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
The suspicion of opportunism happens all the time in business relationships,
said Sandy Jap, professor of marketing in the Goizueta Business
"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
"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
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
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
"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
This article first appeared in Knowledge@Emory (http://knowledge.emory.edu)
and is reprinted with permission.