Background on IO Relationships

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Relationships have been the subject of studies within many research fields. The heterogeneity in contexts and times are reflected into the diversity of such works, which adopted different descriptive models and underlying theoretical perspectives (Haugland, 1999).

In the IS field, Kern and Willcocks (2000) reported that the research on IO relationships approach is still inconclusive. In their attempt to rationalize the existing research work, they first analyzed IS literature and then went further, considering organization and marketing literature. This review highlights four main conceptual models on which those papers are based: the life cycle dynamics, the exchange theory, the resource-dependence theory, the transaction cost theory and organizational learning. Three of the main traditional approaches from organizational and strategic literature are herein analyzed: the resource-dependence model (Pfeffer & Salancik, 1978), the relational exchange theory (Macneil, 1978), and the transaction cost theory (Williamson, 1985). More recent and promising models have been trying to extend organizational theories, such as the resource-based view model (Barney, 1986, 1991; Bharadwaj, 2000; Penrose, 1959) and the dynamic capabilities theory (Teece, Pisano, & Shuen, 1997) by taking into consideration the contribution of IT to company performance.

The Resource-Dependent Model

The resource-dependent model (RDM) aims to describe the multiplicity of relationships that occur between an organization and suppliers and customers as well as banks, shareholding institutions, government, distributors, consultants, associations, etc., namely, organizations expected to interact with their environment in order to acquire resources. According to RDM, organizations would enter into IO relationships to gain access or control over a resource or a perceived resource need. However, the focus is still the single firm and not the network of relationships in which it operates (Easton, 1992).

The Relational Exchange Theory

The relational exchange theory (RET) is based on four main principles of society (Kern & Willcocks, 2000): labor specialization, exchange, choice, and awareness of the future. Labor specialization is the precondition to the exchange as soon as individuals and firms no longer produced everything for their own survival. The exchange is considered the activity emerging between individuals motivated by the returns they can bring from others (Macneil, 1978). The level of choice agents have in terms of exchange represents the extent of their freedom. Finally, awareness of their future is the reason why contracts exist, as those expectations determine the needs for a contract.

In the RET, firms can be seen as complex bundles of contracts as they act by the means of exchanges in order to fulfill their needs and future expectations. Taking into account the uncertainty of the future and the limited awareness of agents, the relational exchange theory, according to Haugland (1999, p. 273), “emphasizes the importance of building personal trust relationships and developing social norms,” as each economic action is considered to be related to the context of social relations where trust is a core aspect.

Transaction Costs Theory

Transaction costs theory (TCT), as proposed by Williamson (1985) mainly focuses on governance structures. By postulating the existence of limited rationality and opportunistic behavior of agents, the TCT provides a framework that tries to explain why managers pursuing business objectives should choose to rely on their organization, on the market, or on a mixed relationship (Plunket, Voisin, & Bellon, 2001). The underlying statement is that in a free market, a company would find it cheaper to buy a product from a specialized producer rather than make it on its own. However, market failures limit the management understanding of costs, leading to less then optimal internalization of the production. However, firms still engage in repeated, contract-based transactions when theory suggests hierarchical arrangements. In fact, developments of TCT include interfirm cooperation as a third intermediate choice between the market and the hierarchy (Smith Ring & van de Ven, 1992, 1994; Williamson, 1991). A firm would activate an IO relationship whenever the production and transaction costs related to this choice are lower than hierarchies and markets if considering other variables: trust and risk.

Nevertheless, the application of TCT to inter-organizational issues presents some major drawbacks (Smith Ring & van de Ven, 1992):

1. Motivations other then efficiency such as equitable outcomes (Smith Ring & van de Ven, 1994), learning and legitimacy are understated.

2. The assumption that markets are invariably characterized by opportunistic behavior contradicts observed trusting behavior in designing governance mechanisms (such as cooperation).

3. By essentially being, above all, a “vertical integration theory” (Plunket et al., 2001), it emphasizes the notion of markets and hierarchies, leaving a void in the understanding of alternative forms (such as joint ventures, joint research projects, extractive resources explorations).

Above all, these models provide an insight into the complexity of the research in the field of IO relationships. Despite the lack of a general and accepted framework, the proposed review allows a better understanding of the reasons driving a company to choose a cooperative behavior. A more extensive analysis on this field in IS literature can be found in the work by Kern and Willcocks (2000) or from an organizational standpoint in Barringer and Harrison (2000).

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