December 1, 2003

The dark side of interorganizational relationships

By Diana Drake


Ever hear the one about General Motors (GM) and Fisher Body? Fisher Body was a key supplier of automotive parts to GM, but the auto manufacturer became increasingly suspicious of Fisher Body’s activities, believing the supplier was in some way making extra margins and getting away with something.

Fisher Body repeatedly denied any underhanded behavior. GM’s suspicions continued, escalating to the point that it bought out Fisher Body. Finally able to get an inside look at Fisher Body’s operations, GM discovered the company had never been deceptive during their relationship.

The suspicion of opportunism happens all the time in business relationships, said Sandy Jap, professor of marketing in the Goizueta Business School.

"Opportunism is basically self-interest seeking with guile," Jap said. "There’s nothing wrong with self-interest seeking; all business transactions are self-interest seeking. The fact that it’s ‘with guile’ suggests that there is a willingness to take advantage of you. It really has a big effect on how organizations interact with each other."

Safeguards can and are put in place at the beginning of business deals to ensure opportunism does not trip up the relationship. These include joint dedicated investments, personal trust and goal congruence. Joint investments are when a supplier dedicates some machinery or capital equipment to a business relationship and the buyer dedicates, say, human resources. The belief is that this will probably reduce opportunism. Goal congruence is the extent to which firms perceive the possibility of achieving compatible if not identical objectives from a working relationship.

While they’ve been proven necessary at the start of a relationship, how well do these safeguards work? In their paper, "Safeguard-ing Interorganizational Perfor-mance and Continuity Under Ex-Post Opportunism," Jap and co-author Erin Anderson, a professor of marketing at France’s INSEAD, look at these safeguards and how effective they are over time.

"Everybody says that ex ante, before the relationship starts, these things should be in place to help reduce opportunism," Jap said. "Once you start transacting, there’s always some opportunism still at play, the ex-post opportunism. We try to see how well these safeguards, which people say are so important, really can protect both you and your partner’s performance outcomes."

These outcomes include the overall success of a buyer-supplier relationship, the ability of partners to gain competitive advantage in their marketplace, whether or not they have increased their profitability, and improving future expectations.

Jap and Anderson surveyed more than 300 buyers and suppliers, focusing on the procurement divisions of four Fortune 50 manufacturing companies, including a computer maker, a photography equipment manufacturer, a chemical maker and a brewery.

Results indicate that when suspicions of opportunism are low, joint investments and personal trust enhance performance outcomes and future expectations, while goal congruence has no discernible effect. However, as suspicions of opportunism grow, goal congruence becomes a more powerful safeguard, while personal trust becomes less effective. Joint dedicated investments continue to preserve performance outcomes and future expectations even as suspicions of opportunism grow.

"Among other things, we show that when ex-post opportunism is high or low, the dedicated investments will preserve the outcomes," Jap said. "Having those investments in place will improve your chances of evaluating each other positively, making more money, achieving competitive advantages and enhancing your expectations for the future."

This has strong implications for managers, she suggested. "If you can set up your exchanges with your suppliers or your distributors in a way that you both have some money at stake, that really helps ensure your relationship will be successful," Jap said. "It reduces each other’s incentives to cheat."

The authors also concluded that developing personal trust between individuals at each firm can’t always be a fail-safe, despite the emphasis always placed on developing trusting relationships up front.

"If trouble starts brewing, those trusting relationships between individuals aren’t enough to save the day," Jap said. "That’s a little surprising. A lot of firms tell their sales reps that they’ve got to have good, trusting relationships with their companies. We’re saying, yes, it’s good if the firms have no problems, but when problems come up, this isn’t sufficient."

This article first appeared in Knowledge@Emory ( and is reprinted with permission.