Salespeople as Specific Human Assets: An Application of the Transaction Cost and Relational Approaches to Exchange Governance

Abstract

An important question confronting organizational strategists is how to best organize transactions between firms. Multiple streams of literature have attempted to address the inherent governance challenges that exist when two distinct, but complementary firms choose to enter into an exchange agreement with one another. The transaction cost approach (TCA) to organization proposes that firms incur transaction costs owing to the costs of conducting exchanges in the market over the costs that would be realized by organizing the exchange within the firm (Coase 1937). According to the TCA, when the transaction costs of market governance are high, it makes more sense for firms to vertically integrate rather than engage in exchanges with another firm. In response to the TCA, relational exchange theory posits that market exchanges can be governed by the cultivation and strengthening of relationships between two exchange partners (Palmatier 2006, 2008). That is, the relational perspective suggests that many of the costs identified under the TCA can be reduced or eliminated in the presence of strong relationships to govern the transaction between parties in a market exchange. The introduction of relational governance mechanisms to an exchange featuring specific assets should serve to quell the threat of opportunism while at the same time enhancing the commitment of both parties.