Managing the Performance Trade-Offs from Partner Integration: Implications of Contract Choice in R&D Projects

Alan MacCormack, Anant Mishra

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

Formal contracts represent an important governance instrument with which firms exercise control of and compensate partners in R&D projects. The specific type of contract used, however, can vary significantly across projects. In some, firms' govern partnering relationships through fixed-price contracts, whereas in others, firms' use more flexible time and materials or performance-based contracts. How do these choices affect the costs and benefits that arise from greater levels of partner integration? Furthermore, how are these relationships affected when the choice of contract is misaligned with the scope and objectives of the partnering relationship? Our study addresses these questions using data from 172 R&D projects that involve partners. We find that, (i) greater partner integration is associated with higher project costs for all contract types; (ii) greater partner integration is associated with higher product quality only in projects that adopt more flexible time and materials or performance-based contracts; and (iii) in projects where the choice of contract is misaligned with the scope and objectives of the partnering relationship, greater partner integration is associated with higher project costs, but not with higher product quality. Our results shed light on the subtle interplay between formal and relational contracting. They have important implications for practice, with respect to designing optimal governance structures in partnered R&D projects.

Original languageEnglish (US)
Pages (from-to)1552-1569
Number of pages18
JournalProduction and Operations Management
Volume24
Issue number10
DOIs
StatePublished - Oct 2015
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2015 Production and Operations Management Society.

Keywords

  • R&D project management
  • contract choice
  • partner integration
  • partnering performance
  • relational contracting

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