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How aligned is your business partnership?

 

Companies feel betrayed when a business partner Just Isn’t That Into You (in the same way), says a new study co-authored by Paul Tracey of Cambridge Judge Business School.

How aligned is your business partnership?

Suppose you meet a romantic partner whose identity, orientation and values seem similar to yours: a focus on joint goals and the welfare of others, rather than maximising one’s own goals. Such people might indeed make a good match.

But when it comes to firms choosing business partners, there is an important catch that may instead create damaging “pseudo-matches”, says a new study published in the Journal of Marketing. That’s because companies find it difficult to discern whether a partner firm’s joint goals are designed to protect the specific two-firm partnership or a broader collective of firms – and such disconnect can cause heartbreak and feelings of disloyalty.

The importance of matching partnership expectations

In Hollywood, they make frivolous romantic comedies (He’s Just Not That Into You) from such scenarios. In business, the consequences of such differing relationship expectations can be more serious – with important management and governance implications.

“This may lead to a particularly dangerous form of adverse selection because the misalignment in orientation – and ultimately relationship goals – may not be apparent, which leaves firms exposed as the relationship unfolds,” says the study.

Such a relationship “represents a unique source of friction, because the two possess different focal points, namely an individual partner and a larger system, respectively.”

“The findings have particular relevance to firm-supplier relationships and highlight how relationship misunderstandings can precipitate feelings of rejection,” says co-author Paul Tracey, Professor of Innovation & Organisation at Cambridge Judge Business School.

Paul Tracey.
Professor Paul Tracey

“A novel conclusion of this study is that while partnering with firms that appear to share identity and focus might produce transaction efficiencies, it also creates a clear risk. While firms may make reasonable assumptions that they share values with other firms predisposed to what we term ‘other-regarding predispositions’ rather than ‘self-regarding dispositions’, in fact, this assumption may not hold in the context of pseudo-matches.

“That’s because both relational (strictly two-party) orientations and broader collectivist orientations usually represent ‘other-regarding’ dispositions, but they are very different things – and this can cause such pseudo-matches to unravel rapidly,” says Paul.

The risk of pseudo-matches

Imagine a biotech firm in the Cambridge technology cluster that works closely with a local manufacturer to commercialise a new product. Over time, the biotech firm comes to believe that it has formed a unique and special relationship with the manufacturer that neither party shares with any other firm. The manufacturer, on the other hand, sees the relationship with the biotech firm as one of several close partnerships that it relies upon; while it values the relationship, it does not see it as exclusive or even particularly special.

When the biotech firm discovers “the truth”, a sense of betrayal can quickly envelop it, seriously damaging the relationship and undermining the partners’ ability to work together.

The study finds that pseudo-matches create clear governance issues: a company with a relational (two-party) identity orientation with informal governance toward a partner “must guard against the risk of partner exploitation,” while a company with a collectivist orientation and informal governance “faces the risk that the partner firm will exploit it at the expense of the broader system” in which the company operates.

“In both cases, the focal firm is exposed to a form of opportunism” from a partner – but it is harder to detect such behaviour from a partner firm seeking to exploit the relationship at the expense of the broader system due to the difficulty of direct monitoring.

The study entitled “Who we are and how we govern: the effect of identity orientation on governance choice” is co-authored by Jan Heide of University of Wisconsin – Madison, a Visiting Research Fellow in the Organisational Theory & Information Systems subject group at Cambridge Judge; Simon Bell of Melbourne University, who is a Research Fellow at the Cambridge Centre for Social Innovation at Cambridge Judge Business School; and Paul Tracey of Cambridge Judge Business School.