Revisiting the interplay between contractual and relational governance: A qualitative and meta‐analytic investigation
| Author | Zhi Cao,Fabrice Lumineau |
| DOI | http://doi.org/10.1016/j.jom.2014.09.009 |
| Date | 01 January 2015 |
| Published date | 01 January 2015 |
Journal
of
Operations
Management
33–34
(2015)
15–42
Contents
lists
available
at
ScienceDirect
Journal
of
Operations
Management
j
o
ur
na
l
ho
mepage:
www.elsevier.com/locate
/jom
Revisiting
the
interplay
between
contractual
and
relational
governance:
A
qualitative
and
meta-analytic
investigation
Zhi
Caoa,
Fabrice
Lumineaub,∗
aWisconsin
School
of
Business,
University
of
Wisconsin-Madison,
5266
Grainger
Hall,
975
University
Avenue,
Madison,
WI
53706,
USA
bKrannert
School
of
Management,
Purdue
University,
West
Lafayette,
IN
47907-2056,
USA
a
r
t
i
c
l
e
i
n
f
o
Article
history:
Received
20
February
2014
Received
in
revised
form
29
July
2014
Accepted
21
September
2014
Available
online
2
October
2014
Keywords:
Interorganizational
relationships
Contractual
governance
Relational
governance
Complementarity
Substitution
Meta-analysis
a
b
s
t
r
a
c
t
Although
extant
literature
has
shown
that
formal
contracts
and
relational
governance
play
a
key
role
in
interorganizational
relationships,
the
nature
of
their
interplay
still
remains
equivocal.
To
better
under-
stand
the
relationships
between
contractual
and
relational
governance,
we
conducted
a
qualitative
review
and
meta-analysis
of
the
existing
literature.
Meta-analytic
results
from
33,051
interorganiza-
tional
relationships
across
149
empirical
studies
have
indicated
that
contractual
governance
is
positively
related
to
both
sides
of
relational
governance—trust
and
relational
norms.
Our
results
have
also
indicated
that
contracts,
trust,
and
relational
norms
jointly
improve
satisfaction
and
relationship
performance
and
jointly
reduce
opportunism.
These
findings
provide
strong
evidence
for
the
complementarity
arguments
of
the
contractual–relational
governance
relationships
and
their
joint
impacts
on
performance.
We
also
found
that
the
mutual
relationships
between
contractual
and
relational
governance
are
moderated
by
the
institutional
environments,
the
interorganizational
relationship
type
and
length,
and
the
construct
measurement
of
contracts.
Overall,
this
study
provides
new
insights
on
when
contractual
and
relational
governance
complement
or
substitute
each
other.
We
discuss
the
implications
of
our
study
for
theory
and
practice
and
propose
a
research
agenda
for
future
research
on
governance
in
interorganizational
relationships.
©
2014
Elsevier
B.V.
All
rights
reserved.
1.
Introduction
Supply
chain
scholars
have
devoted
much
attention
to
interor-
ganizational
relationships
(IORs)
and
have
pointed
out
their
critical
importance
to
achieve
competitive
advantage
(Carey
et
al.,
2011;
Goffin
et
al.,
2006;
Lumineau
and
Henderson,
2012).
The
literature
has
suggested
that
two
main
types
of
governance
are
at
play
in
IORs.
One
is
contractual
governance,
which
highlights
the
impor-
tance
of
contracts
between
firms
and
its
formal
rules
to
safeguard
against
opportunism
and
conflict.
Contractual
governance
may
define
outputs
to
be
delivered,
specify
monitoring
procedures,
and
detail
duties,
rights,
and
contingencies
(Mesquita
and
Brush,
2008;
Reuer
and
Ari˜
no,
2007;
Ryall
and
Sampson,
2009).
However,
gover-
nance
of
IORs
involves
more
than
formal
contracts.
It
is
shown
that
relational
governance,
trust
in
particular,
is
another
type
of
gover-
nance
to
mitigate
exchange
hazards
associated
with
uncertainty
and
transaction-specific
investments
(Noordewier
et
al.,
1990;
Uzzi,
1997)
and
coordinate
IORs
(Dyer
and
Singh,
1998;
Heide
and
∗Corresponding
author.
Tel.:
+1
7654940735.
E-mail
address:
lumineau@purdue.edu
(F.
Lumineau).
John,
1992;
Macneil,
1980).
This
distinction
between
contractual
and
relational
governance
reflects
two
distinct,
while
interrelated,
types
of
governance
to
support
and
manage
IORs
(Williamson
and
Ouchi,
1981;
Zaheer
and
Venkatraman,
1995).
As
firms
often
simultaneously
use
both
contractual
and
rela-
tional
governance
to
organize
their
relationships
(Bradach,
1997),
the
interplay
of
contractual
and
relational
governance
in
IORs
has
been
a
topic
of
considerable
ongoing
debate
in
operations
and
sup-
ply
chain
management
(Li
et
al.,
2010b;
Liu
et
al.,
2009;
Lumineau
and
Henderson,
2012)
as
well
as
in
related
areas
such
as
mar-
keting
(Cannon
et
al.,
2000;
Yang
et
al.,
2012),
strategy
(Li
et
al.,
2010a;
Poppo
and
Zenger,
2002),
entrepreneurship
(Chen
et
al.,
2013a,b;
Strätling
et
al.,
2012),
and
international
business
(Zhou
and
Xu,
2012)
for
more
than
a
decade.
Particularly,
since
the
influ-
ential
work
of
Poppo
and
Zenger
(2002),
this
issue
has
gained
increasing
attention
(Fig.
1).1Nevertheless,
knowledge
on
the
inter-
play
between
contractual
and
relational
governance
has
not
been
cumulative,
and
consistent
conclusions
are
far
from
being
reached
1To
date
(07/29/2014),
this
study
has
been
cited
633
times
in
the
Web
of
Science
and
more
than
1700
times
in
Google
Scholar.
http://dx.doi.org/10.1016/j.jom.2014.09.009
0272-6963/©
2014
Elsevier
B.V.
All
rights
reserved.
16
Z.
Cao,
F.
Lumineau
/
Journal
of
Operations
Management
33–34
(2015)
15–42
0
2
4
6
8
10
12
14
16
18
20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
No. of
Studies
Fig.
1.
Number
of
empirical
studies
on
the
interplay
of
contractual
and
relational
governance
by
year.
(The
number
of
studies
in
each
year
shown
in
the
figure
is
conservative
as
it
only
counts
the
empirical
studies
that
examine
the
relationships
between
contractual
and
relational
governance
directly.
Studies
that
investigate
only
contractual
or
relational
governance
are
not
counted.)
(Puranam
and
Vanneste,
2009;
Schepker
et
al.,
2014).
Existing
research
can
be
broadly
divided
into
two
groups.
One
group
argues
that
the
two
types
of
governance
substitute
each
other;
that
is,
the
use
of
one
type
of
governance
decreases
the
use
of
or
the
ben-
efits
of
using
the
other
one
(Huber
et
al.,
2013;
Li
et
al.,
2010c;
Lui
and
Ngo,
2004).
In
contrast,
another
group
contends
that
the
two
types
of
governance
may
be
complementary;
that
is,
the
use
of
one
increases
the
use
of
or
the
benefits
of
using
the
other
one
(Liu
et
al.,
2009;
Poppo
and
Zenger,
2002).
However,
our
under-
standing
of
how
and
when
contractual
and
relational
governance
interact
is
still
limited.
In
a
recent
review,
Schepker
et
al.
(2014)
specifically
called
for
more
research
efforts
on
the
issue
of
“when
do
relational
contracts
obviate
the
need
or
partially
substitute
for
formal
contracts”
(p.
218).
From
a
practitioner
perspective,
the
suc-
cess
of
IORs
strongly
relies
on
the
types
of
governance
chosen
by
managers
(Caniëls
et
al.,
2012;
Faems
et
al.,
2008).
The
inconsistent
findings
on
the
interplay
of
contractual
and
relational
governance
are
likely
to
confuse
managers.
A
clarification
of
the
way
in
which
these
governance
mechanisms
work
may
be
very
helpful
to
guide
practitioners
to
make
the
best
choice
between
contractual
and/or
relational
governance.
In
particular,
investigation
of
the
possible
moderating
effects
on
the
contractual–relational
governance
in
terplay
may
inform
managerial
practice
by
highlighting
important
contextual
factors.
We
argue
that
the
inconsistent
findings
on
the
interplay
between
contractual
and
relational
governance
can
be
attributed
to
three
main
limitations
in
existing
research.
First,
existing
research
uses
“complementary”
or
“substitute”
to
refer
to
both
the
rela-
tionships
between
contractual
and
relational
governance
and
the
relationships
between
contractual
and
relational
governance
and
performance
(Poppo
and
Zenger,
2002).
The
underlying
assumption
is
that
when
contractual
and
relational
governance
are
comple-
ments
(substitutes),
they
have
complementary
(substitute)
impacts
on
performance
(Li
et
al.,
2010c;
Poppo
and
Zenger,
2002;
Wang
et
al.,
2011).
However,
it
has
been
shown
that
contractual
and
relational
governance
may
be
substitutes
in
explaining
perfor-
mance
even
when
they
are
positively
related
(Li
et
al.,
2010c;
Wang
et
al.,
2011).
Thus,
the
existing
literature
needs
a
more
rigorous
distinction
between
the
debate
of
how
contractual
and
relational
governance
interact
and
the
debate
of
the
relationships
of
contractual
and
relational
governance
and
performance.
Sec-
ond,
few
studies
have
investigated
the
boundary
conditions
of
the
relationships
between
contractual
and
relational
governance,
and
the
theoretical
logic
underlying
the
moderating
effects
remains
fragmented.
For
example,
some
studies
have
drawn
upon
insti-
tutional
theory
to
investigate
moderating
effects
and
have
highlighted
the
role
of
the
legal
environments
(Zhou
and
Poppo,
2010).
Some
other
studies
have
relied
on
the
social
network
theory
and
have
argued
that
contracting
in
close
and
dense
networks
may
signal
a
lack
of
trust
(Yang
et
al.,
2011).
However,
researchers
have
typically
focused
on
only
one
theoretical
perspective
to
explain
the
boundary
conditions
of
the
interplay
between
contractual
and
relational
governance.
We
instead
investigated
how
the
inter-
play
may
be
moderated
by
factors
from
multiple
perspectives
simultaneously.
Third,
extant
studies
are
subject
to
methodology
limitations.
Most
of
prior
studies
have
been
conducted
in
single
contexts
such
as
single
country,
single
relationship
type
(e.g.,
only
buyer–supplier
IORs
or
only
strategic
alliances),
and
at
a
single
point
in
time.
However,
contexts
are
likely
to
bias
the
findings
(Leavitt
et
al.,
2010;
Mayer
and
Whittington,
2003).
Moreover,
sampling
errors,
measurement
errors,
and
other
statistical
artifacts
in
prior
research
are
also
possible
causes
of
inconsistency
across
the
studies
(Combs
et
al.,
2011;
Hunter
and
Schmidt,
2004).
The
purpose
of
this
study
is
to
ascertain
the
relationships
between
contractual
and
relational
governance
and
to
explore
the
factors
moderating
these
relationships
with
a
meta-analysis
review.
By
combining
a
quantitative
meta-analysis
with
a
quali-
tative
literature
review,
this
study
addresses
the
above
limitations
and
reconciles
the
conflicting
findings
on
the
relationships
between
contractual
and
relational
governance
and
performance.
Note,
however,
that
we
have
not
aimed
to
investigate
the
dynamic
process
of
the
interplay
of
contractual
and
relational
governance
because
most
of
the
input
of
meta-analysis
is
cross-sectional
data.
Meta-analysis
is
an
effective
theory
extension
method
to
reconcile
the
conflicting
findings
through
quantitatively
aggre-
gating
a
large
amount
of
existing
findings
while
correcting
for
distorting
effects
of
artifacts
(see
Chen
et
al.,
2010;
Mackelprang
and
Nair,
2010;
Nair,
2006
for
examples
of
meta-analyses
in
the
operations
management
literature).
This
method
not
only
effectively
handles
statistical
artifacts,
thus
providing
more
accu-
rate
assessment
of
a
relationship,
it
also
brings
the
advantage
of
testing
the
theoretical
and
methodological
moderating
effects
of
the
relationship
which
are
difficult
to
examine
in
a
single-
sample
primary
study
(Crook
et
al.,
2008;
Heugens
and
Lander,
2009).
The
contributions
of
this
study
to
the
supply
chain
management
literature
are
threefold.
First,
by
summarizing
and
categorizing
the
extensive
studies
on
the
relationships
between
contractual
and
relational
governance
and
performance,
we
have
developed
a
better
understanding
of
how
the
existing
studies
defined
and
measured
the
concepts
and
derived
their
conclusions.
Second,
the
meta-analysis
results
have
helped
us
cross
validate
insights
from
different
studies
and
reconcile
inconsistent
findings
on
the
interplay
between
contractual
and
relational
governance.
We
found
that
the
contractual
and
relational
governance
are
posi-
tively
related
to
each
other,
and
both
have
positive
impacts
on
relationship
performance
and
satisfaction,
providing
strong
evi-
dence
for
the
complementarity
arguments.
Third,
we
found
that
the
mutual
relationships
between
contractual
and
relational
gov-
ernance
are
moderated
by
institutional
environments,
relationship
type,
relationship
length,
and
contracts
measurement.
The
find-
ings
have
thus
extended
our
understanding
on
the
boundary
conditions
of
the
interplay
between
contractual
and
relational
governance.
In
the
following
sections,
we
first
propose
an
overview
of
the
concepts
and
relationships
of
contractual
and
relational
gover-
nance.
Then,
we
present
the
meta-analysis
methods
including
the
literature
search,
coding,
and
computation.
Finally,
we
present
the
meta-analysis
results
and
discuss
the
theoretical
contributions,
managerial
implications,
and
future
research
directions.
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