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Adaptation in vertical relationships: Beyond incentive conflict

by R Gulati, P R Lawrence, P Puranam


In this study, we extend the analysis of adaptation in theories of\neconomic organization beyond traditional considerations of incentive\nconflict (hold-up). We conceptualize adaptation as coordinated and\ncooperative response to change, and define the adaptive capacity of a\nvertical relationship as the ability to generate coordinated and\ncooperative responses across procurer and supplier to changes in\nprocurement conditions. We draw on the concepts of differentiation and\nintegration to dimensionalize the adaptive capacity of different modes\nof procurement. Using data on all component classes procured internally\nand externally by Ford and Chrysler, we show that different procurement\nmodes differ in terms of their adaptive capacity and performance. We\nalso show that performance differences across modes of procurement arise\nas a function of the match between adaptive capacity and adaptation\nrequirements associated with the exchange, and not only the match\nbetween governance form and transaction hazards. Copyright (c) 2005 John\nWiley & Sons, Ltd.

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