Exploring the development of heterogeneous contracting capabilities: The role of organizational design

Abstract

Previous research on learning to contract and contracting capabilities suggests that firms in interorganizational relationships adopt contractual designs that economize on transaction costs, and over time learn to govern their relationships in a more efficient manner by incrementally aligning contractual terms with transaction attributes based on new experiences made in their relationships. We augment the learning to contract literature by highlighting the role of organizational design as a factor that may impact contractual learning and the development of heterogeneous contracting capabilities. Specifically, we suggest that the level of specialization and structural integration across the firm’s technical, commercial, and legal functions may affect the effectiveness of contractual learning and the type of learning likely to occur. We also outline boundary conditions for our model in terms of potential interactions between the contractual environment, organizational design, and contractual learning.