this customer has developed rules and procedures for most issues in the exchange.
2. How to handle the day-to-day management of the exchange is written in a formal contract document.
3. Both our company and this customer intend to follow jointly agreed-on rules and procedures in the daily management of the exchange.
4. It is important to our company to behave correctly according to the contract.
5. In dealing with this customer, our contract precisely states how disagreements should be solved.
• Centralization
1. The processes in the exchange are entirely decided by one party, either our company or this customer.
2. On-going changes in the exchange are entirely decided by one party, either our company or this customer.
3. Subcontractors/contractors are chosen by one party, either our company or this customer.
4. The quality control procedures in the exchange are entirely decided by one party, either our company or this customer.
Relational governance
Relational governance is a governance mode in which the parties to a transaction jointly develop policies directed toward the achievement of certain goals. It refers to norms of obligation and cooperation for coordinating exchange process (Geysken et al., 2006; Haugland
& Reve, 2004). Relational norms are expectations about attitudes and behaviours that are at least partly shared by a group of decision makers (Gibbs, 1981).
According to Cannon et al. (2000), Heide and John (1992), and Poppo and Zenger (2002), there are four norms of particular importance in cooperative relationships: flexibility, solidarity, information exchange, and restraint in the use of power. Note that relational governance is also an independent variable for the model in the secondsub-model.
• Flexibility
Reliance-on-flexibility parties are willing to makeadaptations as circumstances change (Heide
& John, 1992). This norm represents a safeguard to both parties if the exchange is plagued with a high degree of uncertainty. Both parties know that the exchange will be subject to good-faith modifications and have an attitude that the agreement could be modified as the relationship evolves and develops.
Based on empirical studies (Antia & Frazier, 2001; Dwyer & Oh, 1988; Heide & John, 1992;
Jap & Ganesan, 2000; Lusch & Brown, 1996; Rokkan etal., 2003) the items are adjusted to fit the context (three items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):
Both our company and this customer…
1. are flexible in their response to last-minute requests made by the other party.
2. are open to each other’s request to modify a prior agreement.
3. would rather work out a new deal than hold each other to the original terms, when some unexpected situation arises.
• Solidarity
Reliance-on-solidarity parties have the attitude that success comes from working cooperatively together, not competing against one another. Parties stand by one another in the face of adversity and the “ups and downs” of marketplace competition (Cannon et al., 2000).
“Solidarity promotes a bilateral approach to problem solving, creating a commitment to joint action through mutual adjustment” (Poppo & Zenger, 2002, p. 710). A high degree of solidarity represents a safeguard to both parties because it deters both parties from using decision control in an opportunistic way.
Based on empirical studies (Antia & Frazier, 2001; Bello, Chelariu, & Zhang, 2003; Dant &
Schul, 1992; Dwyer & Oh, 1988; Heide & John, 1992; Jap & Ganesan, 2000; Lusch & Brown, 1996; Rokkan et al., 2003) the items are adjusted to fit the context (four items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):
Important problems that arise in the course of this exchange are treated by my firm and the partner firm as joint, rather than individual responsibilities.
Both our company and this customer…
1. are committed to improvements that may benefit theexchange as a whole and not only the individual parties.
2. do not mind owing each other favours.
3. solve problems as joint rather than individual responsibilities.
4. have a relationship that is better described as a cooperative effort rather than an “arms-length negotiation.”
• Information exchange
Information exchange, as described by Heide and John (1992), “defines a bilateral expectation that the parties will proactively provide information useful to the partner” (p. 35). A high degree of information exchange functions as a safeguard when decision control is transferred in the project.
There seems to be consistency among researchers on how to operationalize this construct. A measure was developed based on the inter-organizational literature, and adjusted to the research context (Dwyer & Oh, 1988; Heide & John, 1992; Jap & Ganesan, 2000; Lusch & Brown, 1996). The items include (five items, seven-point scale, anchored by “strongly disagree” to
“strongly agree”):
1. In this exchange, it is expected that any information that might help another party will be provided to them.
2. Information is informally exchanged in this exchange.
3. Both our company and this customer are expected to keep each other informed about events or changes that may affect the project.
4. Exchange of information in this exchange takes place frequently.
5. Both our company and this customer are expected to provide proprietary information if it can help another party or the exchange.
• Restraint in the use of power
Restraint in the use of power refers to a bilateralexpectation and attitude that power asymmetry and dependency should not be exploited opportunistically. It reflects the view that the use of power exacerbates conflict over time and undermines mutuality and solidarity, leading to opportunism (Cannon et al., 2000).
Based on Cannon et al. (2000) and Kaufmann and Dant (1992), items include (three items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):
1. Our company or this customer will not take advantage of a stronger bargaining position.
2. It is expected that even the more powerful party should restrain the use of its power in attempting to get its own way.
3. It is expected that each party should limit the use of power they have over the other party.
Relationship performance
Relationship performance is conceptualized with three dimensions: cost reduction outcomes, end-product enhancement outcomes, and satisfaction with collaboration.
• Cost reduction outcomes
Based on the empirical study of Ghosh and John (2005), this study originally defined cost reduction outcomes as joint net gains at the relationship level. However, in this study, this
variable is associated only with the supplier’s cost reduction outcomes. Therefore, cost reduction outcomes refer to the supplier’s net gains from lower production and administrative costs of a sold item that result from using customized production techniques and processes, cheaper materials, simplified designs, and other cost-saving measures. This dimension of relationship performance enables exploration of what factors contribute to realizing a cost reduction strategy. The following items are based on Sunde (2007) (five items, seven-point scale, anchored by “strongly disagree” to “stronglyagree”):
Due to this exchange …
1. our company can reduce costs.
2. our company’s business processes and procedures become more efficient.
3. coordination of activities with this customer has become more efficient than with other customers.
4. our company has been able to realize cost reductions through implementation of efficient practices.
5. our company is better able to respond to fluctuations in the market.
• End-product enhancement outcomes
Based on the empirical study of Ghosh and John (2005), this study identifies end-product enhancement outcomes as the joint net gains from increased customer utility delivered by the end product. However, in this study this variable concerns only the supplier’s end-production enhancement outcomes. Therefore, end-product enhancement outcomes refer to the supplier’s net gains from increased customer utility delivered by the end product. This dimension of relationship performance enables exploration of which factors contribute to the realization of differentiation strategy. The following items are based on Sunde (2007) (five items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):
Due to this exchange …
1. our sales have been boosted.
2. the consumer’s perception of our end-products/services has become better.
3. the image of our products/services in the consumer’s eyes has been significantly strengthened.
4. our products/services are positively different fromour competitors.
5. our company is better able to capture design and engineering synergies between this customer’s end products and our products/services.
• Satisfaction with the collaboration
Satisfaction with the collaboration refers to a positive affective state created by the evaluation of all aspects of a relationship (Jap, 2001). This variable is one of the frequently used outcome variables (Geyskens, Steenkamp, & Kumar, 1999). Thefollowing items are based on empirical study (Jap, 2001) (three items, seven-point scale, anchored by “strongly disagree” to “strongly agree”):
The collaboration with this customer…
1. has been a successful one.
2. more than fulfilled my company’s expectations.
3. has made our company satisfied with the outcomes.