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Inter-Organisational Relationships (IORs)

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Introduction

Introduction It has been highlighted lately by numerous authors that Inter-Organisational Relationships (IORs) between business partners may constitute sound economical solutions to the question of producing a product/service in-house as opposed to outsourcing to a third party. However, some authors recognise that not only do such arrangements make economical and technological sense but the parties may also increasingly benefit from reduced transaction costs arising from the trust that develops between the two firms, resulting in less need for e.g. formal enactment of negotiations and contracts (Ring and van de Ven 1994). In this essay the importance of trust in such relationships will be discussed and various questions and areas of interested related to this topic will be examined. The Concept of Trust in Business Relationships Zucker (1986) defines trust as "Confidence or predictability in one's actions". Another definition is offered by Friedman (1991); "Confidence in the other's goodwill". ...read more.

Middle

Repetitive and excessive structuring and monitoring of the relationship 2. Repetitive conflicts between role and inter-personal behaviour of organisational parties 3. Repetitive violation of trust 4. Repetitive escalation of commitments to failing transactions The concept of flexibility associated with IORs is also evident in inter-firm innovative processes. Indeed, Lorenzoni and Lipparini (1999) highlight that compared to integrated firms inter-firm relationships enjoy a higher degree of flexibility in these activities. However, although a greater exchange of ideas might be achieved, potentially resulting in successful new products and ultimately increased revenue, there still remains the possibility of opportunistic behaviour. Certainly, there is therefore a trade-off between innovation capacity and trust and security that must be taken into account before any co-operative relationship is embarked upon. It has been claimed that similarities in the two parties (with regard to e.g. size, activities, overall strategy and goals) will facilitate the development of trust. ...read more.

Conclusion

companies should carefully consider the possible impact of such an action before embarking on any change activities. Conclusion It has been seen that trust and commitment are of great importance in successful IORs. Balanced formal and informal relationships between partners are important features of any co-operational behaviour. Trust is seen as a cost-saving element in IORs, since informality will result in more flexible business transactions. Relationships with a strong sense of trust can also have a positive effect on the innovative processes as firms are able trust each other and co-operate in a healthy and productive atmosphere. New perspectives and ideas are likely to flow more freely and result in better outputs and processes. On the other hand, trust can result in opportunistic behaviour because of the informality and lack of formal agreements. It is therefore important that companies recognise the issue of trust and the impact it might have on business performance. Careful selection of business partners and effective relationship management thus play a central role in the success of the business. ...read more.

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