Toward Relationship Resilience: Managing Buyer‐Induced Breaches of Psychological Contracts During Joint Buyer–Supplier Projects

• Author: Lutz Kaufmann,Jens Esslinger,Craig R. Carter
• Published date: 01 October 2018
• Date: 01 October 2018
• DOI: http://doi.org/10.1111/jscm.12181

TOWARD RELATIONSHIP RESILIENCE: MANAGING

BUYER-INDUCED BREACHES OF PSYCHOLOGICAL

CONTRACTS DURING JOINT BUYER–SUPPLIER

PROJECTS

LUTZ KAUFMANN AND JENS ESSLINGER

WHU –Otto Beisheim School of Management

CRAIG R. CARTER

Arizona State University

This research examines buyer–supplier relationship resilience associated with

a psychological contract breach by the buying organization. Our study covers

the span of buyer-induced negative events from prebreach to postrepair.

Specifically, we investigate the role of the nature of the interorganizational

and interpersonal relationships in preventing initial trust loss (prebreach)

and the effectiveness of different repair processes (penance and regulation)

in promoting subsequent trust repair (postbreach). The effects are analyzed

on two levels: interorganizational and interpersonal. We use social exchange

theory to derive the study’s hypotheses and a scenario-based role-playing

experiment to test them. The results suggest that effective interorganizational

trust repair can help to transform the nature of an interorganizational buyer–

supplier relationship from adversarial to collaborative. Furthermore, initially

adversarial interpersonal ties exacerbate the extent of interorganizational

trust loss in collaborative interorganizational buyer–supplier relationships,

while collaborative interpersonal ties help prevent initial interorganizational

trust loss. Our study makes three contributions. First, it extends the psycho-

logical contract literature by investigating purchasing managers’mitigation

strategies in response to a buyer-induced negative event. Second, it accounts

for the role of interpersonal ties in buyer–supplier relationship resilience.

Third, it underscores the effectiveness of trust repair mechanisms, such as

penance and regulation, in actually improving buyer–supplier relationship

resilience after a psychological contract breach.

Keywords: psychological contract breach; buyer–supplier relationship resilience;

trust; social exchange theory; scenario-based experiments

INTRODUCTION

Buyer–supplier relationships frequently suffer from

conflict (Bai, Sheng & Li, 2016) or face the threat of

opportunism (Williamson, 2008), causing supply chain

members to rely on contracts (written or unwritten) to

mitigate these risks (Eckerd & Girth, 2017; Lumineau &

Henderson, 2012). Particularly in situations in which

contractual relationships involve high monitoring and

structuring costs, such as during jointnew product devel-

opment (NPD) projects, managers often rely on alterna-

tive governance mechanisms in addition to written

contracts to manage their exchanges (Granovetter, 1985;

Hill, Eckerd, Wilson & Greer, 2009; Lumineau & Malho-

tra, 2011; Macaulay, 1963; Malhotra & Murnighan,

2002). As such, they form subjective exchange agree-

ments that introduce a distinctly psychological element

into contractual relationships (MacNeil, 1985)—

namely, an indiv idual’s idiosyncratic interp retation of

the terms and conditions of an exchange (Eckerd, Hill,

Boyer, Donohue & Ward, 2013; Rousseau, 1989). Psy-

chological contracts are inherently perceptual and can

coexist with other types of contracts, such as written

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Journal of Supply Chain Management

2018, 54(4), 62–85

©2018 Wiley Periodicals, Inc.

contracts (Robinson, 1996; Shore & Tetrick, 1994). Psy-

chological contract breach occurs when an individual

perceives that the exchange partner has failed to fulfill

the reciprocal obligations of the psychological contract

(Morrison & Robinson, 1997; Rousseau, 1989).This can

lead to negative relational outcomes for both partners

involved (Tomprou, Rousseau & Hansen, 2015).

Psychological c ontract breaches are a form of a dverse

event. The mechanisms by which organizations manage

such adverse events likely affect the resilience of the

buyer–supplier relationship. Research in the field of psy-

chology defines resilience at the individual level as “the

ability to bounce back from negative emotional experi-

ences and flexibly adapt to the changing demands of

stressful experiences” (Hu, Zhang & Wang, 2015; p. 18;

see also Block & Kremen, 1996) and as “occasions in

which, following adversity, the focal individual observes

his or her relationship with a relational other as being

stronger than it was prior to the adversity” (Thompson

& Korsgaard, 2018; p. 4) at the interpersonal relation-

ship level. At the supply chain level, Sheffi and Rice

(2005, p. 41) define resilience as “the ability to bounce

back from a disruption.”Similarly, Christopher and Peck

(2004, p. 2) conceptualize supply chain resilience as

“the ability of a system to return to its original state or

move to a new, more desirable state after being dis-

turbed” and note that “the implication in this definition

is the notion of flexibility, and given that the desired

state may be different from the original, “adaptability”

also earns a place in our thinking.”

Our research falls in between these levels of the indi-

vidual and the supply chain, by examining buyer–sup-

plier relationship resilience. Building on extant

definitions, we define buyer–supplier relationship resi-

lience as the extent to which a buyer–supplier dyad can

absorb negative events and recover—potentially to an

even more desirable state. This definition encompasses

resilience as both a process (absorption of negative

events) and an outcome (the recovery to a more desir-

able state) (Hu et al., 2015). We operationalize buyer–

supplier relationship resilience by investigating one crit-

ical dimension of resilience (Hu et al., 2015)—that is,

trust, or specifically the potential interorganizational

and interpersonal trust loss and subsequent recovery

associated with the breach of a psychological contract.

In particular, we examine psychological contract

breaches that lead the buying firm to trigger unexpected

negative events for the supplier during a joint NPD pro-

ject (e.g., unexpected reduction of financial budgets,

shifted deadlines, project delays). We argue that these

buyer-induced events affect the supplier’s trust in the buy-

ing firm and might lead to behaviors indicative of a

breakdown or crisis if the relationship is not restored to

a state of agreement going forward (Akkermans & van

Wassenhove, 2018; Tomprou et al., 2015). We examine

this phenomenon within the scope of a joint NPD

project. NPD projects involving suppliers are character-

ized by high levels of risk and uncertainty (Leifer,

McDermott, O’Connor, Peters & Rice, 2000) and fre-

quently suffer from mistakes made earlier in the NPD

process (Khurana & Rosenthal, 1997). These mistakes

can lead to delayed productlaunches (Cohen, Eliashberg

& Ho, 1996; Kim & Wilemon, 2002), unfavorable bud-

get changes (Kim & Wilemon, 2002), budget escalation

problems (Schmidt & Calantone, 2002), and even the

termination of ongoing projects (Balachandra, 1984;

Green, Welsh & Dehler,2003).

We therefore argue for an extension of the extant

focus on contract governance in joint NPD (e.g., Ryall

& Sampson, 2009) to provide a more complete under-

standing of the effects of psychological contract

breaches, and subsequent responses to remedy the

breach, on buyer–supplier relationship resilience. In

the wake of this holistic approach of analyzing the

changes in interorganizational trust from prebreach to

postrepair, we argue that the supplier’s relational

responses to the unexpected negative event are likely

to depend on the initial nature of the interorganiza-

tional relationship. Moreover, we expect that the inter-

personal ties between the supplier’s sales manager and

the buying organization’s purchasing manager influ-

ence the supplier’s relational responses at the interor-

ganizational level as well (Gligor & Autry, 2012).

We rely on social exchange theory (SET) and posit that

the nature of an interorganizational buyer–supplier rela-

tionship, defined as whether the relationship is collabo-

rative or adversarial (Heide & John, 1990, 1992; Heide &

Stump, 1995; Williamson, 2008) atthe time the negative

event occurs, affects the way supply chain partners

1) evaluate unexpected negative events emanating from

a buying organization’s psychological contract breach

and 2) approac h subsequent repair processe s. We

hypothesize that compensational/monetary repair pro-

cesses are more effective at repairing interorganizational

trust in initially adversarial interorganizational relation-

ships, while regulatory/nonmonetary processes are more

effective at repairing trust in initially collaborative

interorganizational relationships. Selecting a repair pro-

cess based on the initialnature of the interorganizational

relationship is more likely to lead to effective trust repair

and, thus, relationship resilience going forward. In line

with our assertion about the importance of accounting

for the role of interpersonal relationships,we further posit

that collaborative ties between individuals are likely to

make collaborative interorganizational relationships

resilient to interorganizational trust loss following such

a negative event.

In the next two sections of our paper, we introduce

hypotheses concerning the roles of both individuals

and organizations in interorganizational trust loss and

interorganizational trust repair. We then describe the

methodology used to collect our study’s data.

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Toward Relationship Resilience