Developmental Processes of Cooperative Inter-Organ PDF

See
discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/245914178
Developmental Processes of Cooperative Inter-

Organizational Relationships
Article in The Academy of Management Review · January 1994

DOI: 10.2307/258836
CITATIONS READS
3,030 5,037
2 authors, including:
Peter S. Ring
Loyola Marymount University
55 PUBLICATIONS 8,906 CITATIONS
SEE PROFILE
Some of the authors of this publication are also working on these related projects:
Minnesota Innovation Research Project View project
All content following this page was uploaded by Peter S. Ring on 07 June 2014.
The user has requested enhancement of the downloaded file.

Academy of Management Review
1994, Val. 19. No. 1. 90-118.
DEVELOPMENTAL PROCESSES OF COOPERATIVE

INTERORGANIZATIONAL RELATIONSHIPS
PETER SMITH RING
Loyola Marymount University
ANDREW H. VAN DE VEN
University of Minnesota
This article examines the developmental process of cooperative inter-

organizational relationships (IORs)that entail transaction-specific in-
vestments in deals that cannot b e fully specified or controlled by the
parties in advance of their execution. A process framework is intro-
d u c e d t h a t f o c u s e s o n formal, l e g a l , a n d i n f o r m a l s o c i a l -
psychological processes by which organizational parties jointly ne-
gotiate, commit to. a n d execute their relationship i n ways that
achieve efficient and equitable outcomes and internal solutions to
conflicts when they arise. The framework is elaborated with a set of
propositions that explain how a n d why cooperative IORs emerge,
evolve, and dissolve. The propositions have academic implications
for enriching interorganizational relationships. transaction cost eco-
nomics. agency theories. a n d practical implications for managing the
relationship journey.
Recently, a n unprecedented number of business firms in many indus-

tries have been entering into a variety of interorganizational relation-
ships (IORs) to conduct their business deals. Previously, these transac-
tions often were concluded through either discrete market transactions or
internal hierarchical arrangements (Friar & Horwitch, 1985; Powell, 1987;
Teece, 1986). These IORs include strategic alliances, partnerships, coali-
tions, joint ventures, franchises, research consortia, and various forms of
network organizations.’
How do these lORs emerge, grow, and dissolve over time? This pro-
cess question is focused on the sequence of events a n d interactions
The authors a r e listed alphabetically, reflecting a n equal contribution to the paper.

We gratefully acknowledge useful comments from Joseph Galaskiewicz, Gordon Rands,
Richard Saavedra, a n d Gerald Salancik. This research program h a s been supported (in part)
by a grant to the Strategic Management Research Center a t the University of Minnesota from
the Program on Organization Effectiveness, Office of Naval Research, under Contract No.
N00014-84-K-0016, by Grant No. 0350-3312-22 from the Graduate School of the University of
Minnesota, a n d by a Summer Research Grant from Loyola Marymount University.
’ A variety of motivations underlying these cooperative relationships have been iden-
tified, including gaining access to new technologies, markets, scale economies, a n d com-
plementary skills. Another motive h a s been risk sharing (see. e.g., Powell, 1987).
90
Copyright 01994. All rights reserved.

1994 Ring and Van de Ven 91
among organizational parties that unfold to shape and modify a n IOR

over time. Relatively little scholarly attention has been devoted to study-
ing developmental processes of IORs. Instead, most of the research to
date has been focused either on the antecedent conditions or the struc-
tural properties of interorganizational relationships in comparison with
other governance forms.
For example, working within transactions cost or agency theory per-
spectives, many scholars have focused their attention on comparing al-
ternative transaction governance structures (e.g., markets, hierarchies,
and mixed modes). These have been institutional economists (Armour &
Teece, 1978; Coase, 1937; Fama & Jensen. 1983; Williamson, 1975, 1991).
organizational sociologists (Coleman, 1986; Powell, 1990; Stinchcombe,
19901, lawyers (Goldberg, 1980; Macneil, 1980), and management scholars
(Balakrishnam & Koza, 1993; Barney & Ouchi, 1986; Mosakowski, 1990). In
a related vein, through a n extensive stream of research, organizational
sociologists have examined the environmental conditions and contingent
factors that explain the formation and structure of cooperative interorga-
nizational relationships (see reviews by Aldrich & Whetten, 1981; Gala-
skiewicz, 1985; Oliver, 1990; Van de Ven, 1976).
These research streams provide extremely useful insight about con-
ditions leading to the formation of IORs, and they can help researchers
when they make comparative static decisions regarding alternative or-
ganizational designs and incentive schemes for different kinds of trans-
actions. However, scholars from these research streams have ignored
process. Although knowing the inputs, structure, and desired outputs of a
relationship provides a useful context for studying process, these factors
do not tell us how a relationship might unfold over time.
Process, however, is central to managing IORs. As agents for their
firms, managers need to know more than the input conditions, invest-
ments, and types of governance structures required for a relationship.
These process issues also have important temporal implications for per-
formance. The ways in which agents negotiate, execute, and modify the
terms of a n IOR strongly influence the degree to which parties judge it to
be equitable and efficient (Guth, Schmittberger, & Schwarze, 1982).These
processes also influence motivations to continue in, or terminate, the
relationship over time (Friedman, 1991). Interaction processes among co-
operating parties may cast a positive, neutral, or negative overtone to the
relationship, influencing the degree to which parties settle disputes aris-
ing out of the IOR (Loewenstein, Thompson, & Bazerman, 1989; Pruitt &
Rubin, 1986; Schmitt & Marwell, 1972).
Our focus here is process. We introduce a conceptual framework for
explaining how cooperative IORs emerge, grow, a n d dissolve over time.
In the first part of our article, we present our starting assumptions, which
bind the scope of the argument. In the second part, we introduce four
concepts that a r e important for studying the developmental processes of
cooperative IORs. We then use these concepts to develop a set of propo-

92 Academy of Management Review January
sitions that explain how cooperative IORs emerge, evolve, and terminate
over time.
CONCEPTUAL BACKGROUND
To keep the paper manageable, we will assume that business condi-
tions and motivations exist, which are sufficient to cause two or more
organizations to explore exchange using a cooperative IOR governed by a
relational contract .' We will also assume that the organizational parties
desire to create a cooperative IOR that facilitates high commitment rela-
tions (Helper & Levine, 1992) but produces efficient and equitable solu-
tions to conflicts as they arise. Before examining the processes associated
with the temporal development of this kind of cooperative IOR, we clarify
the following four key concepts in these assumed starting conditions: (a)
uncertainties inherent in a cooperative IOR, (b) efficiency and equity cri-
teria for assessing a cooperative IOR, (c) the need for internal resolution
of disputes, and (d) the importance of role relationships in cooperative
IORs.
Uncertainties in a Cooperative IOR
Cooperative IORs emerge when managers bargain over either the
production or the transfer of property rights among legally equal and
autonomous parties (Commons, 1950; Macneil, 1980).3 These property
rights entail specific, long-term investments in a business deal or venture
that cannot be fully specified or controlled by the parties in advance of
their execution (see,e.g., Helper & Levine, 1992).4Consequently, in these
cooperative IORs, managers encounter two types of uncertainties: (a)un-
certainty regarding future states of nature (e.g., Perry, 1989) and (b) un-
The issue of what distinguishes a cooperative IOR from any other form of IOR is a
weighty one. Because we a r e focusing on process, we do not devote undue attention to static
comparisons. Nonetheless, we believe that the developmental processes we explore a r e
more likely to be required when two organizations cooperate over the use of tacit know-how
assets (Teece, 1986) or invisible assets (Itami. 1987) compared to the use of tangible or
codified know-how assets. We also believe that these kinds of assets a r e more easily em-
ployed through relational rather than transactional exchange (see, e.g.. Helper & Levine.
1992; Zajac & Olsen. 1993).
Macneil's work too rarely provides the basis for research on this topic. Important
exceptions c a n be found in the work of Denise Rousseau (1990) and R.F. Dwyer a n d his
colleagues (1987). Our approach differs from Dwyer et al., in that our framework can provide
a n explanation for processes that occur within each of their five stages of the evolution of
buyer-seller relationships a n d can also explain transitions from one stage to another.
Macneil's (1974) distinction between transactional a n d relational exchanges helps
clarify the scope of IORs examined in this paper. In transactional exchange current events
will be "viewed separately from events preceding and following it, indeed from other events
accompanying it temporally" (p. 694). If exchange leading to a cooperative IOR i s "an on-
going dynamic state, no segment of which- past, present, future- can sensibly be viewed
independently from other segments" (p. 695, footnotes omitted), then the IOR involves rela-
tional exchange.

1994 Ring and Van d e Ven 93
certainty whether the parties will be able to rely on trust as a counter to

the problems of adverse selection and moral hazard (see, generally, Ack-
erlof, 1970).'
Two views on trust can be found in the management and sociology
literatures: (a)a business risk view based on confidence in the predict-
ability of one's expectations (Luhmann, 1979; Zucker, 1986) and (b)a view
based on confidence in another's goodwill (Dore, 1983; Ring 8c Van de Ven,
1992). In the risk-based view of trust, parties hedge against uncertain
states of nature, adverse selection, and moral hazard through a variety of
formal contractual means such as guarantees, insurance mechanisms,
laws, a n d organizational hierarchy. We employ the second, more restric-
tive, definition of trust. It emphasizes faith in the moral integrity or good-
will of others, which is produced through interpersonal interactions that
lead to social-psychological bonds of mutual norms, sentiments, and
friendships (Homans, 1962) in dealing with uncertainty.
We caution, however, that even though the parties may be confident
of each other's trustworthiness, they also may be uncertain whether to
rely exclusively upon it. Reliance on trust developed at the interpersonal
level may be conditioned by legal systems or organizational role respon-
sibilities, mitigating the ability of the parties to rely on trust as a matter
of first preference.6 Accordingly, we propose that a n understanding of the
willingness of parties to rely on trust (confidence in the goodwill of others)
to deal with uncertainty requires careful and systematic attention to the
concrete processes by which personal relationships emerge between
transacting parties; in this way, personal relationships can serve to
shape and modify the evolving structure of a cooperative 10R.
Assessments Based on Efficiency and Equity
Efficiency has been the major criterion underlying standard models of
economic exchange (Plott, 1986). A s reflected in transaction cost theory,
researchers use efficiency to define the most expeditious and least costly
governance structure for undertaking a transaction, given production cost
constraints. We assume that a n equally important criterion for assessing
a cooperative IOR is equity, defined as "fair dealing" (which does not
require that inputs or outcomes always be divided equally between the
parties). The construct of equity has its recent roots in exchange theory, in
As Williamson (1985: 51) observed, the concept of opportunism clearly captures any
uncertainty that stems from these two types of behavior. We prefer to use these terms
because they deal directly with uncertainty that will be transaction specific a n d directly
related to a willingness of the parties to rely on each other's trustworthiness in the face of
the specific kinds of circumstances that give rise to the possible occurrence of either adverse
selection or moral hazard problems.
My coauthor a n d I take a boat out for a n afternoon sail on the Pacific. If I fall over-
board, I trust that my coauthor will give his life in a n effort to save mine. The sentiment is
reciprocal. Nonetheless, the uncertainties (even the risks) of a n ocean sail make it prudent
for each of u s to wear life jackets a n d not rely exclusively on our trust in each other.

which individuals seek to reconcile their self interests with the need to
maintain social relationships (Blau, 1964; Homans, 1961). The historical
roots of equity a r e found in the English Common Law. Our conceptual-
ization of equity, though consistent with early views expressed by social
exchange theorists, does not require that we deal with concepts of justice
(especially distributive justice) in the rich detail provided in more recent
social-psychological literature (see, e.g., Greenberg & Cohen, 1982). In
fair dealing, reciprocity is sufficient (Gouldner, 1959), but equivalence in
the quid pro quo is not necessary. Fair rates of exchange between costs
and benefits are sufficient, but equality is not necessary for fair dealing
(Blau, 1964). Fair dealing also implies that all parties receive benefits
proportional to their investments (Homans, 1961).
Kahneman, Knetsch, and Thaler (1986: S299) called for the need to
modify standard microeconomic models to incorporate norms of fairness.
A growing body of empirical evidence suggests that norms of fairness
have a significant effect on economic exchange (e.g.,Bazerman & Carroll,
1987; Loewenstein et al., 1989; Neale & Northcraft, 1991). These investiga-
tions imply that perceptions of equity operate as a lower-bound constraint
on efficiency (i.e., events increasing either risk or decreasing trust im-
prove the likelihood that parties will rely more heavily on equity than
efficiency in assessing their relationship).
Thus, fair dealing as a criterion goes beyond the economic rational
calculation of "equivalence of benefits" (Axelrod, 1984) among parties; it
includes the sociological meaning of indebtedness (i.e., disproportional
initial exchanges between parties result in social norms of obligation
among parties for future exchanges) (Knoke, 1990). Research about bar-
gaining h a s indicated that fair dealing as a standard for assessing co-
operative IORs can be influenced by the personalities and individual
differences of transacting parties, particularly in ambiguous situations,
as in the early stages of a cooperative relationship between relative
strangers (Monson, Hesley, & Chernick, 1982; Neale & Northcraft, 1991).
However, the ranges of these variations tend to be limited by cultural or
institutionalized norms of acceptable behavior of organizations and soci-
ety (Scott, 1987).
Consequently, in our framework, we assume that the initial lower
bounds defining fair dealing typically will be based on norms and prec-
edents established in public forums for conflict resolution (e.g., law,
courts, and third-party arbitration). We also assume that the parties to a
cooperative IOR are motivated to seek both equity and efficiency out-
comes because of a desire to preserve a reputation for fair dealing that
will enable them to continue to exchange transaction-specific invest-
ments under conditions of high uncertainty (Helper & Levine, 1992).
Internal Resolution of Disputes
Heavy reliance on trust, or a reputation for fair dealing, may, as we
have noted, lead to a formal agreement defining a cooperative IOR that is

unenforceable by resort to institutional guarantors (courts, arbitrators).

Even when these a r e available, however, recourse to them typically leads
the parties to end their relationship (Ouchi, 1984).7Thus, private ordering
becomes the primary dispute-resolution mechanism in cooperative IORs.
Endogenous safeguards a r e critical in cooperative IORS for two rea-
sons. First, the greater the transaction-specific investments made under
conditions of uncertainty, the more the immediate parties stand to benefit
from preserving the relationship. From a n economic perspective, rede-
ploying assets committed to the cooperative IOR will be inefficient. Sec-
ond, as will be argued later in this article, in the temporal development
of a cooperative IOR, social-psychological processes will create a sepa-
rate set of pressures to preserve the relationship.
In the framework that follows, we argue that these endogenous safe-
guards may end up being codified in more formal legal contracts for a
number of reasons. We will, however, also demonstrate that informal,
psychological contracts increasingly will be substituted for formal legal
contracts in "high-commitment relations" because of the parties' ability to
rely on trust that stems from prior fair dealing (Helper & Levine, 1992).
The Importance of Role Relationships

Although our focus is on cooperative IORs, a macrolevel phenomena,
these relationships only emerge, evolve, grow, and dissolve over time as
a consequence of individual activities. We have just reviewed three ways
in which the actions of individuals will have a n effect on a cooperative
IOR: in defining the degree of uncertainty associated with the exchange,
in specifying the extent to which the parties can rely on interpersonal
bused trust as a n alternative form of conflict resolution, and in defining
the parties' outcome expectations to include both efficiency and equity.
We assume that individual views on these issues will be a function of their
organizational roles. We also assume that role relationships and inter-
personal relationships will not be identical.
Gabarro (1987: 180)provided strong support for these assumptions. He
observed that
roles and role expectations are part of the context of all social
interaction, but they are even more persuasive and are more
explicitly defined in working relationships, particularly when
they occur within or across organizational hierarchies. Most
working relationships develop between people by virtue of
In transaction cost theory, conflict resolution is less problematic than will be the case
in our framework. In the case of market-mediated exchange, conflict arising ex ante contract
is assumed to be resolved by finding another exchange partner from the numerous partners
assumed to exist in the same market. In cases of ex post contract conflict, the assumption is
that the rights of the parties will be protected through institutional guarantors (Commons,
1950). Where hierarchy is a more efficient means of minimizing production and/or transac-
tion costs, conflict resolution is provided by fiat (which is a priori less costly).

their roles. In this respect, people begin [an] institutionalized

role relationship, often before they have begun to develop a n
actual [personal] relationship. . . . The operational question
for such a dyad is not whether to get “married,” but rather how
to make the marriage work.
The relevance of distinguishing between interpersonal relationships
and role relationships in cooperative IORs was clarified further by Guitot
(1977). He argued that the ways in which individuals make attributions
about others‘ intentions and behaviors will vary significantly if the other
is viewed as acting within a “role” as opposed to “qua persona.” Guitot
maintained that just because a person is willing to attribute sincerity or
trustworthiness to “qua persona” behavior does not mean that a person
will do so if the individual were behaving in a role context. Consequently,
we assume that even though individuals may rely on trust in their “qua
persona” relationships, they may be unable to do so when acting as
agents for their organizations. Organizations can be like oceans, and in
dealing with uncertainties brought upon by their roles, prudence may
require that the parties employ ”life jackets” recognized by their organi-
zations (e.g., formalized contracts, exogenous safeguards) in lieu of ex-
clusive reliance on trust.
DEVELOPMENTAL PROCESSES OF COOPERATIVE IORs
The assumptions we have outlined in the previous section relate to
conditions that will not remain fixed throughout the duration of a coop-
erative IOR. From a developmental process perspective, cooperative IORs
a r e socially contrived mechanisms for collective action, which are con-
tinually shaped and restructured by actions and symbolic interpretations
of the parties involved. Thus, just as a n initial structure of safeguards
establishes a context for interparty action, so also do subsequent inter-
actions reconstruct and embody new governance structures for the rela-
tionship.8 We will now elaborate on these developmental issues with a
process framework (illustrated in Figure 1) and a set of propositions that
provide a temporal explanation for the emergence, evolution and disso-
lution of cooperative IORs.
Consistent with Commons’s (1950) original formulation of transac-
, ~ the framework we view the development and evolution of a
t i o n ~ in
This developmental view corresponds with current advancements in contract law.

Atiyah (1979: 713) h a s maintained that a paradigm shift in contract law is occurring from the
single, discrete transaction toward relationships, where the tendency is for the risks of
future change to b e adjusted by some kind of quasi-administrative process rather than by
standing by the letter of some original contract. The law has become increasingly domi-
nated by what contracting parties do, a n d it is less dominated by what the parties originally
agreed upon. Thus, there is a n incentive for finding means by which parties can rely on trust
more heavily in the course of undertaking long-term exchange of idiosyncratic assets.
The proposed framework departs from TCE in its interpretation of Commons‘s original
conceptualization of transaction by focusing on the more dynamic properties of transactions,
as Commons initially proposed (see recent review by Van d e Ven, 1993).

1994 Ring a n d Van de Ven 97
NEGOTIATIONS
of joint expectations for future action through
risk & trust through
c formal bargaining
informal sense making 3
4 c formal legal contract
cooperative IOR as consisting of a repetitive sequence of negotiation,

commitment, and execution stages, each of which is assessed in terms of
efficiency and equity. Although these stages overlap through recurrent
sequences, it is useful to separate them for analytical purposes. In addi-
tion, even though the temporal occurrence of these stages may be almost
simultaneous in simple transactions, the duration of each stage varies
according to the uncertainty of issues involved, the reliance on trust
among the parties to a cooperative IOR, and the role relationships of the
parties.
In the negotiations stage, the parties develop joint (not individual)
expectations about their motivations, possible investments, and per-
ceived uncertainties of a business deal that they a r e exploring to under-
take jointly. In this stage the focus is on the formal bargaining processes
and choice behavior of parties as they select, approach, or avoid alter-
native parties and as they persuade, argue, and haggle over possible
terms and procedures of a potential relationship. Underlying these formal
bargaining proceedings a r e social-psychological processes of sense mak-
ing, or enactment, that lead otherwise independent parties to enter into
negotiations with one another. Repeated efforts at negotiations through

formal bargaining and informal sensemaking processes are of ten neces-

sary in order to provide participants opportunities to assess uncertainty
associated with the deal, the nature of each other's role, the other's trust-
worthiness (if that is not already known), their rights and duties in the
transaction being considered, and possible efficiency and equity of the
transaction as it relates to all parties."
In the commitments stage, the "wills of the parties meet" (Commons,
1950) when they reach a n agreement on the obligations and rules for
future action in the relationship. At this point, the terms and governance
structure of the relationship a r e established, and they are either codified
in a formal relational contract or informally understood in a psychological
contract among the parties. A s in the prior stage, a series of interactions
is often necessary to enable parties to reach lawful mutual consent. De-
pending on the degree of business risk and the willingness of the parties
to rely on trust, many of these commitments will be reached informally
with a handshake. However, legal agents of the parties often a r e called
upon to formally draft a legal agreement on other key commitments in
order to avoid legal impediments, such as mistake, misrepresentation,
undue influence, or duress, which would otherwise render the relation-
ship null a n d void.
Finally, in the executions stage, the commitments and rules of action
a r e carried into effect; the parties give orders to their subordinates, buy
materials, pay the amounts agreed upon, and otherwise administer what-
ever is needed to execute the agreement. Initially, formally designated
role behavior by the parties reduces uncertainty when they execute com-
mitments, and it makes interactions among parties predictable. Through
a series of role interactions, parties also may become more familiar with
one another as persons, and they may increasingly begin to rely on in-
terpersonal, as opposed to inter-role, relationships.
In order to carry out a business deal, a cooperative IOR may need to
remain in effect for a long term. With time, misunderstandings, conflicts,
and changing expectations among the parties are inevitable, and these
factors can provide cause for rethinking the terms of the relationship. In
these renegotiations, new supplemental agreements typically are estab-
lished to resolve only the contested issues, but all other terms and un-
derstandings contained in the relational contract remain in effect. In this
way, the ongoing relationship is preserved. In the final cycle of the pro-
cess, the parties may conclude that the relationship should be discharged
(terminated). Typically, this will occur when the parties have lived up to
their promises a n d the deal is completed. Discharge can also occur as a
consequence (or failure) of a condition; that is, a possible future event, a
lo These early processes are similar to those identified by Gabarro (1979) in his four-
stage model of the development of working relationships.

breach in a n agreement, a n operation of law, mutual rescission, or a

novation (substituting a new contract).
As the previous discussion suggests, and as Figure 1 illustrates, we
propose that a simple set of heuristics guide organizational parties
through initial and recurrent sequences of these formal stages of a coop-
erative IOR. In general, these heuristics are based on assumptions that if
parties can negotiate minimal, congruent expectations for a cooperative
IOR, they will make commitments to a n initial course of action. If these
commitments are executed in a n efficient and equitable manner, they will
continue with or expand their mutual commitments. If these commitments
are not executed in a n efficient and equitable manner, the parties will
initiate corrective measures by either renegotiating or reducing their com-
mitments to the cooperative IOR. Underlying these heuristics is a more
complicated set of informal social-psychological dynamics that go on and
that explain how and why cooperative IORs evolve through repetitive
sequences of formal negotiation, commitment, and execution stages or
events.
The Emergence of Cooperative Interorganizational Relationships
Commons (1950) emphasized that purposes, values, and expected
consequences are the grounds for human choices, Cooperative IORs re-
quire that individual choices, made in the present and realized in the
future, be congruent (i.e., a present sense of purposes, values, or expec-
tations for the cooperative IOR is identical among the parties). In coop-
erative IORs, parties must negotiate and commit to achieving congruency
in presently expected consequences by undertaking a line of behavior
regarding a (presently uncertainty-filled) future. Thus, to understand how
cooperative IORs emerge initially, it is important to understand how peo-
ple can make present commitments to engage in uncertain future courses
of action a n d the sources of security that lead them to believe that the
terms of their representations and commitments are congruent and will
be enforceable.
In a n extensive review of the social-psychological literature on mo-
tivation, Turner (1987)concluded that "identity" and "inclusion" were two
fundamental forces that motivate human thought and action. These forces
are the basis for a n explanation of the development of interorganizational
relationships being grounded in the motivational and cognitive predis-
positions of individuals to engage in sensemaking and bonding pro-
cesses. For example, these sensemaking a n d bonding processes are de-
signed to permit parties with initially different views of the potential
purposes and expectations of a relationship to achieve congruency in
their relationship.
Sense making is a n enactment process (Weick, 19791, in which orga-
nizational participants come to appreciate the potential for transacting
with others by reshaping or clarifying the identity of their own organiza-

tion. By projecting itself onto its environment, a n organization develops a

self-referential appreciation of its own identity, which, in turn, permits
the organization to act in relation to its environment (Morgan, 1986: 243).
Psychologically, sense making derives from the need within individuals
both to have a sense of identity of self in relation to others and to construct
a common external factual order regarding their social relationships
(Turner, 1987). Interaction is constrained by the need among transacting
parties to feel that they share a congruent understanding of a n inflexible
world. Communications among parties produce this shared interpreta-
tion, and it often emerges gradually and incrementally. A s Neale and
Northcraft (1991) indicated, parties do more than just process (perhaps
incorrectly) information about the context of a transaction: They perceive
that context and react to their perceptions in ways that validate or enact
(Weick, 1979) a compatible set of perceptions. Thus, it is negotiators' cog-
nitions which "contextualize negotiations" (Neale & Northcraft, 1991). In
contracting, the legal requirement of mutual consent and commitment-a
meeting of the minds-is achieved by this process of sense making.
This sensemaking process also results in establishing psychological
contracts among parties (Argyris, 1960; Levinson, Price, Munden, Mandl,
& Solley, 1962). Psychological contracts, as opposed to most legal con-
tracts, consist of unwritten and largely nonverbalized sets of congruent
expectations and assumptions held by transacting parties about each
other's prerogatives a n d obligations. These expectations of what each
party will give to, and receive from, the relationship vary in their degree
of explicitness; the parties often are only marginally aware of the exact
nature of these expectations (Kotter, 1973). Congruent expectations in-
clude areas such as common agreement on norms (e.g., the sharing of
proprietary information with suppliers), work roles (supervisor, subordi-
nate), the nature of the work itself, social relationships, or security needs.
Individual parties' expectations are shaped by past experiences (many of
which may predate the relational contract), personal values, professional
specialization, and the role of the party in the hierarchy (Nicholson &
Johns, 1985).
If congruent purposes, values, or expectations will be achieved
among the parties, these social-psychological processes will take far
longer to develop than commonly acknowledged by economic theories of
transactions or legal work on relational contracts. Congruency is a cu-
mulative product of numerous interactions; through these interactions
emerge trust in the goodwill of others and a n understanding of con-
straints on the relationship that may be imposed by a person's organiza-
tional role.
Cooperative IORs may emerge out of a wide variety of starting con-
ditions, such as preexisting friendship ties, institutional mandate, or re-
source dependence and search by one organization for another party with
the needed resources (Galaskiewicz, 1985; Oliver, 1990). Still other IORs
may be brokered by venture capitalists, corporate sponsors, or invest-
Copyright @ 1994. All rights reserved.

ment bankers who act as "cupids." These different starting points vary in
the degrees to which the parties are acquainted and have had prior in-
teractions and, thus, they vary regarding the opportunity through prior
sensemaking activities to come to know and understand self in relation to
the other. If these prior interactions led to the creation of high levels of
trust between the parties, they may be able to negotiate, make commit-
ments, a n d begin to rapidly execute a relationship. Consequently, coop-
erative IORs among parties who have had prior economic relationships or
social ties tend to develop far more quickly and efficiently than among
parties who, initially, were strangers (Galaskiewicz & Shatin, 1981).
In practice, most cooperative interorganizational relationships
among strangers emerge incrementally and begin with small, informal
deals that initially require little reliance on trust because they involve
little risk (Friedman, 1991; Van d e Ven, 1976). As these transactions are
repeated through time, and meet basic norms of equity and efficiency, the
parties may feel increasingly secure in committing more of their avail-
able resources and expectations in subsequent cycles of a cooperative
IOR. Moreover, if the parties perceived prior cycles to be equitable and
efficient, what may start as a one-time solution to a specific problem may
eventually become a long-term web of interdependent commitments to a
cooperative IOR (Van d e Ven & Walker, 1984). Increases in trust between
parties, which a r e produced through a n accumulation of prior interac-
tions that were judged by the parties as being efficient and equitable,
increase the likelihood that parties may be willing to make more signif-
icant and risky investments in future transactions. Greater reliance on
trust in the goodwill of other parties also decreases transaction costs and
increases managerial flexibility because the parties will perceive a lower
need for a legal document (Friedman, 1991).
Thus, establishing a congruent understanding of each other's identity
in relation to others is a necessary (not sufficient) condition for negotiat-
ing parties to commit and enter into a cooperative IOR. A s Turner (1987: 18)
stated, repeated failures by individuals to gain confirmations of their
perceptions of self in relation to others sets in motion defense mecha-
nisms and the development of a deviant identity, which will not likely
lead to congruency in definition of values, purposes, or expectations.
Thus, we propose the following:
Proposition 1: Congruent sense making among parties
increases the likelihood of concluding formal negotia-
tions to a cooperative IOR.
Proposition 2: Congruent psychological contracts among
parties increases the likelihood of establishing formal
commitments to a cooperative IOR.
Although empirical evidence for these propositions is sparse, notable
contributions a r e being made by negotiation researchers. Bazerman and
Carroll (1987) and Neale and Northcraft (1991) examined a variety of in-

formation-processing strategies that produce biases in negotiators'

performance, including framing, anchoring and adjustment, and over-
confidence. They indicate that negotiators who had a positive frame of
reference tended to complete more transactions and outperformed nega-
tively framed negotiators in a competitive market. With regard to anchor-
ing and adjustment, they reported that early moves a r e critical in deter-
mining the psychological context in which negotiation occurs. Initial
offers act as a cognitive anchor influencing subsequent negotiations, and
goal setting provides a way of adjusting negotiators' perceptions of what
is possible or even acceptable. Finally, unwarranted levels of overconfi-
dence in negotiators' judgment abilities, particularly in novel or unusual
situations that a r e often present in cooperative IORs (Einhorn & Hogarth,
1978). reduced the amount of concessionary behavior among parties and
increased the number of negotiations that ended in impasse (Bazerman &
Neale, 1982).
Clearly, these strategies will affect the ways in which parties conduct
their sensemaking activities. If parties that a r e attempting to develop a
cooperative IOR have incongruent biases regarding framing (positive ver-
sus negative), for example, it is likely that psychological contracting will
be impeded. Differences in these biases also may lead to opportunistic
behavior, or other conditions early in the negotiation stage, which de-
creases the likelihood of achieving congruency in psychological contracts
bet ween the transacting parties.
The Evolution of Cooperative IORs
Selznick (1957) argued that a n organization does not become a n "in-
stitution" until it becomes infused with value (i.e., prized not as a tool
alone, but as a source of direct personal gratification and as a vehicle for
group integrity and perpetuation).l 1 From a social-psychological perspec-
tive, institutionalization is a socialization process that transforms a n in-
strumental transaction into a socially embedded relationship by infusing
it with norms a n d values that permit the relationship to be reproduced
and perpetuated beyond the immediate tenure of its founders (Berger &
Luckmann, 1966). As Shull, Delbecq, and Cummings (1970) discussed,
institutionalization both objectifies and internalizes the identity, mission,
and procedures of a relationship into taken-for-granted (congruent) ex-
pectations by its participants; it colors all aspects of the relationship and
l 1 In the course of efforts to institutionalize, we assume that cooperative IORs will be

"managed" for significant durations, ceteris paribus, by those individuals deeply involved
in their development (see, e.g., Zucker, 1977). Of course. some parties may hedge against a
loss of commitment to the parent company in the management of an IOR (the phenomenon
of "going native") by rotating personnel. Also, in order to induce needed change in the IOR,
the personnel initially involved in its development may be shifted to overcome the effects of
institutionalization (e.g., intertemporal uniformity, resistance to change).

1994 Ring and Van d e Ven 103
gives it a social integration that goes far beyond its formal, legal structure
of governance and economic exchange.
The institutionalization of a relationship is evident in three basic
interactions that evolve over time between formal and informal processes
of negotiation, commitment, and execution: (a)personal relationships in-
creasingly supplement formal role relationships, (b) psychological con-
tracts increasingly substitute for formal legal contracts, and (c) as the
temporal duration of relationships extend beyond the tenure of initial
contracting agents, formal agreements (e.g., rules, policy, contracts) in-
creasingly mirror informal understandings and commitments. These in-
teractions between formal and informal characteristics of relationships
a r e a n innocuous product of the social-psychological dynamics of inter-
personal socialization and norm formation (Shull, Delbecq, & Cummings,
1970: 134).
Even when congruent, as outlined in Proposition 1 above, the sense-
making processes previously discussed seldom produce agreements until
individuals can bind their organizations (in addition to themselves
through a psychological contract) to a transaction. Without a mandate,
single individuals are not likely to bind organizations. Role formation
enables individuals to serve as agents for their organizations and to carry
out the specialized t a s k s that a r e a sine qua non for all transactions.
Because organizationally designated role behavior is not always congru-
ent with qua persona behavior (Guitot, 19771, it initially serves to con-
strain the actions of individuals, and it increases the predictability of qua
persona behavior as individuals take on the role of agents for their orga-
nizations. Execution of commitments and understandings are thereby fa-
cilitated, particularly in initial cycles of those cooperative IORs, where
personal bonds among parties (may) have not yet developed.
Through repeated interactions over time, however, these formal role
relationships and expectations become socially embedded in a n incre-
mental a n d escalating progression of socialization (McGrath, 1984;
Schein, 19701, accommodation (Morely & Stephenson, 1977). and norma-
tive expectations that mutually arise among cooperative IOR parties (see,
generally, Gabarro, 1987). Qua persona behavior substitutes for role be-
havior as personal relationships build a n d psychological contracts
deepen. The formal role relationships of individuals with their organiza-
tions, however, do not dissolve as these interpersonal relationships
evolve. As a consequence, we propose the following:
Proposition 3: If the individuals assigned to a coopera-
tive IOR do not change, personal relationships increas-
ingly supplement role relationships as a cooperative
IOR develops over time.
One consequence of turnover among agents is that their replace-
ments may not have any prior relationship with each other, either per-

sonal or in their organizational roles. Consequently, levels of flexibility

and efficiency that may have existed in management of the cooperative
IOR are likely to be lost as the new “agents” rely on the terms of the formal
agreement and their role designations in resolving matters that their pre-
decessors had dealt with based on psychological contracts and reliance
on trust. Stated in another way, turnover has the effect of restarting the
clock on the psychological contracts which will define many of the pro-
cesses of governance of the cooperative IOR.
The personal bonds that we argue flow from congruent sense making
and congruent psychological contracts may produce trust in the other
party‘s goodwill, or if the goodwill preexists, it will give the parties
greater flexibility to transcend their organizationally specified roles in
adapting to changing circumstances. Although this embedding of friend-
ship ties in addition to formal role relationships may create some awk-
ward entanglements, i t provides dual bases- personal a n d profes-
sional-for the resolution of conflicts.’2 This enhanced ability to rely on
trust has important implications for relationships between formal com-
mitments as written into the legal relational contract and informal psy-
chological contracts that evolve as a cooperative IOR institutionalizes.
We assume that designated organizational agents have the discretion
to employ formal or informal procedures to negotiate, commit to, and
execute a cooperative IOR. Thus, we can expect that as conditions
change, including the levels of trust that emerge from interpersonal re-
lations, that psychological and formal contracts may compensate or sub-
stitute for each other.
For example, Ring and Rands (1989)observed situations in which
transacting parties reached informal understandings and commitments
prior to their organizations‘ negotiating and committing to a legal con-
tract. Two individuals had engaged in intense sensemaking activities
over a five- to six-month period and, as the authors pointed out, had
developed a very strong psychological contract regarding the need for
cooperation between their respective organizations. Thus, the conditions
outlined in Propositions 1 and 2 were met. Each trusted the other’s ability
to commit his or her respective principals to the venture. Both, however,
had longer range plans based on success of the initial cooperative effort.
A s the two individuals experienced the ability of one another to deliver
the terms of their psychological contract, their reliance on trust deepened.
As a consequence, these individuals increasingly worked ”outside” the
terms of the formal agreements between their organizations. In sum, al-
though specific actions to be taken with respect to certain provisions of
legal contracts were not yet spelled out, informal norms and understand-
’’
The commitment model offered by Frank (1988) appears to be designed to create a
similar ability to rely on reputation for trustworthiness in exchange processes.

ings of acceptable behavior stemming from reliance on trust compen-

sated for the absence of a formal agreement and permitted the parties to
proceed to execute the informal commitments implicit in their psycholog-
ical contract.
Many transactions are never completely formally specified because
the informal processes serve as substitutes for formal transaction pro-
cesses (Macaulay, 1963). Frequently, it is impossible for parties to foresee
all possible states of nature that might arise in a cooperative IOR.Only
those contingencies that are seen as possible, important, and open to
significant disagreement between the organizations are likely to be ad-
dressed in legal contracts. The remaining issues become taken-for-
granted assumptions in the psychological contracts that parties develop
in relation to each other through repeated interactions. This notion as-
sumes, however, a level of role stability among the parties. As informal
psychological contracts among parties are upheld, and trustworthiness is
further affirmed, formal governance structures and safeguards can be
“relaxed’ further, if not in the “letter of the law” then in its spirit (Lewis &
Weigert, 1985). However, as we indicated in the proposed heuristic out-
lined in Figure 1, if commitments a r e violated by one party or both, more
elaborate and formal structural safeguards will likely emerge in subse-
quent cycles of negotiation, commitment, and execution stages. These
interactions between formal (legal) and informal (psychological) contract
commitments lead to the following proposition:
Proposition 4: Informal psychological contracts increas-
ingly compensate or substitute for formal contractual
safeguards as reliance on trust among parties increases
over time.
A third form of correspondence between the formal and informal pro-

cesses of cooperative IORs is that legal and psychological contracts often
mirror each other. Three factors often impel formal codification of infor-
mal commitments. First, cooperative relationships between firms imply
that organizations, not individuals, are the principal parties to the coop-
erative IOR and that individuals act as agents for their respective orga-
nizations. Second, cooperative IORs will require formal documentation
a n d standardization, which permit the cooperative IOR to be legally
recognized beyond the time span of the individuals who negotiated the
cooperative IOR (and who may have neither left a written record of their
informal commitments, nor communicated them to others in ways that
describe their intent).l 3 Third, the processes of institutionalization de-
n This formalization may be required, not for the benefit of the individuals acting as
agents, but for their explicit (and implicit) principals-the stakeholders of their respective
organizations.

scribed by Zucker (1977) can transform informal commitments into orga-

nizational routines that, over time, become highly resistant to change.
These commitments become institutionalized through repetitive execu-
tion of acts by the successors of the parties who come to share the idea
that these acts are simply "the way things are done." As Berger and
Luckmann (1966: 57) noted, "Man is capable of producing a world that he
then experiences as something other than a human product." As a con-
sequence, what was once recognized as a n informal psychological con-
tract takes on the form of a formal, externally specified "objective" reality,
whereby transacting parties play out preordained roles and "action rou-
tines" (Starbuck, 1983). Consequently, we propose the following:
Proposition 5: When the temporal duration of interorga-
nizational relationships is expected to exceed the tenure
of agents, informal understandings and commitments
will be formalized.
Of course, it is never completely possible for the formal legal con-
tracts to mirror the informal understandings and commitments reached
by organizational agents at a point in time. Nevertheless, continuity
a n d predictability in the execution of long-term interorganizational
relationships by new performing agents a r e facilitated to the extent that
"blueprints" are available. However, these new agents may employ these
blueprints without fully understanding the initial and changing inten-
tions of a relationship. As this drift between appreciation of the formal
and informal contracts develops over time, we would expect conflicts to
erupt among the parties to a cooperative IOR. These conflicts signify either
the termination of a relationship or the initiation of another cycle of negoti-
ation, commitment, and execution events among organizational parties.
The Dissolution of Cooperative IORs
After the "honeymoon" or "adolescent" (Fichman & Leventhal, 1990)

periods of a cooperative relationship, time promotes continuity. In addi-
tion to economic considerations, there are powerful social-psychological
motivations for preserving relationships that entail transaction-specific
investments. The investments include not only economic and technolog-
ical resources of participating firms, but also social commitments and
entanglements of individual agents. Seabright, Leventhal, and Fichman
(1989) viewed these kinds of transaction-specific investments as repre-
senting organizational and individual attachments to a n exchange. In a
study of auditor-client relationships, they found that dissolution rates
increased significantly, leading to auditor turnover (a measure of indi-
vidual attachment), and they increased insignificantly according to de-
creases in organizational attachment (as indicated by measures of orga-
nizational resource requirements for the relationships).

A social-psychological explanation for these results, following

Turner (1987), is that the level of motivation and commitment to a rela-
tionship is a n inverse function of the anxiety associated with needs to (a)
feel included, (b) sense predictability in the responses of others, and (c)
feel secure in that things are as they appear. Termination of a relation-
ship implies that some or all these needs have gone unfulfilled. There-
fore, it is not only in the economic but also in the psychological best
interests of the organizational parties to find ways to preserve their so-
cially embedded relationship.
With their social comparison theory, Kelly and Thibaut (1959) argued
that the termination of a relationship may not be problematic for individ-
uals who have better alternative (personal) relationships that can satisfy
their needs for inclusion, predictability, and security. However, the coop-
erative IORs examined here entail increasing levels of unique social com-
mitments, which over time not only transform a n economic exchange into
a socially embedded relationship, but also foreclose opportunities of cul-
tivating alternative personal relationships that might satisfy these psy-
chological needs. Personal bonds of friendship are related to economic
exchanges as individuals repeat t a s k interactions, which lead to social
interactions and sentiments; these interactions and sentiments, in turn,
produce norms of group inclusion and trust that facilitate repetitive eco-
nomic exchange (Galaskiewicz & Shatin, 1981; Homans, 1961). These es-
calating commitments by parties to a n increasingly particularistic rela-
tionship over time suggest that the likelihood of termination of a cooper-
ative IOR due to a breach in commitment decreases over time.
Proposition 6: As the temporal duration of a cooperative
IOR increases, the likelihood decreases that parties will
terminate the relationship when a breach of commit-
ments occurs.
Cooperative IORs may terminate either for exogenous reasons (e.g.,
a natural disaster, a shift in a political regime, the death or sickness of a
party) or for reasons endogenous to the organizational parties (e.g.,a shift
in organizational commitments, structural arrangements, or performance;
completion of the business deal; or a "falling out" among the parties).
Although it is unnecessary for our purposes to enumerate all possible
reasons why cooperative IORs might fail, it has been argued that coop-
erative IORs that a r e poorly matched with environmental conditions will
fail (Aldrich, 1979; Powell, 1990). This ecological argument locates the
explanation for institutional change a n d survival in heterogeneous
environmental forces. Although this explanation may be appropriate for
the failure of discrete transactions that are governed by atomistic market
norms, it is less relevant to relational forms of exchange which, as we
have noted, a r e largely structured and governed by and for the parties
involved. Moreover, the ecological explanation ignores the endogenous

forces arising over time within a cooperative IOR that may explain its
survival or failure. A s we indicated previously, our relational exchange
framework is derived, in part, from the institutional approach to transac-
tions (Commons, 1950). He argued that institutional change emerges not
from natural selection of environmental heterogeneity, but from the res-
olution of strategic problems in social relationships between willful and
conflicting individuals. Although the exogenous and endogenous expla-
nations for change a r e complementary, we focus here on the endogenous
processes by which these strategic cooperative IOR problems are re-
solved.
To explain the dissolution of cooperative IORs, we examine how the
very processes that were proposed to lead to the emergence and evolution
of cooperative IORs also might explain their dissolution. Although such
a n effort runs the risk of adding messiness a n d complexity to the analysis,
it highlights the temporal impediments to sustaining a cooperative IOR.
Specifically, we examine the following proposition regarding the dissolv-
ing of cooperative IORs.
Proposition 7. When significant imbalances between
formal and informal processes arise in repetitive se-
quences of negotiation, commitment, and execution
stages over time, the likelihood of dissolving the coop-
erative IOR increases.
To explain this proposition, we examine four reasons for the dissolu-
tion of cooperative IORs: (a)excessive legal structuring and monitoring of
the relationship, (b)conflicts between role and interpersonal behaviors of
organizational parties, (c) conditions for violations of trust, a n d (d)esca-
lating commitments to failing transactions. The first two reasons exem-
plify situations produced by excessive formal structuring of a cooperative
IOR, whereas the last two reasons are brought about by excessive reli-
ance on informal negotiations, commitments, and executions of a coop-
erative IOR. A s Proposition 7 implies, when a balance between formal
and informal processes is obtained, the continued existence of a cooper-
ative IOR is enhanced. Why, therefore, might the balance be lost?
First, the seeds for disintegration of relationships are contained in
the very governance structures, safeguards, and processes that lead to
their formation a n d growth. In a longitudinal study of IORs, Van d e Ven
and Walker (1984) found that excessive formalization a n d monitoring of
the terms of interorganizational relationships lead to conflict and distrust
among parties. Parties strive to maintain their unique identities and au-
tonomy in the face of a growing web of interdependencies that emerge
with time (Gouldner, 1959).From a developmental perspective, increasing
transfers of proprietary resources among parties over time implies that
their identities and unique domains may gradually shift from being com-
plementary to being undistinguished, which increases the likelihood of

forces arising over time within a cooperative IOR that may explain its
survival or failure. A s we indicated previously, our relational exchange
framework is derived, in part, from the institutional approach to transac-
tions (Commons, 1950). He argued that institutional change emerges not
from natural selection of environmental heterogeneity, but from the res-
olution of strategic problems in social relationships between willful and
conflicting individuals. Although the exogenous and endogenous expla-
nations for change a r e complementary, we focus here on the endogenous
processes by which these strategic cooperative IOR problems are re-
solved.
To explain the dissolution of cooperative IORs, we examine how the
very processes that were proposed to lead to the emergence and evolution
of cooperative IORs also might explain their dissolution. Although such
a n effort runs the risk of adding messiness a n d complexity to the analysis,
it highlights the temporal impediments to sustaining a cooperative IOR.
Specifically, we examine the following proposition regarding the dissolv-
ing of cooperative IORs.
Proposition 7. When significant imbalances between
formal and informal processes arise in repetitive se-
quences of negotiation, commitment, and execution
stages over time, the likelihood of dissolving the coop-
erative IOR increases.
To explain this proposition, we examine four reasons for the dissolu-
tion of cooperative IORs: (a)excessive legal structuring and monitoring of
the relationship, (b)conflicts between role and interpersonal behaviors of
organizational parties, (c) conditions for violations of trust, a n d (d)esca-
lating commitments to failing transactions. The first two reasons exem-
plify situations produced by excessive formal structuring of a cooperative
IOR, whereas the last two reasons are brought about by excessive reli-
ance on informal negotiations, commitments, and executions of a coop-
erative IOR. A s Proposition 7 implies, when a balance between formal
and informal processes is obtained, the continued existence of a cooper-
ative IOR is enhanced. Why, therefore, might the balance be lost?
First, the seeds for disintegration of relationships are contained in
the very governance structures, safeguards, and processes that lead to
their formation a n d growth. In a longitudinal study of IORs, Van d e Ven
and Walker (1984) found that excessive formalization a n d monitoring of
the terms of interorganizational relationships lead to conflict and distrust
among parties. Parties strive to maintain their unique identities and au-
tonomy in the face of a growing web of interdependencies that emerge
with time (Gouldner, 1959).From a developmental perspective, increasing
transfers of proprietary resources among parties over time implies that
their identities and unique domains may gradually shift from being com-
plementary to being undistinguished, which increases the likelihood of

1994 Ring and Van de Yen 109
territorial disputes, conflict, and competition (Van d e Ven, 1976).l4 The

probabilities of such problems occurring appear to increase when formal
structures a n d procedures are not relaxed somewhat as informal inter-
personal ties and psychological contracts between the parties evolve (as
suggested by Proposition 4). Formal legal considerations often conflict
with managerial needs for autonomy and flexibility.
Second, following Proposition 3, if personal relationships do not sup-
plement formal role relationships over time, then the likelihood increases
that conflicts will escalate between the role specialists of the organiza-
tional agents. This difficulty is commonly evident when we compare the
behavior of lawyers and managers involved in cooperative IORs. Not
surprisingly, lawyers tend to favor more conservative and detailed con-
tractual structures and safeguards compared to managers. Beyond formal
legal considerations, or a sense of obligation to "protect" the "client," this
conservative posture is reinforced by institutionalized professional norms
that inhibit the development of informal understandings or "handshake"
commitments in formal negotiations among parties. The development of
interpersonal ties among role specialists partially mitigates these profes-
sional role orientations, and it provides a n alternative avenue for role
specialists to resolve their conflicts.
However, role specialists typically are brought in to perform a spe-
cific and limited activity of legally formalizing commitments to a cooper-
ative IOR. These role specialists often are not involved in personal inter-
actions with other parties for a long enough period of time to permit the
development of informal interpersonal ties. As a consequence, interac-
tions between these role specialists remain largely based on institution-
alized professional norms. Indeed, in their longitudinal study of a series
of transactions among organizations over time, Ring and Rands (1989)
reported that some lawyers steadfastly refused to even have a "good-
natured drink" with other parties after negotiation sessions. Given these
kinds of different orientations between role specialists, they also reported
that more effective transactions appear to evolve when managers (not
lawyers) design and control the negotiation strategy. Furthermore, nego-
tiations appear to go more smoothly when parties from different organi-
zations interact with their role counterparts (e.g., managers to managers
or lawyers to lawyers).
Other research amplifies these observations. Because role specialists
are likely to process information in very different ways, they are likely to
l4 Our argument raises the question of why, rather than dissolving the cooperative IOR,
the parties would not merge into a single organization if their identities and domains have
become so indistinguishable. The answer lies in their initial intentions: they were comple-
mentary and sought the benefits to be gained by collaboration. That they are now indistin-
guishable reflects a state of nature that is inefficient; therefore, the IOR is subject to disso-
lution.

bring biases, including framing, anchoring and adjustment, and overcon-

fidence that affect their performance in negotiations (Bazerman & Carroll,
1987; Neale & Northcraft, 1991). Carnevale and Isen (1986)found that "good
humor" (the receipt of a small gift) facilitates creative problem solving
and integrative agreements. In examining both verbal and nonverbal
communication behavior, Theye and Seller (1979)found that negotiations
characterized by friendly interactions were more likely to be settled,
whereas those characterized by a negative tone were more likely to end in
impasse. Lewis and Fry (1976)also found that integrative agreements are
more likely to occur if negotiators avoid using insults and threats. The
existence of these kind of terms in a cooperative IOR governance structure
seems more likely when a n "interest-based" (Ury, Brett, & Goldberg, 1988)
approach to conflict resolution has been employed by the parties. l5
The previous discussion has exemplified situations where the bal-
ance between formal and informal processes that enhances the viability
of a cooperative IOR is placed in jeopardy by a n excessive reliance on
formal, legal procedures and a n exclusion of informal, interpersonal
norms for negotiating, committing to, or executing a cooperative IOR. An
imbalance between formal and informal processes in the opposite direc-
tion is equally likely to lead to the failure of a cooperative IOR.
We have proposed that trust in the goodwill of other parties is a
cumulative product of repeated past interactions among parties through
which they come to know themselves and evolve a common understand-
ing of mutual commitments. Furthermore, the greater the ability to rely on
trust, the lower the transaction costs (time and effort) required of parties
to negotiate, reach agreements, and execute a cooperative IOR. Reliance
on trust in the goodwill of others reduces the perceived need for formal
legal structures and safeguards to govern a cooperative IOR. However,
when taken to its extreme, this argument creates the very conditions for
the abuse of trust. As Granovetter (1985) recognized, the emergence of
trust is not sufficient to guarantee trustworthy behavior, and it may even
provide the occasion for malfeasance and inequity on a scale larger than
if trust were absent. Granovetter (1985: 491-493) described three such
occasions: (a)the more complete the trust, the greater the potential op-
portunity for, a n d gain from, malfeasance (such as embezzlement):
(b)fraud, such as kickbacks and bid rigging, is most efficiently pursued
by teams with high internal trust ("honor among thieves"); and (c)conflicts
among parties to a business transaction can escalate into coalitions of
In market-mediated exchanges, the approach to conflict resolution characterized by

Ury and his colleagues (1988)as a "rights" approach is more likely to be employed by the
parties as a matter of first resort, whereas in hierarchy, a power approach may better
characterize the primary approach that organizational actors take to conflict resolution. As
the authors point out, however, all three approaches may be employed in dealing with a
particular conflict situation.

combatants (e.g., by one party calling on trusted allies to implement or

forestall takeovers). Although such instances demonstrate the limits of
trust, their statistical infrequency is a tribute to the force of personal
relations and reputation (Granovetter, 1985: 493).
Less dramatic cases than these examples illustrate situations in
which cooperative IORs emerge largely out of prior informal friendship
ties unbridled with formal legal structures and safeguards. In these sit-
uations, the parties leave details "loose" and run the risk of expecting too
much of their "old trusted friends" without any formal structural safe-
guards to provide security for their expectations. The development of such
extreme imbalances between the informal interpersonal ties and formal
legal arrangements increases the potential for a breach of trust to occur
among parties, leading to the termination of the relationship.
Indeed, Williamson (1975; 1985) has argued the case for formalized
governance structures and safeguards to control for this opportunism, or
deceit with guile. However, regarding the exclusive reliance on formal
structural safeguards on the abuse of trust, Shapiro (1987)showed that the
resulting collection of impersonal institutions to control trust (e.g., proce-
dural norms, structural constraints, and insurance-like arrangements) in-
creases the opportunities for abuse of trust by agents or trustees of prin-
cipals. Paradoxically, this impersonal control of trust sometimes leads
people to throw "good money after bad"; principals protect trust and re-
spond to its failure by conferring even more trust on agents (Shapiro, 1987:
623). It appears this vicious cycle only can be broken when transacting
principals (as opposed to their agents) directly reengage in interpersonal
communications to reconstruct trust through new processes of negotia-
tion, commitment, and execution. Indeed, a laboratory study by Bazer-
man and his colleagues (1989) found that there were significantly more
impasses when agents were involved in the negotiations than when prin-
cipals were involved. But when the vicious cycle of escalating legal struc-
tures and dwindling personal trust has gone beyond a threshold level,
relationships will inevitably terminate.
Finally, a n implication of Proposition 6 is that cooperative IORs may
persist in the face of evidence of growing inefficiencies or escalating
business risks because the organizational parties may have personally
overinvested in the relationship. Through ongoing interactions over the
years, interpersonal sentiments, norms, and commitments among parties
may escalate into "groupthink" (Janis & Mann, 1977; Staw, 1976). In lon-
gitudinal studies of three entrepreneurial IOR ventures that were increas-
ingly failing with time, Van de Ven, Venkataraman, Polley, and Garud
(1989) observed that none of the entrepreneurial parties directly involved
in these IORs took steps to terminate the ventures. In each case, decisions
to terminate the failing business ventures required external interventions
from venture capitalists, corporate sponsors, or other organizational par-
ties not previously directly involved in the 10%.

CONCLUDING DISCUSSION
The developmental processes of cooperative IORs that we have elab-
orated in a set of propositions to explain how cooperative IORs emerge,
evolve, a n d dissolve over time require further study. l6 The propositions
clearly reveal that these studies must be undertaken using organizational
and individual units of analysis. At the individual level of analysis, Mac-
neil's (1980) admonishment that relational contracting involves the whole
person will require investigation of behavior brought on by both role
requirements a n d individual attributes.
The model outlined in Figure 1 reflects our belief that the develop-
ment processes associated with cooperative IORs a r e cyclical, not se-
quential. Cooperative IORs a r e maintained in this model not because
they achieve stability, but because they maintain balance: balance be-
tween formal and informal processes.
One way to study these propositions is to undertake longitudinal
research that tracks a set of cooperative IORs in their natural field set-
tings from beginning to end. The actions and interactions of all parties
would be recorded as they repeatedly negotiate, make commitments, and
execute these commitments in both formal a n d informal ways over time.
Van de Ven a n d Poole (1990) described procedures on how researchers
might use events as the unit of observation. Events a r e defined as critical
incidents when parties engage in actions related to the development of
their relationship. Thus, the use of a n event as the unit of observation
permits researchers to focus simultaneously on both organizational and
individual units of analysis.
Data on the occurrence of each event could be entered into a quali-
tative computer database (such as Rbase), and at a minimum it should
include the date, actor, action, outcome (if observable), and data source.
A chronological recording of these events as they occur over time be-
comes the "raw" database. Each of these events can then be coded on a
set of dichotomous variables, which reflect the presence/absence or oc-
currencelnonoccurrence of indicators selected to measure the constructs
on which the propositions are based. For example, a n indicator of inter-
actions might be to code each event in terms of a dichotomous category of
whether parties did or did not communicate with each other. Temporal
patterns in this coded event-sequence database can then be analyzed
using log-linear and logit analysis on categorical time-series data and
standard time-series regression analysis on frequency counts of coded
events computed for fixed temporal intervals (e.g., weekly, monthly, or
Studies of evolutionary processes in organizational relationships are relatively rare.

A number of important stage models have been developed (see, e.g.,Dwyer, Schurr, & Oh,
1987). DAunno and Zuckerman (1987) offered a life-cycle model of interorganizational rela-
tionships in a study of a federation of hospitals. Our framework might be employed to study
the processes by which the life cycle of the federation evolves.

1994 Ring a n d Van de Ven 113
quarterly intervals). In addition, Abboit (1990) proposed methods for ex-

amining temporal sequence patterns among coded events in such a data
set.
Many of the propositions discussed here represent inductive obser-
vations of a small number of cooperative IORs over time (Ring & Rands,
1989; Van d e Ven et al., 1989). A s such, it is important to conclude with the
caveat that these propositions require further elaboration. For example,
researchers should consider the specific contexts of cooperative IORs,
such as firm strategy, industry structure, and stage in technology and
product life cycles. Moreover, in this global economy, cooperative IORs
are increasingly occurring between parties from different nation states,
cultures, and languages, representing a more complex set of conditions
than have been examined in this paper. Although these more complex
conditions can be incorporated into the propositions developed here, their
systematic development is beyond the scope of this article.
The propositions developed here have been focused exclusively on
cooperative IORs between organizations. However, with minor modifica-
tions, we believe that they also apply to the development of interunit
relationships within complex multidivisional organizations. As Ouchi
(1984)has argued, recurrent transactions among divisions in these quasi-
market M-form organizations are based more on reliance on trust and
equity than on the limited monitoring and control capabilities of hierar-
chy. Bromiley and Cummings (1992) extended this scheme by pointing to
the increased efficiencies that a r e produced when socially embedded
hierarchical reporting relationships are designed to promote reliance on
trust. These and other efforts exemplify the need and potential for a so-
cial-psychological enrichment of transaction cost economics and agency
theory. A s the uncertainty, complexity, a n d duration of economic
transactions within and between firms increase, it becomes increasingly
important for scholars and managers to understand developmental pro-
cesses of how equity, trust, conflict-resolution procedures, and internal
governance structures emerge, evolve, and dissolve over time.
REFERENCES
Abbott, A. 1990. A primer on sequence methods. Organization Science, 1: 375-392.
Ackerlof, G. 1970. The market for lemons. Quarterly Journal o f Economics, 84: 488-500.
Aldrich, H. E. 1979. Organizations and environments. Englewood Cliffs, N J : Prentice-Hall.
Aldrich, H., & Whetten, D. A. 1981. Organizational sets, action sets, and networks: Making
the most of simplicity. In P. Nystrom & W. Starbuck (Eds.), Handbook o f organizational
design: 385-408. London: Oxford University Press.
Argyris, C. 1960. Understanding organizational behavior. Homewood, IL: Dorsey Press.
Armour, H., & Teece. D. J. 1978. Organizational structure and economic performance: A test
of the multidivisional hypothesis. Bell Journal of Economics, 9: 106-122.
Atiyah, P. S. 1979. The rise and fall of freedom of contract. Oxford, England: Clarendon
Press.

Axelrod. R. 1984. The evolution of coopemtion. New York: Basic Books.

Balakrishnam, S.. & Koza, M. P. 1993. Information asymmetry, adverse selection and joint-
ventures. Journal of Economic Behavior and Organization, 29: 99- 117.
Barney, J. B., & Ouchi, W. G. 1986. Organizational economics. San Francisco: Jossey-Bass.
Bazerman, M. H., & Carroll. J. S. 1987. Negotiator cognition. In B. M. Staw & L. L. Cummings
(Eds.), Research in organizational behavior. vol. 9: 247-288. Greenwich, CT: JAI Press.
Bazerman, M. H.. & Neale, M. A. 1982. Improving negotiator effectiveness: The role of se-
lection a n d training. Journal of Applied Psychology. 67: 543-548.
Bazerman, M. H.. Neale. M. A,, Kim, Y. M., & Zajac, E. 1989. The impact of intermediaries
and anchors in negotiation. Working paper, Northwestern University, Evanston. IL.
Berger, P. L., & Luckmann. T. 1966. The social construction of reality. Garden City, NY:
Doubledq.
Blau, P. M. 1964. Exchange and power in social life. New York: Wiley.
Bromiley, P., & Cummings. L. L. 1992. Transaction costs in organizations with trust. Working
paper, University of Minnesota, Strategic Management Research Center, Minneapolis,
MN.
Carnevale. P. J., & Isen, A. M. 1986. The influence of positive affect a n d visual access on the
discovery of integrative solutions in bilateral negotiations. Organizational Behavior
and Human Decision Processes, 37: 1-13.
Coase. R. 1937. The nature of the firm. Economics N.S., 4. Reprinted in G. J. Stigler & K. E.
Boulding (Eds.), Readings in price theory. Homewood, IL: Irwin. 1952.
Coleman, J. S. 1986. Social theory, research. a n d theory of action. American Journal of
Sociology, 91: 1309-1335.
Commons, J. R. 1950. The economics of collective actions. Madison: University of Wisconsin
Press.
DAunno. T. A,, & Zuckerman, H. S. 1987. A life-cycle model of organizational federations:
The case of hospitals. Academy of Management Review. 12: 534-545.
Dore, R. 1983. Goodwill a n d the spirit of capitalism. British Journal of Sociology, 34: 459-482.
Dwyer, R. F., Schurr, P. H.. & Oh, S. 1987. Developing buyer-seller relationships. Journal of
Marketing, 51: 11-27.
Einhorn. H. J., & Hogarth. R. M. 1978. Confidence in judgment: Persistence illusion of valid-
ity. Psychological Review, 85: 395-416.
Fama, E., & Jensen, M. 1983. Separation of ownership a n d control. Journal of Law and
Economics, 26: 301-325.
Fichman. M.. & Leventhal, D. A. 1990. Honeymoons a n d the liability of adolescence: A new
perspective on the duration dependence in social and organizational relationships.
Academy of Management Review, 16: 442-465.
Frank, R. H. 1988. Passions within reason: The strategic role of the emotions. New York:
Norton.
Friar, J., & Horwitch, M. 1985. The emergence of technology strategy: A new dimension of
strategic management. Technology in Society. 7: 143-178.
Friedman, R. A. 1991. Trust. understanding. and control: Factors affecting support for mutual
gains bargaining in labor negotiations. Paper presented at the annual meeting of the
Academy of Management, Miami, FL.
Gabarro, J. J. 1987. The development of working relationships. In J. W. Lorsch (Ed.). The
handbook of organizational behavior: 172-189. Englewood Cliffs, NJ: Prentice-Hall.

1994 Ring and Van de Yen 115
Gabarro, J. J. 1979. Socialization at the top: How CEOs and their subordinates evolve inter-
personal contracts. Organizational Dynamics. 7: 2-58.
Galaskiewicz. J. 1985. Interorganizational relations. Annual Review of Sociology, 11: 281-
304.
Galaskiewicz. J., & Shatin, D. 1981. Leadership and networking among neighborhood hu-
man service organizations. Administrative Science Quarterly. 26: 434-448.
Goldberg, V. 1980. Relational exchange: Economics and complex contracts. American Be-
havioml Scientist, 23: 337-352.
Gouldner, A. 1959. Reciprocity and autonomy in functional theory. In L. Gross (Ed.). Sym-
posium on sociological theory: 241-270. New York: Harper & Row.
Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness.
American Iournal of Sociology, 78: 481-510.
Greenberg, J., & Cohen, R. L. 1982. (Eds.). Equity a n d justice in social behavior. New York:
Academic Press.
Guitot, J. M. 1977. Attribution and identity construction: Some comments. American Socio-
logical Review, 42: 692-704.
Guth. W., Schmittberger. R., & Schwarze, B. 1982. An experimental analysis of ultimatum
bargaining. Iournal of Economic Behavior a n d Organization. 3: 367-388.
Helper, S., & Levine. D. I. 1992. Long-term supplier relations and product-market structure.
Journal of Law, Economics & Organization, 8: 561-582.
Homans, G. 1961. Social behavior: Its elementary forms. New York: Harcourt.
Itami. H. 1987. Mobilizing invisible assets. Boston: Harvard University Press.
Janis, I. L., & Mann. L. 1977. Decision making. New York: Free Press.
Kahneman, D., Knetsch. J. L., & Thaler, R. H. 1986. Fairness and the assumptions of eco-
nomics. Journal of Business, 59: S285-S300.
Kelly, H. H.. & Thibaut. J. W. 1959. The social psychology of groups. New York: Wiley.
Knoke, D. 1990. Political networks: The structuml perspective. New York: Cambridge Uni-
versity Press.
Kotter, J. P. 1973. The psychological contract: Managing the joining up process. California
Management Review, 15(3):91-99.
Levinson, H.. Price, C. R., Munden, K., Mandl, H. J., & Solley, C. M. 1962. Men, manage-
ment. a n d mental health. Cambridge, MA: Harvard University Press.
Lewis, S. A., & Fry, W. R. 1976. Effects of visual access and orientation on the performance
of integrative bargaining orientations. Organizational Behavior a n d Human Perfor-
mance. 20: 75-92.
Lewis, J. D.. & Weigert, A. 1985. Trust as a social reality. Social Forces, 63: 967-985.
Loewenstein. G. F., Thompson, L., & Bazerman. M. H. 1989. Social utility and decision mak-
ing in interpersonal context. Journal of Personality a n d Social Psychology, 57: 426-441.
Luhmann, N. 1979. Trust a n d power. Chichester, England: Wiley.
Macaulay, S. 1963. Non-contractual relations in business. American Sociological Review, 28:
55-70.
Macneil, I. R. 1980. The new social contract. New Haven, CT: Yale University Press.
Macneil, I. R. 1974. The many futures of contract. Southern California Law Review, 47:
691-816.

McGrath, J. E. 1984. Groups: Interaction a n d performance. Englewood Cliffs, NJ: Prentice-

Hall.
Monson, T. C., Hesley, J. W., & Chernick, L. 1982. Specifying when personality traits can
a n d cannot predict behavior: An alternative to abandoning the attempt to predict single
act criteria. Journal of Personality a n d Social Psychology. 43: 385-399.
Morely, I., & Stephenson, G. 1977. The social psychology of bargaining. London: Allen &
Unwin.
Morgan, G. 1986. Images of organization. Beverley Hills, C A Sage.
Mosakowski, E. 1990. Horizontal differentiation in entrepreneurial firms: A transactions cost
economics explanation. Proceedings of Conference on Corporate Governance a n d Com-
petitive Strategy. University of Minnesota, Strategic Management Research Center,
Minneapolis, MN.
Neale, M. A,, & Northcraft, G. B. 1991. Behavioral negotiation theory: A framework for con-
ceptualizing dyadic bargaining. In L. L. Cummings & B. M. Staw (Eds.), Research in
organizational behavior. vol. 13: 147-190. Greenwich, CT: JAI Press.
Nicholson, N.. & Johns, G. 1985. The absence culture a n d the psychological contract-Who's
in control of absence? Academy of Management Review. 10: 397-407.
Oliver, C. 1990. Determinants of interorganizational relationships: Integration a n d future
directions. Academy of Management Review, 15: 241-265.
Ouchi, W. G. 1984. The M-form society. Reading, MA: Addison-Wesley.
Perry, M. K. 1989. Vertical integration: Determinants a n d effects. In R. Schmalensee & R. D.
Willig (Eds.). Handbook of industrial organizations: 183-255. New York: Elsevier-North
Holland.
Plott. C. R. 1986. Rational choice in experimental markets. Journal of Business, 59: S301-
S327.
Powell, W. W. 1987. Hybrid organizational arrangements. California Management Review,
30(1): 67-87.
Powell, W. W. 1990. Neither market nor hierarchy: Network forms of organization. In L. L.
Cummings & B. M. Staw (Eds.), Research in organizational behavior, vol. 12: 295-336.
Greenwich, CT: JAI Press.
Pruitt. D. G., & Rubin, J. Z. 1986. Social conflict. New York: Random House.
Ring, P. S..& Van d e Ven, A. H. 1992. Structuring cooperative relationships between orga-
nizations. Strcrtegic Management lournal. 13: 483-498.
Ring, P. S., & Van d e Ven, A. H. 1989. Legal a n d managerial dimensions of transactions. In
A. H. Van d e Ven, H. Angle, & M. S. Poole (Eds.), Research on the management of
innovation: The Minnesota studies: 171-192. New York: Ballingermarper & Row.
Ring, P. S.. & Rands, G. 1989. Sensemaking. understanding, a n d committing: Emergent
transaction processes in the evolution of 3Ms microgravity research program. In A. H.
Van de Ven, H. Angle, & M. S. Poole (Eds.). Research on the management of innovation:
The Minnesota studies: 337-366. New York: Ballingermarper & Row.
Rousseau, D. M. 1990. New hire perceptions of their own a n d their employer's obligations: A
study of psychological contracts. Journal of Organizational Behavior, 11: 389-400.
Schein. E. 1970. Organizational psychology. New York: Prentice-Hall.
Schmitt, D. R., & Marwell. G. 1972. Withdrawal a n d reward reallocation in response to
inequity. Journal of Experimental Social Psychology, 8: 207-221.
Scott, W. R. 1987. The adolescence of institutional theory. Administrative Science Quarterly,
32: 493-511.

1994 Ring and Van d e Yen 117
Seabright, M. A., Leventhal, D. A., & Fichman, M. 1989. The role of individual attachments
in the dissolution of interorganizational relationships. Working paper, Carnegie-Mellon
University, Pittsburgh, PA.
Selznick, P. 1957. Leadership in administration. New York: Harper & Row.
Shapiro, S. P. 1987. The social control of interpersonal trust. American Iournal of Sociology,
93: 623-658.
Shull, F. A., Delbecq, A. L.. & Cummings. L. L. 1970. Organizational decision making. New
York: McGraw-Hill.
Starbuck, W. 1983. Organizations as action generators. American Sociological Review, 48:
91-102.
Staw, B. M. 1976. Knee d e e p in the big muddy: A study of escalating commitment to a course
of action. Organizational Behavior and Human Performance, 16: 27-44.
Stinchcombe, A. L. 1990. Information and organizations. Berkeley: University of California
Press.
Teece, D. 1986. Profiting from technological innovation: Implications for integration, collab-
oration, licensing a n d public policy. Research Policy. 15: 285-305.
Theye, L. D., & Seller, W. J. 1979. Interaction analysis in collective bargaining: An alterna-
tive approach to the prediction of negotiated outcomes. In D. Nimmo (Ed.), Communi-
cation yeurbook. 3: 375-392. New Brunswick, NJ: Transaction Press.
Turner, J. H. 1987. Toward a sociological theory of motivation. American Sociological Re-
view, 52: 15-27.
Ury, W. L., Brett, 1. M., & Goldberg, S. B. 1988. Getting disputes resolved. S a n Francisco:
Jossey-Bass.
Van d e Ven. A. H. 1993. The institutional theory of John R. Commons: A review a n d com-
mentary. Academy of Management Review, 18: 139-152.
Van d e Ven, A. H. 1976. On the nature, formation, a n d maintenance of relationships among
organizations. Academy of Management Review, 1: 24-36.
Van d e Ven, A. H., & Poole, M. S. 1990. Methods for study innovation development in the
Minnesota innovation research program. Organization Science, 1: 313-335.
Van d e Ven. A. H., Venkataraman. S.,Polley. D.. & Garud. R. 1989. Processes of new busi-
ness creation in different organizational settings. In A. Van d e Ven. H. Angle, & M. S.
Poole (Eds.). Research on the management of innovation: The Minnesota studies: 221-
298. New York: Ballingermarper & Row.
Van d e Ven, A. H., & Walker, G. 1984. The dynamics of interorganizational coordination.
Administrative Science Quarterly. 29: 598-621.
Weick. W. 1979. The social psychology of organizing. Reading, MA: Addison-Wesley.
Williamson, 0. 1975. Markets and hierarchies. New York: Free Press.
Williamson, 0. 1985. The economic institutions of capitalism. New York Free Press.
Williamson, 0. 1991. Comparative economic organization. Administrative Science Quar-
terly. 36: 269-296.
Zajac, E. J., & Olsen, C. P. 1993. From transaction cost to transaction value analysis: Impli-
cations for the study of interorganizational strategies. Journal of Management Studies.
30: 131-145.
Zucker, L. G. 1986. Production of trust: Institutional sources of economic structure. In B. M.
Staw & L. L. Cummings (Eds.), Research in organizational behavior, vol. 8: 53-112.
Greenwich, CT: JAI Press.

Zucker, L. G. 1977. The role of institutionalization in culture persistence. American Socio-

logical Review, 42: 726-743.
Peter Smith Ring received his Ph.D. from the University of California, Irvine. H e is
a n associate professor in the College of Business Administration at Loyola Mary-
mount University, Los Angeles, CA. His current research focuses on the role of trust
in interorganizational relationships, the structure of interorganizational gover-
nance, a n d processes associated with transacting within and between organiza-
tions.
Andrew H. V a n de V e n received his Ph.D. from the University of Wisconsin. He is the
Vernon H. Heath Professor of organizational innovation a n d change in the Depart-
ment of Strategic Management a n d Organization, Curtis L. Carlson School of Man-
agement, University of Minnesota. His research interests include the management
of innovation a n d change, organizational processes that facilitate innovation and
change, a n d interorganizational relationships.
View publication stats


Developmental Processes of Cooperative Inter-Organ PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Developmental Processes of Cooperative Inter-Organ PDF

Uploaded by

Copyright:

Available Formats

See

Developmental Processes of Cooperative Inter-

Article in The Academy of Management Review · January 1994

Minnesota Innovation Research Project View project

The user has requested enhancement of the downloaded file.

DEVELOPMENTAL PROCESSES OF COOPERATIVE

This article examines the developmental process of cooperative inter-

Recently, a n unprecedented number of business firms in many indus-

The authors a r e listed alphabetically, reflecting a n equal contribution to the paper.

Copyright 01994. All rights reserved.

among organizational parties that unfold to shape and modify a n IOR

Copyright 01994. All rights reserved.

Copyright 01994. All rights reserved.

certainty whether the parties will be able to rely on trust as a counter to

Copyright 01994. All rights reserved.

Copyright 01994. All rights reserved.

unenforceable by resort to institutional guarantors (courts, arbitrators).

The Importance of Role Relationships

Copyright 01994. All rights reserved.

their roles. In this respect, people begin [an] institutionalized

This developmental view corresponds with current advancements in contract law.

Copyright 01994. All rights reserved.

cooperative IOR as consisting of a repetitive sequence of negotiation,

Copyright 01994. All rights reserved.

formal bargaining and informal sensemaking processes are of ten neces-

Copyright 01994. All rights reserved.

breach in a n agreement, a n operation of law, mutual rescission, or a

Copyright 01994. All rights reserved.

tion. By projecting itself onto its environment, a n organization develops a

Copyright @ 1994. All rights reserved.

Copyright @ 1994. All rights reserved.

formation-processing strategies that produce biases in negotiators'

l 1 In the course of efforts to institutionalize, we assume that cooperative IORs will be

Copyright 01994. All rights reserved.

Copyright @ 1994. All rights reserved.

sonal or in their organizational roles. Consequently, levels of flexibility

Copyright 01994. All rights reserved.

ings of acceptable behavior stemming from reliance on trust compen-

A third form of correspondence between the formal and informal pro-

Copyright 01994. All rights reserved.

scribed by Zucker (1977) can transform informal commitments into orga-

The Dissolution of Cooperative IORs

After the "honeymoon" or "adolescent" (Fichman & Leventhal, 1990)

Copyright 01994. All rights reserved.

A social-psychological explanation for these results, following

Copyright 01994. All rights reserved.

Copyright 01994. All rights reserved.

Copyright 01994. All rights reserved.

territorial disputes, conflict, and competition (Van d e Ven, 1976).l4 The

Copyright 01994. All rights reserved.

bring biases, including framing, anchoring and adjustment, and overcon-

In market-mediated exchanges, the approach to conflict resolution characterized by

Copyright 01994. All rights reserved.

combatants (e.g., by one party calling on trusted allies to implement or

Copyright 01994. All rights reserved.

Studies of evolutionary processes in organizational relationships are relatively rare.

Copyright 01994. All rights reserved.

quarterly intervals). In addition, Abboit (1990) proposed methods for ex-

Copyright 01994. All rights reserved.

Axelrod. R. 1984. The evolution of coopemtion. New York: Basic Books.

Copyright 01994. All rights reserved.

Copyright 01994. All rights reserved.

McGrath, J. E. 1984. Groups: Interaction a n d performance. Englewood Cliffs, NJ: Prentice-