Managerial Implications: Source and Supplier Relationships - Essay Example

Managerial Implications: Source and Supplier Relationships YOUR FULL YOUR INSTITUION OR SCHOOL Managerial Implications: Source and Supplier Relationships The data from our study provides the opportunity to distill several practices that management should consider when structuring their hybrid governance modes. As previously pointed out, one of the most valuable business commodities in the modern marketplace is a reliable relationship between organizations and their suppliers (Doney, Cannon, & Mullen, 1998).

Accordingly, it is important for organizations to structure their key business relationships in such a way as to attenuate or prevent opportunistic behavior by their trading partners (Wuyts & Geyskens, 2005). Management will never be able to completely prevent opportunistic behavior of our trading partners, but it can take proactive steps to ensure that the organization is not victimized by unscrupulous behavior. The first of these steps is to understand the significance of proximity in terms of both network embeddedness and close partner selection.

The more any particular organization is integrated into a business's network, the higher the degree of implied trust; and the same thing can be said for close partner relationships. The difficulty with implied trust is that it often causes management to be less vigilant about opportunistic behavior. If an organization has a long-term relationship with a trading partner, or if there is a strong correlation with network embeddedness, management may focus on the primary aspects of any particular transaction without reviewing the deal for possible places where the trading partner could opportunistically take advantage.

Obviously, while trust is an important commodity, trading partners must be trustworthy; and organizational vigilance should be maintained to ensure that they are just that. A second implication for opportunistic prevention in hybrid governance structures would be to use a detailed contract drafting in conjunction with transaction frequency. One of the most effective ways to prevent opportunism is the use of detailed contract drafting; but organizations often overlook this step in dealing with trusted partners.

The transaction frequency between trading partners can be an indicator of where detailed contract drafting would provide the most protection. While no organization wants to believe that its trading partners are behaving opportunistically, management can ill-afford to be taken advantage of. Perhaps the best application of these concepts is found in the idea of consistent contract detailing being uniformly applied across all transactional areas. Using transaction frequency is an initial indicator, followed by ranking network embeddedness and close partner selection, management could confidently engage in its core business practices as well as diminish transactional uncertainty, by consistently engaging in detailed contract drafting with its close trading partners.

In this way, the commodity of trust could be preserved and enhanced through the systemic and consistent defense against partner opportunism.ReferencesDoney, P.M., Cannon, J.P., & Mullen, M.R. (1998) 'Understanding the influence of national culture on the development of trust.' Th in e Academy of Management Review 23, (3) 601-620(Hofstede, 1984)Wuyts, S. & Geyskens, Inge (2005) 'The Formation of Buyer Supplier Relationships: Detailed Contract Drafting and Close Partner Selection.' Journal of Marketing 69, 103-117.