adaptation in vertical relationships

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Strategic Management JournalStrat. Mgmt. J., 26: 415 440 (2005)

Published online 11 March 2005 in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.458

ADAPTATION IN VERTICAL RELATIONSHIPS:

BEYOND INCENTIVE CONFLICT

RANJAY GULATI,1* PAUL R. LAWRENCE2 and PHANISH PURANAM31 Kellogg School of Management, Northwestern University, Evanston, Illinois, U.S.A.2 Harvard Business School, Harvard University, Boston, Massachusetts, U.S.A.3 London Business School, University of London, London, U.K.

In this study, we extend the analysis of adaptation in theories of economic organizationbeyond traditional considerations of incentive conflict (hold-up). We conceptualize adaptation ascoordinated and cooperative response to change, and define the adaptive capacity of a verticalrelationship as the ability to generate coordinated and cooperative responses across procurerand supplier to changes in procurement conditions. We draw on the concepts of differentiationand integration to dimensionalize the adaptive capacity of different modes of procurement. Usingdata on all component classes procured internally and externally by Ford and Chrysler, we showthat different procurement modes differ in terms of their adaptive capacity and performance. Wealso show that performance differences across modes of procurement arise as a function of thematch between adaptive capacity and adaptation requirements associated with the exchange,and not only the match between governance form and transaction hazards. Copyright 2005John Wiley & Sons, Ltd.

INTRODUCTION

Vertical (procurement) relationships have alwaysbeen the favorite empirical domain of theoristsof economic organization (Coase, 1937; Gross-man and Hart, 1986; Williamson, 1975). Suchrelationships involve exchange between adjacentstages of the value chain, and they occur bothwithin firms (e.g., between different functional ordivisional areas within a firm) and between firms(e.g., between specialist design firms and special-ist manufacturers). In recent years, the study ofvertical relationships has come to be dominatedby transaction cost economics (see Shelanski andKlein, 1995; David and Han, 2004, for reviews).

Keywords: coordination; organization design; differenti-ation and integration; auto industry Correspondence to: Ranjay Gulati, Kellogg School of Manage-ment, Northwestern University, Jacobs Center, 2001 SheridanRoad, Evanston, IL 60208-2001, U.S.A.E-mail: [email protected]

In Oliver Williamsons development of the theory,the focus is on how parties engaged in a long-term contract can adapt effectively to disturbances.The need to craft contractual structures in whichthey have mutual confidence . . . is the key issue(Williamson, 1991b). Williamson also notes thatin addition to incentive conflict, failures of adap-tation may arise because autonomous parties readand react to signals differently, even though theirpurpose is to achieve a timely and compatiblecombined response (Williamson, 1991a). Yet, thistheoretical recognition of adaptation problems thatmight persist even in the absence of incentive con-flict finds scant recognition in most prior researchmotivated by transaction cost economics.1 In this

1 We focus on transaction cost rather than property rights whendiscussing existing literature on the economic organization ofvertical relationships. This is because the empirical strategy andmanagement literature on vertical relationships is much moreinfluenced by transaction cost economics than property rightseconomics (see Novak and Eppinger, 2001, for an exception).

Copyright 2005 John Wiley & Sons, Ltd. Received 1 March 2000

Final revision received 10 November 2004


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416 R. Gulati, P. R. Lawrence and P. Puranam

study, our goal is to broaden the conceptualizationof constraints to adaptation in vertical relationships

beyond incentive conflict to include constraintsarising from limited responsiveness to changingexchange conditions and coordination failures.

The central and most investigated propositionin transaction cost economics concerns a class ofadaptation problems resulting from the potentialfor hold-up in vertical relationships (David andHan, 2004; Masten, 2002; Shelanski and Klein,1995). When procurement must be supported bydedicated (relationship-specific) investments, theanticipated costs of the transaction increase. Thisis because dedicated investments by one party cre-

ate scope for the other to renegotiate the contractopportunistically when circumstances change. Byorganizing such transactions under common own-ership, muted incentives, enhanced monitoring,and the threat of sanctions can limit opportunis-tic behavior and facilitate cooperative adaptation(Williamson, 1985). However, we will argue inthis paper that adaptation failures in vertical rela-tionships can also occur for reasons other thanhold-up (or concerns about hold-up). Even whenthere is no incentive conflict, bounded rationalitycan cause the parties to an economic relationship tofail to recognize profound changes in the economicenvironment, or generate a coordinated responseto such changes (Camerer and Knez, 1996, 1997;Foss, 2001; March and Simon, 1958). The theoret-ical challenge is to analyze these aspects of adap-tation in addition to traditional hold-up concernswithin a parsimonious and integrated framework.

Along the lines of Williamson (1991a, 1991b)we define the adaptive capacity of a verticalrelationship (within or across firm boundaries) asthe ability to generate coordinated and cooperativeresponses across procuring and supplying unitsto changes in exchange conditions. However, our

approach is distinctive from most prior empiricalresearch in that in addition to the traditional focuson cooperation as the key aspect of adaptation,we also emphasize responsiveness to change andcoordination of responses among the parties.We draw upon some of the seminal researchon organization design to analyze our broaderconception of adaptation in procurement activities.We assess the adaptive capacity of different modesof organizing procurement using the concepts ofdifferentiation and integration. In prior literatureon organizations, these concepts have been usedto formulate principles for designing subunits

within organizations that could adapt to change(Daft, 2001; Lawrence and Lorsch, 1967a, 1967b;

Nohria and Ghoshal, 1994). In this tradition,organizational performance was argued to dependon the match between environmental contingenciesand the extent of differentiation and integrationacross organizational subunits.

We extend this analytical approach to verticalrelationships both between and within firms. Weargue that different modes of procurementmake,buy, and allydiffer in terms of the extent ofdifferentiation and integration between procuringand supplying units and therefore in their adaptivecapacity for responding to changes in the exchange

environment in a coordinated and cooperativemanner. We therefore expect that the performanceof a given procurement activity will dependon the match between the adaptive capacityof the specific mode of procurement and theneed for adaptation in the specific exchangerelationship that is in turn impacted by contextualfactors associated with the exchange. We testthis prediction through a switching regressionmodel of procurement performance, estimatedwith data on the procurement arrangementsused by Ford Motor Company and ChryslerCorporation for all their major components. Ourresults show that performance differences acrossmodes of procurement arise as a function of thematch between adaptive capacity and adaptationrequirements associated with the exchange, andnot only the match between governance form andtransaction hazards.

THEORETICAL BACKGROUND

It is interesting to note that around thetime Ronald Coase was formulating his ideas

on transaction costs and their effects oncoordination in markets and firms (Coase,1937), Chester Barnard (1938) was emphasizingthe importance of adjustment processes inorganizations. As with Coase, Barnards analysisframed key contributions by later scholars(e.g., Simon, 1945; March and Simon, 1958;Thompson, 1967; Lawrence and Lorsch, 1967a,1967b), who saw the essence of organizationaladaptation as the generation of integratedresponses to changed circumstances. The followersof Barnard, however, emphasized the importanceof information rather than incentives (Grant,

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Adaptation in Vertical Relationships 417

1996; March and Simon, 1958; Simon, 1945;Thompson, 1967). Furthermore, while Coases

disciples focused on the boundary of the firmby assessing factors that impacted the make-or-buy problem, those who followed Barnard focusedprimarily on intra-organizational coordination.In the decades that followed, research in thetradition of Barnard rapidly accumulated onthe design attributes of complex organizationscomprising multiple, interdependent subunits thatenabled them to achieve coordinated adjustmentsto changes in their environment (Daft, 2001;Galbraith, 1977; Nadler and Tushman, 1998).

We develop and extend this tradition of research

on organizational adaptation initiated by Barnardto the inter-organizational context. We analyze theadaptive capacity of vertical relationships in termsof differentiation and integration (Dougherty,2001; Ghoshal and Nohria, 1989; Lawrence andLorsch, 1967a, 1967b; Nohria and Ghoshal, 1994).Differentiation refers to the differences acrossorganizational subunits that arise as a consequenceof their local adaptation to unit-specific tasks andenvironments (Dougherty, 2001). Differentiationat the subunit level increases the responsivenessof the aggregate organization (and hence itsadaptiveness), as it creates organizational diversity.Differentiated and diverse organizational subunitscan recognize and engage in a wider search fornew opportunities when environmental conditionschange (Cohen and Levinthal, 1990; Ethiraj andLevinthal, 2004; Lawrence and Lorsch, 1967b;Rivkin and Siggelkow, 2003). Integration refersto the achievement of collaboration betweenorganizational subunits. It encompasses not onlycooperation (alignment of interest) but alsocoordination (alignment of actions) (Camererand Knez, 1996, 1997; Foss, 2001; Heathand Staudenmayer, 2000). Achieving integration

between interdependent organizational subunits isnecessary in order to respond effectively to change(Nadler and Tushman, 1998; Thompson, 1967; Vande Ven and Walker, 1984).

By analyzing organizational attributes thatemphasize responsiveness and coordination (suchas differentiation and integration) in vertical rela-tionships, we propose to complement the richbody of research that has focused primarily onthe governance attributes of such relationships.We also extend prior research that has used thedifferentiation and integration constructs primarilyto study the adaptive capacity of the internal

organization of firms, by applying these con-structs to the context of vertical relationships.

In developing our theory, we will argue thatdifferent modes of organizing vertical relation-shipsinternal procurement, market procurement,and alliances vary systematically in the extentof differentiation and integration between supply-ing and procuring units. As a result, they varyin terms of their adaptive capacity: their capac-ity to respond in a coordinated and cooperativemanner to changes in exchange conditions. Thesedifferences are reflected in performance differencesacross modes of procurement that face differinglevels of adaptation pressures in the transaction and

task environments. Those instances in which theadaptive capacity of the procurement arrangementmatches the adaptation pressures faced performbetter than those without such a match.

THE ADAPTIVE CAPACITY OFVERTICAL RELATIONSHIPS

In most prior research on the delineation of firmboundaries, scholars have studied two differentmodes of organizing vertical relationships: firms

can either make (procure from an internal sup-plying unit within the firm) or buy each compo-nent (from an external supplier outside the firm)necessary to complete their chosen product man-dates (Coase, 1937; Williamson, 1975). In recentyears, scholars have expanded this dichotomouschoice to focus on other hybrid forms of orga-nization that are intermediate between make andbuy (Bradach and Eccles, 1989; Dyer and Singh,1998; Gulati, 1998; Helper et al., 2000; Poppo andZenger, 2002; Williamson, 1991a; Zaheer, 1995).In this study, in addition to make and buy, we focus

on vertical alliances (or ally), a hybrid form thatindicates a relationship characterized by continuitybetween two independent firms operating at suc-cessive stages in a vertical chain of production,with both firms expecting the interaction to con-tinue into the future (Heide and John, 1990). Asopposed to arms-length exchanges, which tend tobe on the open market, discrete, and short term,vertical alliances tend to have a long time horizonor to be open ended (Ring and Van de Ven, 1992,1994). Since the exchange partners are ultimatelynot under the same legal ownership structure,however, the supplying and purchasing units retain



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autonomy in decision making and rights over resid-ual returns (Grossman and Hart, 1986).

Our unit of analysis for this study is thevertical relationship that a firm undertakes forthe procurement of a component. We treateach relationship as akin to two interactingsubunits of an organization: the procuring andsupplying units. The two units could be partof the same firm (internal procurement ormake), or belong to different firms but aretied together by ongoing exchange (verticalalliances or ally) or arms-length contracting(market contracting, or buy). We proposethat vertical relationships are characterized by

varying levels of adaptive capacity as indicatedby the associated levels of differentiation andintegration between the procuring and supplyingunit. The adaptive capacity of the relationshipimpacts its performance, conditional on contextualattributes associated with the exchange. We firstdescribe how different modes of organizingvertical relationships make, buy, ally differfrom each other in the extent of integration anddifferentiation, and then discuss the consequenceof these differences for the performance of thevertical relationship.

Differentiation in vertical relationships

Differentiation is the state of segmentation ofthe organizational system into subsystems, eachof which tends to develop particular attributesin relation to the requirements posed by itsrelevant external environment (Lawrence andLorsch, 1967b: 4). It refers to the degree to whichorganizational units have developed distinctivestructural characteristics and their membershave made behavioral accommodations to theirenvironment. It thus captures organizational

differences across the procuring and supplyingorganizational subunits as a consequence ofspecialization and local adaptation, and itresults in organizational diversity. The conceptencompasses not only the differentiation of formalstructure and accompanying specialization but alsodifferentiation in the behavioral and attitudinalattributes of members of units (Lawrence andLorsch, 1967a, 1967b). The key dimensions alongwhich the differentiation of subunits can beassessed include differences in (1) the degree offormal structure, (2) the interpersonal orientationof members, (3) the time horizon of members, and

(4) the goals of members (Lawrence and Lorsch,1967b; Dougherty, 2001).

In vertical relationships, supplying units arelikely to be more differentiated from procuringunits if they do not belong to the same firm,as there are limits on the extent to whichorganizational units within a firm can becomedifferentiated from each other. An enduring patternof behavior in organizations is the tendency toenforce conformity, treating all units alike so that,regardless of their task, they will tend to sharea culture, business systems, and human resourcepolicies. The pressures toward conformity emanatefrom several sources: (1) inter-unit rivalry, driving

a desire to be treated the same as everyoneelse (Bradach and Eccles, 1989); (2) the physicaland administrative proximity of units, facilitatingsocial comparison processes (Zenger and Hesterly,1997); (3) the need to facilitate career paths acrossunits; and (4) the need to simplify the managementtasks facing corporate executives responsible formultiple units. In addition to conformity pressures,the career advancement systems in hierarchies,which favor generalists over specialists, can limitthe degree of differentiation possible. In contrast,supplying units outside the firm are unlikely toface pressures toward conformity with each other,though they may face pressures to conform toother units within their own firms. We thereforeexpect that in vertical relationships the extentto which procuring and supplying units areorganizationally differentiated from each othervaries with the fact of their joint membershipsin a firm. When they belong to different firms,we should expect greater differentiation betweenthem than when they are in the same firm. Wepredict:

Hypothesis 1: Supplying units will be more

differentiated from procuring units in market procurement and vertical alliances, than in

internal procurement.

Integration in vertical relationships

Integration is the quality of the state ofcollaboration that exists among departments thatare required to achieve unity of effort by thedemands of the environment (Lawrence andLorsch, 1967a: 11). While traditionally appliedto departments within a firm, the notion ofintegration can also be used to understand



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relationships between organizational units fromdifferent firms. Integration not only requires the

alignment of interests (cooperation), but alsothe alignment of actions (coordination). Thedistinction between cooperation and coordinationis seldom maintained in organizational research.This is despite periodic recognition by scholarsof important differences between the two (Grant,1996; Heath and Staudenmayer, 2000; Jacobides,2005; Kogut and Zander, 1996; Simon, 1991).We explain this difference in some detailbelow in order to support the point thatintegration encompasses both cooperation andcoordination.

Integration as cooperation and coordination

Problems of cooperation arise from conflicts ofinterest. Under assumptions of self-interest, or itsstronger forms (such as opportunism), collectivelybeneficial outcomes fail to arise due to actionsmotivated by the private benefits to individuals.The canonical problem is the famous prisonersdilemma. Problems of hold-up, agency, and thetragedy of the commons are all variants on theprisoners dilemma (Camerer and Knez, 1996,

1997; Foss, 2001; Heath and Staudenmayer, 2000).In essence, the problem of cooperation is aproblem of motivation. It is resolved by aligninginterests through formal mechanisms such ascontracting (where possible) (Williamson, 1975),common ownership of assets (Grossman andHart, 1986; Hart, 1995), monitoring, sanctions(Williamson, 1985), and the prospect of futureinteractions (Baker et al., 2002; Heide and Miner,1992). Informal mechanisms such as identificationand embeddedness may also serve to aligninterests (Granovetter, 1985; Gulati, 1995a, 1995b;

Gulati and Sytch, 2005; Kogut and Zander,1996).

In contrast, coordination problems arise dueto the lack of shared and accurate knowledgeabout the decision rules that others are likely touse and how ones own actions are interdepen-dent with those of others (Geanakoplos, 1992;Malmgren, 1961; Milgrom and Roberts, 1992;Thompson, 1967). The experimental economicsliterature on weakest link games illustratescoordination failures due to lack of knowl-edge of how others will act. These gamesshow that uncertainty about others rationality

can be a key constraint on successful coor-dination on an efficient equilibrium (Camerer

and Knez, 1997; Gulati et al., 1994; Knez andCamerer, 1994, 2000; Van Huyck et al., 1990,1991).

Behavioral economists have also modeledcoordination problems where the agents areunaware of how their actions are interdependent,but discover them through an iterative, boundedrational learning process (Camerer, 2003). Theorganizational literature on adaptation on ruggedlandscapes (Kauffman, 1993) addresses similarproblems. Myopic agents discover the truenature of their interdependence through search

processes of varying degrees of intelligence(Ethiraj and Levinthal, 2004; Gavetti andLevinthal, 2000; Levinthal and Warglien, 1999;Rivkin and Siggelkow, 2003; Siggelkow andLevinthal, 2003). While formal analysis ofcoordination is relatively new in the economics andorganizational literature, classical discussions ofinterdependence and coordination in organizationtheory were closely linked to the problem ofcreating knowledge about others actions andinterdependence of actions (e.g., March andSimon, 1958; Thompson, 1967). In this literature,organizing to achieve coordination relied on threebroad categories of mechanisms: programming,hierarchy, and feedback each of which servedto enhance the predictability of others actions,and to increase knowledge about how actionsare interdependent (Galbraith, 1977; Nadler andTushman, 1998; Thompson, 1967; Tushman andNadler, 1978).

In sum, coordination problems refer to the dif-ficulties of aligning actions. They can persisteven when interests are aligned, i.e., when coop-eration is achieved. Put more strongly, incen-tives, sanctions, monitoring, rewards, and punish-

ments can help to achieve cooperation but arenot sufficient to achieve coordination (Gulati andSingh, 1998). This is because cooperation prob-lems are rooted in motivation, whereas coordi-nation problems arise due to the cognitive lim-itations of individuals that deny them compre-hensive knowledge of how others will behavein situations of interdependence, and how they areinterdependent with others. Therefore, the achieve-ment of integrationunity of effort in Lawrenceand Lorschs terms (1967a, 1967b)requires theresolution of both cooperation and coordinationproblems.



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Integration in make, ally and buy

In this section, we will argue that the extent ofintegration between procuring and supplying unitsvaries systematically across different modes ofprocurement, as these modes differ in the mecha-nisms available to generate cooperation and coor-dination.

Cooperation between organizational units canarise when there are appropriate formal and infor-mal incentives. For instance, the use of bonusestied to firm-level profits can create incentives forcooperative behavior across departments (Guptaand Govindarajan, 1986; Kretschmer and Puranam,2004). Cooperation can also arise through pro-cesses of identification, which infuse members oforganizational subunits with a willingness to coop-erate and exert effort for the goals of the aggre-gate organization (Barnard, 1938; Ghoshal andMoran, 1996; Lawrence and Lorsch, 1967b). In thecontext of vertical relationships, transaction costeconomists have argued that cooperation betweenprocuring and supplying units is likely to be higherwhen they both belong to the same firm. Withina firm, formal mechanisms such as authority andincentives influence cooperation between organi-zational units, aided by the continuity of associ-

ation that common membership in a firm entails(Williamson, 1985).

The quality of coordination between procuringand supplier units is also expected to be superiorwhen they belong to the same firm. While gover-nance is often construed as a set of mechanismsthat facilitate cooperation (such as fiat, sanctions,and monitoring), it also represents a collectionof coordination mechanisms (Gulati and Singh,1998). Within firms, coordination between unitsis aided by the possibility of centralized decisionmaking and the authority to design and use modes

of coordination such as programming, hierarchy,and feedback (March and Simon, 1958; Thompson,1967; Galbraith, 1977). Programming involvesprior agreement on what actions must be taken andwhen (e.g., standards, schedules), and thereforeenables coordination by enhancing the predictabil-ity of others actions. When programming provesinsufficient, hierarchical elements such as a singlesource of authority and centralized decision mak-ing can enable coordination by dedicating individ-uals to the task of coordination, and allowing themto be informed about and even decide how differ-ent interdependent actors should behave. When it

is important to be informed of others actions on anongoing basis, or when the nature of interdepen-

dence must be discovered in an iterative fashion,then mechanisms that provide feedback (such asco-location and teams) enable mutual adjustmenton an ongoing basis (Thompson, 1967; Van de Venand Delbecq, 1974).

In addition to the formal mechanisms of coor-dination, a number of elements of informal orga-nization, such as shared experience, culture, lead-ership, norms, and precedent increase confidenceabout how others will behave and how one shouldbehave in a given situation, and so enable coor-dination. The accumulation of shared experience

and continuity of association is likely to be strongwithin firms, as its boundaries dictate who interactswith whom on a regular basis and often imply spa-tial collocation. Thus, co-membership within a firmcan lead to the creation of shared understanding ofthe task environment and the interdependence itembodies (Weick, 1993, 1995) as well as sharedvalues and norms that serve to make the actions ofothers more predictable (Kogut and Zander, 1996).

Such formal and informal mechanisms that aidcoordination are typically unavailable in arms-length relationships characteristic of market pro-curement. Without common ownership, the designand implementation of coordination mechanisms tolink the procuring and supplying units can involvecostly and time-consuming negotiations even inthe absence of opportunism (Conner and Praha-lad, 1996; Hart, 1995). The low expected fre-quency of future exchanges in arms-length con-tracting may also make it harder to amortize thefixed costs of setting up such coordination struc-tures (Dyer and Singh, 1998; Helper et al., 2000).The brevity of the relationship also implies alack of time for partners to learn one anothersways of doing business and develop multiple com-

munication links or shared norms, values andbeliefs. Further, differentiation itself may act as animpediment to integration (Lawrence and Lorsch,1967a, 1967b). Differentiated organizational unitsthat have cognitive and emotive differences (andtherefore, unknown differences in decision rulesand understanding of interdependence) may find itharder to achieve coordination than undifferenti-ated units (Dougherty, 2001). As we have arguedearlier (Hypothesis 1), external procurement ischaracterized by higher levels of differentiation,and so may face greater challenges in achievingintegration. These factors conspire to make it hard



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to achieve the same degree of close coordinationbetween procuring and supplying units in market

procurement as in internal procurement.Vertical alliances can approximate some of

the features of internal procurement in terms ofcoordination and cooperation. Long-term alliancescan generate a state of cooperation betweenpartners due to the shadow of the future(Axelrod, 1984). With each partner anticipatingdoing business with the other well into thefuture, cooperation between them is more likely.Each sees the benefits from future interactionsas outweighing the immediate pay-offs from non-cooperative behavior and thus may choose to

cooperate (Baker et al., 2002). The influence ofsuch a time horizon on cooperative behaviorhas been observed in a variety of settingsranging from laboratory experiments (Murnighanand Roth, 1983) to firmunion relationships (Dasand Teng, 1998). In addition to the assuranceeffects that arise in repeated interactions, trustbetween partners may also develop over time as aconsequence of opportunities to share informationand learn about each partners proclivities towardtrustworthy behavior (Gulati, 1995a, 1995b, 1998).While these forms of relational contracting may

provide collaborative effects weaker than those inownership, which has the advantages of absoluteauthority and complete discretion to modifyincentives, they may nonetheless be significant.

Alliances may also benefit from mechanismsof coordination unavailable in market procure-ment (Bensaou and Venkatraman, 1995; Gulatiand Singh, 1998). Repeated interactions betweenpartner firms may justify investments in mech-anisms of coordination, such as inter-firm orga-nizational structures and information technologyintegration (Zaheer and Venkatraman, 1994), and

may also give rise to a superior capacity for coor-dinating with each other through the formation ofinter-firm routines (Dyer and Singh, 1998). Suchroutines embody knowledge about how coordi-nating agents will behave. Frequent and contin-ued contact between the personnel of procuringand supplying units may also enable the forma-tion of shared representations of the task envi-ronment, also enhancing coordination. Thus, inter-nal procurement and vertical alliances have accessto enablers of integration between units that areunavailable in arms-length transactions. We there-fore expect:

Hypothesis 2: Supplying units will be more

integrated with procuring units in internal

procurement and vertical alliances, than inmarket procurement.

We can summarize the relationships between thethree modes of organizing vertical relationshipsas follows: Internal procurement is characterizedby weak differentiation and strong integrationbetween procuring and supplying units. Marketprocurement is characterized by weak integrationand strong differentiation between procuringand supplying units. Vertical alliances mayprovide more balanced levels of integration and

differentiation. This is because vertical alliancesprovide more integration than market procurementand more differentiation than internal procurement(see Figure 1).

The adaptive benefits of integration and

differentiation in vertical relationships

We now turn to the effects of differentiation andintegration in coping with the adaptation pressuresthat arise in vertical relationships to procure dif-ferent kinds of components. We analyze two basic

categories of adaptation pressures: (a) changesin the transaction environment for the compo-nentdue to fluctuations in demand, supply, ortechnology; and (b) the need for mutual adjustmentin the task environment associated with the com-ponentdue to strong interdependencies betweenthe activities of the supplier and buyer. We arguebelow that, on the one hand, these two factorstogether influence the magnitude of adaptationrequirements in a given vertical exchange. Onthe other hand, the extent of differentiation andintegration between supplying and procuring units

Make Ally Buy

Differentiation

Integration

Figure 1. Differentiation and integration in verticalrelationships



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impacts the adaptive capacity of the vertical rela-tionship. The match between adaptive capacity

and adaptation requirements influences the perfor-mance of the relationship.

Effects of adaptation pressures in transaction

environment

The transaction environment in vertical relation-ships refers to the set of commercial contingencies(such as demand, supply, and technology con-ditions) that influence the terms and content ofthe transaction (Williamson, 1985, 1991a, 1991b).Adaptation pressures arise in the transaction envi-ronment when these attributes of the transactionchange. We define transaction instability as theextent and rate of change in demand and technol-ogy relevant to a particular transaction.2 For thevertical relationship to continue in a fruitful man-ner, such changes must first of all be recognized,and then adapted to. Ambiguity and lack of theinformation about changes in the transaction envi-ronment may make responsiveness difficult (Daftand Lengel, 1986).

Differentiation between the supplying andprocuring units contributes to the adaptivecapacity of a vertical relationship under conditions

of transaction instability by enhancing itsresponsiveness to such changes in two ways.First, differentiation can help create requisitevariety (Ashby, 1968), as a collection ofsubunits of an organization that are diverse interms of organizational attributes is more likelyto include at least one subunit that closelymatches environmental contingencies (Lawrenceand Lorsch, 1967a, 1967b). Cohen and Levinthalin their discussion of organizational absorptivecapacity make a similar point: under conditionsof rapid and uncertain change, they claim that it isbest for the organization to expose a fairly broadrange of receptors to the environment (Cohenand Levinthal, 1990: 132).

Second, differentiation can enable parallel andtherefore broad-ranging search for new oppor-tunities that emerge due to changed conditions.

2 Instability is distinct from complexity, which refers to theheterogeneity or diversity in key exogenous characteristicsrelevant to an organizational unit (Thompson, 1967; Lawrenceand Lorsch, 1967a, 1967b). Instability and complexity togetherform key dimensions of uncertainty as conceptualized byorganization theorists (Daft, 2001). Given our focus onadaptation, we restrict our attention to instability, as complexityis a static aspect of the organizational environment.

Using simulations of organizational adaptation onrugged landscapes, several scholars have noted

that internally differentiated organizational struc-tures can benefit from parallel exploration (Rivkinand Siggelkow, 2003; Ethiraj and Levinthal, 2004;Siggelkow and Levinthal, 2003). This is becausethe search processes of differentiated organiza-tional subunits are themselves likely to differ interms of objectives, heuristics, and learning pro-cesses. The parallel operation of different searchprocesses by organizational subunits effectivelyexpands the search scope of the parent organiza-tion.

Through requisite variety and parallelism,

differentiation creates adaptive capacity in verticalrelationships by making them sensitive to changesin the transaction environment. This capacityto sense and respond is valuable when thetransaction environment is unstable (Dess andBeard, 1984; Duncan, 1972; Mintzberg, 1979).Transaction instability can adversely affect theperformance of vertical relationships, though themagnitude of the effect will depend on thecapacity of the relationship to adapt to transactioninstability. Under the principle of fit between theadaptive capacity of a vertical relationship and thepressures towards adaptation it faces, we expectthat the performance of modes of procurementcharacterized by a low degree of differentiationbetween procuring and supplying units is likelyto be most adversely affected by transactioninstability. Since internal procurement offers theleast scope for differentiation between procurerand supplier (Hypothesis 1), its performanceshould be significantly depressed relative toother modes of procurement under conditions oftransaction instability. We therefore expect:

Hypothesis 3: Transaction instability has more

adverse effects on the performance of internalprocurement than on the performance of market

procurement and vertical alliances.

Effects of adaptation pressures in task

environment

The task environment in vertical relationshipsrefers to the division of labor across the value chainand the ongoing pattern of interactions betweenupstream and downstream activities (Bensaou andVenkatraman, 1995; Gulati and Singh, 1998).Interdependence across organizational subunits



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is an important source of adaptation pressureswithin the task environment (Van de Ven and

Delbecq, 1974). Two activities may be said tobe interdependent when the value of performingone activity depends on how the secondactivity is performed (Milgrom and Roberts,1990, 1995; Thompson, 1967). In Thompsonsclassic typology, the nature of interdependenceis relatively well known in situations he referredto as pooled and sequential interdependence.Interdependence is pooled when tasks dependon each other in a simple additive manner; eachtask renders a discrete contribution to the whole,and each is supported by the whole (Thompson,

1967: 54, 64). Interdependence is sequentialwhen the outputs of one task form the inputs of theother. Achieving maximum combined value acrossactivities in these two cases requires that each taskbe performed essentially independently (but in theproper sequence) as well as it can be.

The situation is more complicated when thetrue nature of interdependence between tasks isunknown ex ante, or if ongoing communicationis necessary to create awareness about othersactions. Thompson referred to such situationsas reciprocal interdependence. In this case,the nature of interdependence implies a stateof continuous adaptation between units asongoing decision making about task allocation(i.e., planning) and continuous communication(i.e., mutual adjustment) is required (Thompson,1967: 5455, 64). In addition to coordinationproblems, reciprocal interdependence can alsocreate significant cooperation problems becauseof the dangers of free-riding (Petersen, 1992;Wageman and Baker, 1997). When severalindividuals must contribute to a task, but it ishard to verify their marginal contributions, thencollective under-investment of effort may occur

(Alchian and Demsetz, 1972; Holmstrom, 1982).Thus, reciprocal task interdependence can createsignificant cooperation and coordination problems.

In vertical relationships, reciprocal interdepen-dence can arise when the design and production ofthe procured item require significant levels of jointactivity by the buyer and supplier. This can involveextensive interactions between the two for the sup-plier to understand and meet the specific require-ments of the buyer, as well as ongoing interac-tions as the supplier fulfills the procurement order.Unlike the case when designs can be tossed overthe wall from the buyer to the supplier, reciprocal

interdependence requires continuous adaptation inthe vertical relationships as both parties engage in

joint problem solving (Iansiti, 1998; Monteverde,1995). Integration between units enables themto manage reciprocal interdependence effectively(Thompson, 1967; Lawrence and Lorsch, 1967a,1967b). Formal mechanisms such as incentivesand information-processing structures, and infor-mal elements such as identification and culture,ensure that adaptation by the procuring and sup-plying unit takes place in a cooperative and coor-dinated manner. We therefore expect the perfor-mance of procurement modes that are character-ized by low degrees of integration to be most

adversely affected by task interdependence. Sincemarket procurement has the least capacity forachieving integration between supplier and pro-curer (Hypothesis 2), we expect:

Hypothesis 4: Reciprocal task interdependence

has more adverse effects on the performance of

market procurement than on the performance of

internal procurement or vertical alliances.

Joint effects of adaptation pressures in transaction

and task environment

Our last hypothesis pertains to the joint effectsof transaction instability and task interdependenceon the performance of vertical relationships. Weexpect that task interdependence and transactioninstability have superadditive effects on theneed for adaptation in vertical relationshipsputdifferently, we expect interdependence to magnifythe effect of instability on the need foradaptation and vice versa. Transaction instabilityrequires adaptation through search for solutionsto the contractual difficulties posed by changesin technology or market conditions. However,

interdependence imposes constraints on thatsearch process, as successful adoption of thenew solution will require coordinated action byprocurer and supplier. Therefore, interdependencemakes adaptation to instability more difficult. Inthe absence of interdependence, the search forand adoption of new solutions is a unilateralaffair. Conversely, task interdependence requiresongoing coordination and mutual adjustmentbetween procurer and supplier units as theyengage in their respective activities. Instabilityin transaction conditions magnifies the extent ofmutual adjustment required, as the procurer and



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supplier need to adapt not only to the consequencesof each others ordinary activities due to

interdependence, but also extraordinary changesdue to instability. In the absence of instability,mutual adjustment due to interdependence is aroutine affair (Nelson and Winter, 1982).

There are important performance consequencesof the superadditive joint effects of transactioninstability and task interdependence. Modes of pro-curement that are able to adapt in some degree toboth instability and interdependence suffer lowerperformance penalties from their joint effects,compared to modes that specialize in adaptationto any one. This suggests the existence of comple-

mentarities between differentiation and integrationwhen there are significant adaptation pressures inboth the task and transaction environment. Forinstance, under conditions of high task interde-pendence and transaction instability, neither differ-entiation nor integration alone provides adequateadaptive capacity. Instead, some combination ofthe two is required. Recent studies using agent-based simulation models (Rivkin and Siggelkow,2003; Siggelkow and Levinthal, 2003) also high-light the complementarities between organizationalmechanisms that enable parallel search (such as a

differentiated organizational subunits engaged inparallel search processes) and the coordination ofinteractions between agents engaged in parallelsearch (for instance through an integrated evalu-ation of the alternatives they generate).

The unique organizational position occupiedby vertical alliances arises from their abilityto generate greater differentiation than internalprocurement and greater integration than marketprocurement (Hypotheses 1 and 2). Thus, unlikeinternal procurement or market procurement,the adaptive capacity of vertical alliancesis evenly based on both differentiation and

integration, whereas the adaptive capacity ofinternal procurement is based primarily onintegration, and that of market procurementis based primarily on differentiation. Thissuggests that vertical alliances will have superioradaptive capacity compared to internal ormarket procurement, when both instability andinterdependence are present. We therefore predict:

Hypothesis 5: The joint effects of transaction

instability and reciprocal task interdependence

on the performance of vertical alliances will

be less adverse than that on other modes of

procurement.

METHODS

Sample and data collection

We utilize a survey of lead buyers of a varietyof component areas at the Ford Motor Companyand at the Chrysler Corporation conducted in1995. Drawing on a previous study of theautomobile sector (Monteverde and Teece, 1982)and our discussions with informants in the

automobile industry, we developed a list of 120components that go into most automobiles. Thecomprehensiveness of this list was verified withseveral executives in the industry and was alsocompared against component lists used by thefirms to monitor their own parts quality. In-depthinterviews with managers at Ford Motor Companyand Chrysler Corporation preceded the design ofthe questionnaire and influenced many of the itemsincluded. We conducted a total of 37 interviews (16at Chrysler; 21 at Ford). We ensured that we spokewith managers responsible for both external andinternal sourcing. These included individuals in

purchasing, quality control, platform management,and engineering operations. The initial interviewswere exploratory and open ended but focused onthe characteristics of each individuals particularcomponent, the type of sourcing arrangement andsupplier used, its relative performance, and thepros and cons of alternative sourcing arrangementsfor that component. In later interviews, wesought clarifications on key constructs forthis study, including transaction instability, taskinterdependence, differentiation, integration, andperformance.

The survey instrument was designed on the basisof these interviews and items from prior studieson vertical relationships. The survey was thor-oughly pretested with several groups of seniormanagers at the participating companies to removeambiguities and examine the face validity of ourmeasures. Three groups of five executives eachat the two companies went through the surveytogether to identify questions that were unclear orsubject to multiple interpretations, revealed sensi-tive information, were difficult to answer, or weresubject to social desirability bias. We incorpo-rated the detailed feedback from these groups and



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then sought additional input on the revised instru-ment from them to make additional changes. To

reduce response bias, we also scattered questionsmeasuring each construct across the survey andused multiple response formats.

For each component, senior managers at Fordand Chrysler provided us with the names of indi-viduals with oversight over the sourcing of thatcomponent. We mailed our survey to these individ-uals.3 Each survey respondent provided data on thecomponent he or she was in charge of sourcing, aswell as data on the two largest suppliers (or one, ifonly one existed) for that component. Unlike priorstudies that aggregate all transactions relevant to a

particular component (e.g., Monteverde and Teece,1982), our analysis is truly at the transaction level.We ensured that each survey respondent was theexpert for a given component by verifying his orher expert status with the controllers office in eachcompany. Our cover letter to respondents indicatedthat they had been identified as an expert on theacquisition of a given component and asked for thereturn of the uncompleted survey and a nominationof an expert if this were not the case.

Survey implementation took several standardsteps to ensure a good response rate. Sixty-fourexecutives responded from Ford, and 67 executives

responded from Chrysler, representing responserates of 53 percent and 56 percent, respectively,and a total response rate of 55 percent. We obtaineddata usable for this study on 222 procurementrelationships, though data limitations reduced theeffective number of observations for some multi-variate analyses. We checked for non-response biasby comparing the characteristics of the componentsfor which we received responses against those forwhich we did not receive a response. For eachcompany, we assessed whether the components inour sample differed significantly from those which

were not in our sample, on two key characteristicsof components identified in prior research: typeof sourcing and engineering complexity. We reliedon Monteverde and Teeces (1982) ratings of theprimary types of sourcing of all components inautomobiles and ratings of their engineering com-plexity as a basis for this comparison. We used theKolmogorov Smirnov two-sample test to assessthe possibility of differences in the distribution ofcomponents in and outside the sample across these

3 Respondents were distinct from the senior managers whohelped in pretesting the survey.

two variables (Siegel, 1956). The results of this testindicate that sample selection bias is not an issue

with these data.

Measures

Each respondent was asked to answer some generalquestions about the exchange conditions relevantto his or her component. The respondent then iden-tified the two principal suppliers of that componentand answered a detailed set of identical questionsabout each of them. We used multi-item forma-tive scales for most of our constructs. The itemswere based on a survey of the literature as well as

fieldwork and the pretests. The key variables usedin the analysis are reported in Table 1, along withdetails of the items used to construct them.

Procurement mode

The procurement mode is the specific organiza-tional arrangement used to procure a component.Respondents identified each of two primary sup-ply relationships for the component as falling intoone of three categories defined in the question-naire: (a) purchasing arrangement with externalsuppliers characterized by relatively shorter-term

contracts and competitive bidding (market pro-curement); (b) purchasing arrangement with exter-nal supplier characterized by relatively longer-term or open-ended contracts (vertical alliance);and (c) purchasing arrangement with an internaldivision of their company (internal procurement).The response to this question was corroboratedwith two other survey items in which respondentsindicated the percentage of the given componentsourced through each of the three types of arrange-ments, and the expected duration of each relation-ship. Of the 222 exchanges in our sample, 21 were

organized as internal procurement, 132 were orga-nized as vertical alliances, and 69 were organizedas market procurement.

Differentiation

Eight survey items were used to measure thedegree of differentiation of the supplier of acomponent vis-a-vis the procurer. The dimensionsfor this construct capture both structural andbehavioral elements and measure the differencebetween supplier and procurer organizations interms of speed of decision making, flexibility,



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Table 1. Key constructs

Construct Items

Differentiation Difference in the scores assigned to procurer and supplier on following organizationalattributes:

1. Decision making (1 = quick, 7 = slow)2. Culture (1 = rigid, 7 = flexible)3. Information systems (1 = clear, 7 = complicated)4. Time orientation (1 = long term, 7 = short term)5. Style (1 = informal, 7 = formal)6. Procedures (1 = bureaucratic, 7 = streamlined)7. Employee benefits (1 = generous, 7 = limited)8. Pay scales (1 = high, 7 = low)

Integration 1. This supplier has adapted its organization and management methods to work effectivelywith your organization (1 = strongly disagree, 7 = strongly agree)

2. During the past year, how often were there significant disagreements between your businessunit and this supplier? (1 = very rarely, 7 = very frequently) [reverse coded]

3. How easy are the negotiations between your business unit and this supplier over sharing theburden of cost when your business unit requests engineering changes? (1 = very easy,7 = very difficult) [reverse coded]

4. How easy are the negotiations between your business unit and this supplier over sharing theburden of cost when the suppliers raw material costs increase (1 = very easy, 7 = verydifficult) [reverse coded]

5. Problems that arise in the course of this relationship are treated as joint rather thanindividual responsibilities (1 = strongly disagree, 7 = strongly agree)

Reciprocal taskinterdependence

Please indicate your opinion about the nature of the component (Scale: 1 = strongly disagree,7 = strongly agree)

1. Its design requires contributions from both parties2. Its production requires ongoing contributions from both parties3. It takes significant amount of time and effort to understand your companys specific

requirements for this component4. A significant amount of engineering effort is required in designing and developing thiscomponent

5. Producing this component generates specialized expertise in the producer

Transactioninstability

Please indicate your opinion about the nature of the component (Scale: 1 = strongly disagree,7 = strongly agree)

1. Significant future technological improvements are expected in its design2. There is significant unpredictability or technological shifts in its production process3. Significant fluctuations are expected in its monthly volume requirements4. There is significant uncertainty in its annual volume estimates

Performance ofvertical

Your opinion about the attractiveness of this supplier compared to the best alternative supplierfor this component

relationship 1. Price competitive (Scale: 1 = much less attractive than alternative, 7 = much more attractivethan alternative)

2. Support and services3. Flexibility in production4. Product quality5. Product innovations6. Overall performance

information systems, time horizon, formalization,bureaucratization, employee benefits, and payscales (Lawrence and Lorsch, 1967a, 1967b). TheCronbach alpha measure for reliability for thisconstruct is satisfactory (0.78). Confirmatory factoranalysis yielded an adjusted goodness of fit indexof 0.94.

Integration

Five survey items captured the degree to whicha state of cooperation and coordination existedbetween the supplying and procuring unit for eachcomponent and were used to compute a singlescale for integration (Lawrence and Lorsch, 1967a,



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1967b). The Cronbach alpha measure of reliabil-ity for this construct was 0.72, and the adjusted

goodness of fit index from confirmatory factoranalysis was 0.98.

Transaction instability

The instability in exchange conditions associatedwith each component was broadly assessed interms of demand and technological developments.These encompass measures of volume uncertaintyand technological uncertainty (Heide and John,1990; Walker and Weber, 1984, 1987). To con-struct the scale, we used four items. The reliabilityof the scale was satisfactory (alpha = 0.73) and theadjusted goodness of fit index from confirmatoryfactor analysis was 0.99.

Reciprocal task interdependence

We used a scale constructed from five itemsto measure the nature of task interdependencebetween procurer and possible supplier for eachcomponent. The items assessed the degree towhich simultaneous contributions from supplier

and procurer are required to design and producethe component, as well as the need for extensiveinteractions between the two for the supplier tounderstand and meet the specific requirements ofthe buyer (Thompson, 1967). The scale constructedfrom these items had satisfactory reliability (alpha= 0.71), and the adjusted goodness of fit indexfrom confirmatory factor analysis was 0.97.

Performance of vertical relationship

Objective data on exchange performance is con-

sidered confidential and is hard to collect. As aresult, we used items capturing multiple facets ofthe satisfaction of the procurers with the supplierin comparison with alternative suppliers. While werecognize that the satisfaction of the procurer withthe supplier is not identical to exchange perfor-mance, we expect that it should be strongly corre-lated with it. We used six measures rating supplierperformance along the dimensions of price, inno-vativeness, flexibility, and quality. The Cronbachalpha for this scale was 0.89, and the adjustedgoodness of fit index from confirmatory factoranalysis is 0.91.

Control variables

Several control variables that might impact thedependent and independent variables were usedin the analysis. First, we controlled for assemblerdifferences by including a dummy variable to dif-ferentiate Ford from Chrysler. Second, we limitedinformant bias by including a variable to controlfor the informants experience with the supplier(Kumar et al., 1993; Phillips, 1981). This wasmeasured as the logarithm of the number of monthsthat the respondent had personally dealt with thesupplier. Third, we included a measure of the dura-tion of the procuring relationship between the pro-curer and supplier (Kotabe et al., 2003). This wasmeasured as the logarithm of the number of yearsthe assembler has purchased the component fromthe supplier. Fourth, we controlled for supplierand buyer asset specificity, which are importantalternative explanations from the transactions costperspective. These variables were measured usingsingle items, in which the respondent indicatedagreement with the following assertions: This sup-plier has made significant investments in termsof equipment, facilities, and engineering designedspecifically to meet the buyers supply require-ment for the component (supplier specificity) and

Your company has made significant investmentsin tooling and equipment that are specific to yourrelationship with the supplier (buyer specificity).Finally, we controlled for the volume of transac-tions for the component, as well as across all com-ponents between the supplier and assembler firm.These were categorical measures of the annualdollar value of purchases from a supplier for thefocal exchange and from all exchanges betweenthe buyer and supplier, respectively. The bound-aries of the qualitative categories are less than$10 million, $50 million, $100 million, or more

than $100 million.

Analysis techniques

Hypotheses 1 and 2 predict differences in differ-entiation and integration across the three modesof procurement. We therefore used OLS regressionmodels to test them. To test Hypotheses 3, 4, and 5,we need to assess the relative impact of transactioninstability, task interdependence, and their jointeffect on the performance of different modes ofprocurement. Simply regressing the performanceof each procurement mode on indicator variables



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that classified that procurement relationship intomake, buy, and ally, along with interaction terms

with instability and interdependence, would not beappropriate. Unobserved features of the exchange(such as component, supplier, or procurer charac-teristics) could simultaneously influence the choiceof procurement mode as well as performance out-comes (Hamilton and Nickerson, 2003; Shaver,1998). It would then be difficult to draw valid con-clusions about the effect of instability and interde-pendence on the performance of the mode of pro-curement. We therefore used a switching regres-sion model that attempts to account for possiblyendogenous choices of procurement modes. This

model is estimated in two stages. First, a multi-nomial logit model is used to explain modes ofprocurement. The estimates from this model areused to calculate a non-selection hazard into eachmode of procurement for each observation, whichreflects the effect of unobservable variables thatinfluence the procurement mode decision. Second,we estimate separate OLS regressions for subsam-ples of observations on each procurement mode,in which we include the non-selection hazard as acontrol variable. By its inclusion, the non-selectionhazard controls for unobservable features of therelationships that might simultaneously affect thechoice of mode and performance (Gulati and Nick-erson, 2004; Poppo and Zenger, 1998; Shaver,1998).

RESULTS

Table 2 reports the summary statistics and pair-wise correlations between variables used in ouranalysis. The largest correlation between twoindependent variables is 0.66 (between componentprocurement volume and total procurement

volume). Collinearity therefore does not appearto be a significant concern. However, wecalculated the variation inflation factors for allestimated models as a precaution, and thesewere well within acceptable limits. Several pair-wise correlations are significant at the 1 percentlevel. For instance, integration is stronglycorrelated with relationship performance. It is alsonoteworthy that the correlations between reciprocalinterdependence and supplier and buyer specificityare small (0.13 and 0.11), lending support toour arguments that these are distinct constructs.Supplier and buyer specificity themselves are

only correlated 0.22. Our interview data suggestthat in the automotive industry suppliers are

more likely to make specific investments thanassemblers.

Table 3 reports results from OLS models inwhich the dependent variables are the extent ofdifferentiation and integration between procuringand supplying units. For the specification in whichdifferentiation is the dependent variable (column1), only 193 observations were available. We usedrobust standard errors to calculate t-statistics inorder to minimize the effect of heteroscedastic-ity. We tested Hypotheses 1 and 2 by introduc-ing dummy variables for the mode by which the

procuring relationship was organized. We con-trolled for assembler (Ford or Chrysler), buyerexperience with supplier, length of procuring rela-tionship, and component and total volume of pro-curement. Both models are significant, with R2 of12 percent and 8 percent. Examining the coeffi-cients in column 1, we find that vertical alliancesand market procurement relationships are char-acterized by greater differentiation than internalprocurement relationships (reference category). Wethus conclude that Hypothesis 1 is strongly sup-ported. Vertical alliances and market procurement

do not appear to differ significantly in differen-tiation. In column 2, the dependent variable isintegration and the reference category is mar-ket procurement. We find evidence in favor ofHypothesis 2, as internal procurement and verti-cal alliances appear to be characterized by signifi-cantly higher levels of integration between procur-ing and supplying units than market procurement.Thus, Hypothesis 2 is also supported. The coef-ficient of internal procurement is larger and sta-tistically different from that of vertical alliances.Thus, vertical alliances appear to have differentia-

tion levels comparable to market procurement, andintegration levels lower than internal procurement.Among the control variables, total volume of pro-curement and the length of respondents businessassociation with the supplier (buyer history) havenegative effects on differentiation. This may be dueto convergence in organizational elements acrossbuyer and supplier due to extensive and lengthyinteractions. Procurement history has a negativeeffect on integration. This may indicate the con-straining effects of ties. Since tie duration is notthe focus of our analysis, we defer further investi-gation of these results to future research.



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Table2.

Descriptivestatistics

Variable

Obs.

Mean

S.D.

Min.

Max.

1

2

3

4

5

6

7

8

9

10

11

12

13

1

Differentiation

193

1.0

6

0.6

8

0.0

0

4.3

8

1

2

Integration

2220.1

8

1.3

9

5.0

0

7.0

00.1

6

1

3

Relationship

performance

219

4.8

1

1.0

0

1.6

7

7.0

00.0

6

0.2

5

1

4

Transaction

instability

222

0.0

0

0.9

92.3

6

3.1

40.1

8

0.0

2

0.0

6

1

5

Reciprocal

interdependence

222

0.0

0

0.8

03.1

0

1.5

00.2

3

0.0

0

0.0

7

0.3

1

1

6

Interdependence

instability

222

0.2

7

0.8

52.1

3

4.7

1

0.0

2

0.0

1

0.1

4

0.2

8

0.1

6

1

7

Supplierasset

specificity

222

5.7

0

1.1

0

2.0

0

7.0

00.1

5

0.1

1

0.2

8

0.1

1

0.1

3

0.0

6

1

8

Buyerasset

specificity

222

4.7

4

1.6

8

1.0

0

7.0

0

0.0

3

0.0

1

0.0

0

0.1

3

0.1

1

0.0

5

0.2

2

1

9

Procurementhistory

[ln(year)]

222

2.4

5

0.7

7

0.0

0

4.3

20.1

0

0.1

7

0.1

3

0.0

4

0.1

1

0.0

40.0

3

0.0

6

1

10

Buyerhistory

[ln(months)]

222

3.0

5

0.8

3

1.0

0

5.4

80.1

4

0.0

8

0.1

9

0.1

3

0.0

6

0.0

9

0.1

1

0.1

1

0.1

1

1

11

Component

procurement

volume

222

2.6

0

1.0

5

1.0

0

4.0

00.0

8

0.0

4

0.1

1

0.1

2

0.1

3

0.0

3

0.0

3

0.1

1

0.2

1

0

1

12

Totalprocurement

volume

222

3.2

1

1.0

0

1.0

0

4.0

00.1

6

0.0

1

0.0

6

0.0

1

0.1

5

0.1

0

0.0

5

0.1

5

0.2

7

0.0

1

0.6

6

1

13

Ford

222

0.5

5

0.5

0

0.0

0

1.0

00.0

4

0.1

2

0.1

5

0.1

4

0.2

2

0.0

0

0.0

9

0.0

4

0.1

4

0.3

3

0.1

0

0.0

11

14

Procurementmode

222

2.4

9

0.6

6

1.0

0

3.0

0

0.1

7

0.0

3

0.2

2

0.0

6

0.0

9

0.0

6

0.0

6

0.2

1

0.1

5

0.1

0

0.1

2

0.0

10

.18

centered

p

adaptation in vertical relationships

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