As shown in chapter 4, many of the assets and resources that a company will need to obtain to put its theory into practice are best left outside the firm and sourced through market relationships. But there are many types of market relationships, and a central question in pursuing a particular strategic experiment is which to pursue; for example, whether to purchase the inputs from the lowest-cost supplier or develop a relationship with a few favored ones. Answering that question is a perennial challenge, with wide ranging options that continue to unfold. As Friedrich Hayek commented, “[while] man has learned to use [the market] … , he is still very far from having learned to make the best use of it.”1 Of course, much has changed in the seventy years since Hayek made that statement. We’ll begin by understanding how theory and best practices have evolved before offering guidance on how to confront the challenge of composing supplier relationships.
An Invasion of Alliances
Japan’s economic expansion in the late 1970s and 1980s was remarkable. For many in the United States, it felt like an invasion, as Japanese firms captured substantial market share in highly visible markets such as consumer electronics, semiconductors, and automobiles.
Japan’s success was most visible in the automotive industry. In California, the share of Japanese cars on California roads exploded. This success was pinned to a remarkable manufacturing system that seemed to deliver both higher quality and lower cost. Academics, consultants, and individual firms all scrambled to uncover the secret. By most accounts, including that of Japan’s own Ministry of International Trade and Industry (MITI), the central feature was a remarkably different approach to managing buyer-supplier relationships.2
The novelty of this approach was most apparent when it was contrasted with the practice of US manufacturing firms. Most of these, at the time, acquired parts and components in one of two distinct ways: through outright integration or through arm’s-length contracting. In sourcing parts and components, both GM and Ford were substantially integrated. The remaining parts and components were sourced through contracts with outside vendors that were rebid each year to ensure suppliers were disciplined on cost. Accordingly, US automakers maintained a robust set of alternative suppliers for each part.
The Japanese approach could not have been more different. To begin with, Japanese automakers were considerably less integrated, deriving only a small fraction of their parts and components from internal sources. More importantly, the much broader set of assets that Japanese firms acquired through outsourcing was managed in an entirely different manner. The Japanese maintained long-term, stable relations with a small set of suppliers. Rather than using a system of one-year contracts with annual rebidding and robust competition, the Japanese adopted four-to-five-year contracts and worked collaboratively with suppliers to both innovate and reduce costs. Moreover, while these contracts had official four-to-five-year terms, implicitly they were of far longer duration, essentially without termination dates. While the Japanese by no means invented collaborative relationships, they powerfully demonstrated the potential to generate competitive advantage from them.
The behaviors of suppliers operating within these competing models could also not have been more different. Japanese suppliers made extensive investments that were quite specific to their buyers. They worked collaboratively with automakers to develop and design innovative parts and to foster efficient manufacturing practices. US suppliers behaved very differently. With a one-year time horizon and a decision process based almost entirely around bid prices, suppliers had very weak incentives to make customized, cost-reducing production investments, let alone long-term investments in innovative designs. Moreover, to manage the constant churn in suppliers, US automobile firms maintained a cast of thousands to manage the procurement and contracting process. In the mid-1980s, GM purportedly had a procurement staff that was ten times larger than Toyota’s, though it produced only twice as many cars.3
Given US automakers’ high-cost procurement operation and, more importantly, the relatively poor outcomes from procurement, their aggressive degree of integration is not surprising. But look at the very different outcome of the Japanese model. The greater efficiency inherent in the Japanese approach to contracting and the far more impressive outputs, especially in using suppliers to generate innovation, enabled the Japanese automakers to be far less integrated. While this approach to buyer-supplier relations was particularly evident in automobiles, Japanese firms used the same approach in other industries as well.
US firms responded predictably. During the late 1980s and early ’90s, they aggressively set about reconfiguring their supply arrangements to more closely resemble the Japanese. Firms dramatically reduced the number of suppliers with which they engaged—one study showed that for US automobiles introduced before 1986, the average US automaker maintained 4.75 suppliers per part, but for models introduced after 1986, that number dropped to 1.42 suppliers per part—essentially identical to the average for the big three Japanese automakers.4 A similarly dramatic shift occurred in contract length. While corresponding measureable statistics do not match those of Japanese relationships, the shifts speak to the clear intent of US firms to develop more close collaborative relationships with fewer suppliers.
This trend was not restricted to the auto industry. Firms in nearly all industries began to develop more collaborative arrangements with their outside suppliers. One representative study calculated that the portion of business conducted through alliances jumped from 5 percent in 1990 to 40 percent by 2010.5 While some of this shift is likely simple reclassification, it certainly highlights the magnitude of the change. Consultants and academics helped fuel the movement, promoting alliance capitalism and encouraging firms to compose a relational advantage.6 Consultants advocated that US firms form their own keiretsu (the Japanese term for networks of close supply relations) and engage in extensive relationship building with suppliers.
Alliances also became a standard vehicle for managing innovation and R&D in a wide range of industries outside the manufacturing sector. Within pharmaceuticals, for instance, R&D alliances between research-oriented biotech firms and big pharma became standard and a critical vehicle for survival.
For many firms, the formation of alliances naturally led to a trend toward vertical disintegration as the advantages of outsourcing became stronger. However, just as the path to efficiently managing external supply relations seemed entirely clear, the late 1990s ushered in a revolution in information technology that arguably prompted an even more dramatic wave of change—one that illuminated a whole new array of options in efficiently managing external relations.
The IT Revolution
In 2000, there were 361 million internet users. By 2010, that number was nearly 2 billion, and by 2014, it exceeded 3.3 billion.7 During the 1990s, corporate investment in information technology increased at the remarkable rate of 24 percent per year.8 These investments, coupled with burgeoning internet use, enabled more robust communication, monitoring, and coordination with suppliers and in the process again reshaped how firms manage their relationships with external providers and suppliers.
While these investments provided important support to collaborative long-term alliances, their most visible influence has been in reshaping arm’s-length relationships with suppliers and other outside providers. For instance, many firms have accessed or developed electronic procurement auctions. In these auctions, the buyer digitally broadcasts a detailed RFQ (request for quotation) for a bundle of related parts or services that it wants to contract for. Suppliers signal their interest, and the buyer screens candidates on prior performance, technological capability, equipment, location, or other criteria, and invites some to electronically submit bids (the buyer often has a stable of prequalified suppliers who can also bid without going through the review process). Not all interested suppliers are invited to bid, as the participation of low-quality suppliers will dampen the interest of high-quality suppliers, as they fear being low-balled. Typically, the invited suppliers can submit multiple bids during the appointed time window in response to other bids. At the conclusion of the bid event, the buyer approves a bid (not necessarily the lowest) and enters into a supply contract.9
The advantage of these auctions is the potential they offer for buyers to discover new suppliers with new capabilities and cost positions.10 Such broad reach is particularly important in an environment of changing technology, where tomorrow’s optimal exchange may differ from today’s. A buyer’s broad access to new suppliers also pushes existing suppliers to remain up-to-date and price competitive. Organizations ranging from large manufacturers, such as Emerson, General Electric, and Caterpillar to the US federal government make extensive use of electronically enabled procurement to both streamline and extend their supply relations and elevate their bargaining power. These auctions are either self-managed, or managed by third-party providers such as Ariba or FedBid.
IT has also profoundly shaped how firms engage others in innovation. One of the real revolutions in procurement broadly is the growing use of parties outside the firm not merely as a source of production or distribution, but as vehicles to solve innovation problems and challenges or to design and develop the products you sell. However, the outside access is not garnered through alliances but arm’s-length relationships with distant sources of knowledge—not suppliers with whom firms have a deeply embedded relationship, but those completely unknown to them.
One of the rallying cries of the broad movement toward more open innovation is the belief, first articulated by Bill Joy at Sun Microsystems, that “most of the smartest people work for someone else.” In other words, those with the simplest, most effective, and least costly solutions to the problems firms seek to solve are likely to work elsewhere. And, most likely firms have no idea where they work—no idea where this critical knowledge resides. Entering into an alliance with a known provider may prove vastly inferior to inviting a crowd of potential providers to offer their solutions or proposals. IT provides remarkable vehicles for doing precisely this, enabling firms to develop or utilize creative ways to engage others.
Procter & Gamble’s post-2000 experience provides a wonderful illustration of a firm that has used IT to radically reshape its approach to organizing innovation. For decades, P&G invested heavily in developing internal R&D labs and strong technical talent as its source for innovation. However, flattening sales and the declining success of new products caused a sudden and significant drop in the company’s market value. CEO AG Lafley, having observed that in consumer products as with so many other industries, small firms or even independent inventors are the primary source of breakthrough innovation, determined to completely revamp P&G’s approach to innovation. The key question for P&G therefore became: How do you design an organizational model that efficiently accesses the vast innovative talent outside the company?
Simply hiring inventors individually or acquiring the small firms that employed them was not really an option. The company had no real idea of who employed these valuable inventors or where they could find them. What’s more, P&G recognized the risks inherent in integration discussed in chapter 4—that acquiring small, innovative firms would likely crush their innovativeness or that the individuals P&G particularly valued might leave. The goal instead was to generate productive connections with these previously unknown external sources—and the way to achieve it was to transform the seventy-five hundred researchers inside P&G, who historically abhorred anything “not invented here,” into researchers actively seeking connections to the hundreds of thousands of researchers and inventors outside the firm working on relevant related technology.
IT was the primary vehicle fueling these connections. Researchers used the web to scour the scientific literature and patent databases. P&G established proprietary networks with its top suppliers that facilitated posting and sharing technology briefs to which the suppliers privately responded. From this electronic prospecting with existing suppliers, new collaboratively staffed R&D projects were created. More importantly, in an effort to access the vast wealth of technologies and competencies unknown to internal researchers, P&G also aggressively participated in third-party innovation platforms such as Innocentive, NineSigma, and YourEncore. These platforms specialize in distributing particular types of problems and challenges and in providing access to differing crowds of problem solvers.
The effort was remarkably successful. A wealth of new, unique, and highly effective connections that fueled innovation emerged. R&D productivity increased 60 percent, while R&D investment decreased. Success with new product innovations also doubled, with a host of new products ranging from Pringles Prints to the Magic Eraser born from this effort.
Of course, there is nothing particularly new about using outsiders to innovate. Contracting out external research, licensing technology, and accessing user communities have long been central to generating innovation across many industries.11 But what has clearly changed at P&G and elsewhere is the use of technology to facilitate collaboration, design, and development across distance. Moreover, platforms that support crowdsourced innovation have become both more accessible and effective. In addition to those accessed by P&G, many other platforms facilitate efficiently posting problems to solve and accessing problem solvers. Many specialize in devising competitions that engage the crowd in problem solving through active online communities. As discussed by Kevin Boudreau and Karim Lakhani in a 2013 Harvard Business Review article, many of the contest platforms, such as as Kaggle, TopCoder, Tongal, HYVE, Quirky, crowdSPRING, DesignCrowd have become highly specialized in solving particular types of problems (e.g. advertising, software programming, product design) and therefore in attracting specialized problem-solving communities.12
An Embarrassment of Choices
Just as getting the make or buy choice right is essential to creating the value your theory envisions, so too is correctly choosing how to access what you buy. Here too the answer is not a simple one. A substantial shift toward more alliance-like relations has fueled dramatic performance improvements in a wide range of industries. An entirely different approach, fed by more aggressive use of arm’s-length auctions and crowd-sourcing innovation, has fueled performance improvements in others.
In sum, the past three decades have been a period of remarkable innovation in sourcing, leading many firms in very different directions—directions that have often changed with time. Some firms have sought to construct collaborative supply relationships with deeply embedded social connections, perhaps in the process pushing outside the firm many exchanges that were previously within the firm. Other firms have aggressively shifted to expanding their use of technology-assisted markets, contests, and innovation platforms that have either transformed relationships previously managed through alliances into more arm’s-length exchanges, or have pushed previously internal exchanges outside the firm. The use of alliances, as formally recorded in various databases, appears to have peaked in the mid-to-late 1990s. The use of electronically assisted exchanges ballooned from that point on. Today, many firms use a unique combination of these alternatives.
Given the vast array of alternatives, with no shortage of advocates for each, what should guide your firm’s path? When are the deeply embedded social relationships characteristic of long-term alliances the best choice for creating the value that you envision? When are the deliberately arm’s-length auctions, contests, and innovation platforms a better option? At the most basic level, the answer to this question is similar to the one for make or buy choices: the choice hinges on the value of relationships in delivering what your theory envisions relative to the value that the market’s capacity to broadly search and invite brings to realizing that vision.
For any given exchange both alliances and arm’s-length arrangements are likely to have merits. Identifying an ideal exchange partner is indispensable, but so is some measure of cooperation and exchange-specific investment. But again, as with make or buy, the two paths are somewhat contradictory. Alliances encourage suppliers to make exchange-specific investments and generally facilitate trust and cooperative exchange, but they can also breed complacency and curtail a firm’s capacity to broadly search and discover new valuable exchanges. Arm’s-length procurement through RFQs, auctions, contests, and platforms invite and promote broad searches that induce those with valuable capabilities, knowledge, and capabilities to self-identify, but may also discourage the type of specialized investment you might need. Going too far in either direction undermines performance. The auto industry’s obsession with competitive bidding and arm’s-length auctions led to dramatic underperformance relative to their emerging peers from Japan. Alliances proved the remedy. P&G’s focus on integration and a narrow set of external exchange relations stifled its potential for innovation. Broadcast searches and tapping into markets and crowds proved the solution. Getting this governance choice right is critical to delivering the value your corporate theory envisions.
Decisions about the composition of external relationships should be shaped by the attributes of the problem you seek to solve or the attributes of the envisioned exchange. While there is a wide range of potential attributes, only three are essential to defining the scope of control required by a particular exchange. I discuss these below in the form of three key questions. Note that these questions and therefore the prescribed approach are specific to a particular exchange or problem; they do not define a general company policy. Firms effective in external procurement will have large portfolios of paths to procurement, ranging from collaborative alliances and partnerships to arm’s-length procurement auctions and crowdsourcing.
Who possesses the knowledge critical to constructing the value you envision?
The central question in determining how to shape relationships with external parties is determining whether you or they possess the knowledge critical to managing their actions and behaviors in a way that creates the value you foresee.
If you don’t have the right knowledge, assuming undeserved control and influence over suppliers through an alliance and/or an elaborate contract carries a clear cost. It reduces the motivation of external parties who may have a much better sense of how to optimally use their assets, products, and technology than you do. And importantly, your commitment to an alliance may discourage other potential providers of the solutions or assets you require—and the knowledge required to effectively use them—from self-identifying. As I have previously noted, markets have the almost-magical power to motivate others to do what is desirable without your having to direct or control them. In a profoundly insightful comment, Friedrich Hayek remarked that “the most significant fact about this system [the market] is the economy of knowledge in which it operates, or how little the individual participants need to know [about other actors] in order to be able to take the right action.”13 A course of action that might cut you off from this rich resource should be pursued with the greatest of caution.
Clearly, in situations where the only critical knowledge you need to reveal may be a description of the part you want manufactured or the problem you want to solve, a market with arm’s-length relationships offers the best solution, prompting suppliers possessing valuable low-cost solutions to aggressively bid for your business and demanding very little in the way of your control.
But in situations where your ongoing direction and knowledge is vital to shaping the actions of the external provider, a long-term collaborative alliance may be needed. These situations are most likely to arise when your expectations of your supplier’s value-maximizing actions, investments, or behaviors differs from theirs, meaning that you would need carefully crafted contracts and extensive monitoring for a market-based collaboration to work. In these settings, therefore, convincing providers to deviate from the behaviors that market incentives prompt will very likely require the greater control that an alliance enables.
How unique is the solution you seek?
In chapter 4, I discussed at some length the problem of holdup that arises when the nature of an exchange demands that you and/or the supplier make unique investments that are specific to the exchange relationship. As noted, suppliers, recognizing little alternative use for these investments, are reluctant to make them in the first place, as they see no outlet to monetize them if the relationship is terminated, or even if you threaten to do so. At the same time, you may face precisely the same dilemma. You may be unwilling to invest in the exchange fearing the external provider may terminate or threaten to terminate the relationship and thereby hold you up for the value of your specific investments.
Continuity, trust, and cooperation, therefore, are critical when your assets and activities and your supplier’s assets and activities are already unique, or through investment will become specific or uniquely complementary. Without integration, only continuity and trust in the exchange will motivate both you and the supplier to make the specialized investments needed for the exchange. Absent any expectations of longevity and trust, both parties are wary of losing the potential value in these specific investments—value that only emerges through extended exchange. Your task in these circumstances is to build collaborative exchange relations that promote trust and cooperation.
By contrast, when multiple suppliers can provide your firm with the value you seek, or when changes in underlying technology mean that the optimal supplier changes over time, then continuity in supply relationships offers little value. Under these conditions, engaging a multitude of potential exchange partners in efforts to win your business far exceeds any value in the greater trust that accompanies continuity in exchange. Here, a capacity to easily shift suppliers without any social obligations or commitments is critical to sustained value creation.
How difficult is it to prescribe or measure the behaviors or outcomes you want?
It is difficult to motivate through markets and contracts what you cannot specify and measure. But frequently, value creation demands complex coordination of activities of a form difficult to map out in advance. Instead, ongoing adaptation is essential. Value creation may also demand extensive knowledge sharing as you and an external partner work to create something valuable and novel. Since the exact composition of this configuration is unknown in advance, specifying the ideal behaviors or outcomes is impossible. Here your objective is to extensively share knowledge and in real time orchestrate this entirely novel recombination.
While a corporate theory may help identify a manufacturer or a technology provider with whom to exchange, it may reveal few specifics about what you seek. This inability to precisely define the course of action places value on building a collaborative alliance. In fact, an arm’s-length market exchange is likely to exacerbate the coordination problem, discouraging both the knowledge sharing and careful coordination required. Problems that are highly complex and involve the melding of vast amounts of knowledge from disparate sources are likely to call for either outright integration or close collaborative alliances. On the other hand, if you can precisely define a problem you need solved or a product, service, or part you need provided, then devices like an arm’s-length exchange, an electronic procurement auction, or even a contest may prove sufficient.
In summary, three factors drive your choice in locating exchanges along the spectrum from collaborative alliances to arm’s-length exchanges: (1) the importance of the knowledge you possess relative to knowledge your supplier possesses in shaping supplier actions and behavior, (2) the uniqueness of the investments required, and (3) the difficulty in measuring or prescribing desired behaviors. Where suppliers have the knowledge critical to solving your problems and effectively satisfying the exchange, when little specific investment is required, and when desired outcomes are measurable, then contracts, auctions, contests, and crowdsourcing may be the best choice. When these conditions don’t hold, developing close, long-term relationships may prove the key to success (“Why Contracts Matter” expands the role of contracts in developing these long-term relationships).
The precise nature of a contract’s influence is the subject of some dispute. A study from the 1960s, still widely cited, claims that “detailed negotiated contracts can get in the way of creating good exchange relationships between business units.”a The study argues that contracts signal a lack of trust and turn what would otherwise be a “cooperative venture into an antagonistic horse-trade.” Others have also posited that legal remedies erode interpersonal relationships and replace “an individual’s ‘good will’ with objective formal requirements.”b These scholars point to the fact that in collaborative exchanges, contracts are largely ignored by both parties, arguing further that the formality of a contract crowds out good behavior.
Yet empirical studies on the role played by contracts in shaping cooperative relationships suggest that these experts have the argument backward. While there are certainly pockets of the global economy that effectively enjoy collaborative relationships without formal contracts, the evidence suggests that well-crafted contracts play an important and positive role in promoting the formation of collaborative exchange and encouraging trust.c Nobel Prize winner Douglass North suggests that formal institutions such as contracts serve as complements in providing informal control.d Formal contracts extend the expected duration of a relationship. With a longer exchange horizon, suppliers are simply more likely to cooperate, enabling closer coordination and facilitating specific investments. Contracts may also specify procedures for flexibly adapting relationships, which supports the longevity of association. In this sense, well-crafted contracts and collaborative alliances are complements rather than substitutes.
Thus, the key to developing valuable supplier relationships is more than meals and golf. Rather, these relationships can be strengthened through carefully crafted formal architecture that both sculpts productive interaction and safeguards against misbehavior. Contracts may also play a vital role in enabling firms to exit collaborative relationships that have run their course in terms of value creation and initiate new, more valuable ones. The capacity to craft contracts, therefore, is a critical capability for any firm seeking to build an ecosystem of effective supplier relationships.
a. Stewart MacCaulay, “Non-Contractual Relations in Business: A Preliminary Study,” American Sociological Review 55 (1963): 145–164.
b. Sim Sitkin and Nancy L. Roth, “Explaining the Limited Effectiveness of Legalistic ‘Remedies’ for Trust/Distrust,” Organization Science 4, no. 3 (1993): 367–392.
c. See Laura Poppo and Todd Zenger, “Do Formal Contracts and Relational Governance Function as Substitutes or Complements?” Strategic Management Journal 23, no. 8 (2002): 707–725, and empirical citations in study by Zhi Cao and Fabrice Lumineau, “Revisiting the Interplay between Contractual and Relational Governance,” Journal of Operations Management 33, (2015): 15–42.
d. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990).
Finally, in making decisions around what kind of relationships to have with external suppliers, it is important to realize that the answers to the three questions posed above are unlikely to remain the same over time. There’s a tension at the heart of all supplier relationships. Creating valuable relationships demands focus—both in selecting a partner and building collaborative relations with that partner. But an extended focus on a given relationship may generate two potentially negative outcomes. First, the relationship becomes increasingly unique and affords the supplier a growing capacity to extract value from the relationship. Second, as such a relationship deepens, it discourages the firm’s departure to what may be a new, more valuable exchange partner.
If you start by using a contest or problem-posting platform to identify external parties that can supply the distinctive knowledge and skills you need to solve problems, you may find that once you’ve identified those parties, you are motivated to form longer-term alliances or more cooperative relationships with them. Or you may begin with a close collaborative alliance, but discover value in using an auction, RFQ, or contest to elevate bargaining leverage with your existing partner. Switching the terms of the relationship in this way may be inevitable. A study I conducted with Dan Elfenbein examined the e-procurement practices of one of the largest users of online auctions.14 We observed several intriguing patterns that are key to managing relationships dynamics:
• Buyers place large value on suppliers with whom they have an historic relationship, accepting higher bid prices from suppliers with whom they have already done extensive business.
• Suppliers recognize the value buyers place on relations, and as they learn what value buyers assign to relations, they attempt to capture more of it.
• Buyers appear to vacillate over time, sometimes preferring those with whom they have a previous exchange relationship, and at other times simply preferring suppliers that provide the lowest bid price.
In other words, when a buyer observes suppliers attempting to capture more value through higher prices, it becomes more aggressive in choosing the lowest price. In doing so, it actively cultivates new supply relations. Over time, however, these relationships deepen and the new suppliers elevate prices, seeking to capture some of the value the buyer assigns to the relationships. Once again, the buyer is prompted to look for new lower-priced exchange partners.
The pattern is clear. Relationships are valuable, but your firm must also be on the lookout for new suppliers not only as a source of new competence and lower cost, but also as a vehicle for elevating your bargaining leverage with existing supply relationships. There is no simple, stable equilibrium to be found, but rather an ongoing dynamic in which firms constantly seek to build valuable relationships with optimal external partners, and then position themselves to capture more of the value created.
While effectively crafting market relationships is vital to theory-guided value creation, so too is the organizational design of the activities and assets you choose to keep in-house. Indeed, for the pursuit of many corporate theories, internal design—the structure of incentives, communication and decision rights, and the dynamics by which these are managed—may be the primary vehicles of value creation. Chapter 6 explores these issues.
LESSONS LEARNED
Several important lessons emerge from this discussion:
• Don’t restrict yourself to a single relationship strategy. There are a host of options from which to choose, ranging from online auctions and crowdsourcing to collaborative alliances and long-term contracts. Each form has virtues and drawbacks, and the saliency of each evolves over time and with context. Close, collaborative partnerships facilitate extensive knowledge sharing and exchange-specific investments. Arm’s-length market exchanges, including auctions, simple RFQs, innovation platforms, and contests enable broad access to new exchange partners. You need to learn to tailor your sourcing relations to match the outcomes you seek.
• In choosing a relationship strategy, ask three questions. The first question relates to where the knowledge critical to composing the value you envision resides. Do you possess this critical knowledge and therefore require substantial control to shape supplier behavior, or do suppliers already possess the knowledge required? The second question relates to the uniqueness of the product or action you are creating with the supplier. Will it require investment specific to your needs on the part of the supplier or will it benefit more from innovation naturally undertaken by suppliers in a competitive context? The former suggests a collaborative, trust-based relationship; the latter an arm’s-length, market-based relationship in which suppliers compete for your business. Finally, can you specify and measure the behavior you want from your supplier? If the answer is yes, then market-based approaches will dominate. If the role of the supplier is not easy to specify, a relationship based strategy may be more appropriate.
• Be prepared to live with change. Supplier relations are intrinsically unstable. A study of competitive bidding over time shows that even in a market context, relationships develop as interests align for a while and are then abandoned as the alignment erodes.15 And when parties are bound in a close relationship to begin with, there comes a time when a company needs to strengthen its hand by introducing competition in order to prevent the supplier from extracting too much value from the relationship. Strategic leaders optimize value creation by skillfully using contracts to shape supplier relationships dynamically over time, creating possibilities for deepening relationships or closing them down as the company’s needs evolve.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.