Research Within Reach: How companies can guard against cheating partners
Cooperation between companies is good for business – but what happens when one of them tries to take advantage of the relationship?
Research by Professor Glenn Hoetker on the best ways for organisations to protect themselves against opportunistic behaviour is the focus of the latest Research Within Reach report (PDF, 2.5MB) released this week.
More than ever before, companies rely on partnerships with other firms to bring in specialist expertise or specific goods and labour to stay ahead of the competition. But doing so also involves taking on the risk that one of those partners may behave badly.
"Cooperation puts companies at risk of shady behaviour by dishonest partners," says Glenn Hoetker, Professor of Business Strategy and MBS Foundation Chair of Sustainability and Business at Melbourne Business School.
"Not all potential partners are led by scrupulously honest individuals."
Predicting and protecting against bad behaviour has traditionally been extremely difficult. While some dishonest partners might resort to outright cheating such as stealing or lying, what is more likely is behaviour that is less obvious – and thus harder to detect.
"In reality, most cheating has ambiguity," says Professor Hoetker. "It's a multifaceted mix of people being unethical, lazy, or not being fully transparent."
To account for this complexity, Professor Hoetker and two colleagues – Thomas Mellewigt and Martina Lütkewitte – embarked on a research project that considered a variety of risk factors as well as different ways that companies can try to protect themselves.
The team identified several circumstances that tended to increase the likelihood of cheating, such as when one organisation was highly dependent on a service or asset provided by another, or it was difficult to predict how changes in technology would affect the partnership.
When it came to preventing opportunism, the study focused on three tools that organisations can use to try to keep partners honest – contracts, relationships and reporting mechanisms.
"Until now, we tended to think that there was one solution for one problem, which we found is not the case," Professor Hoetker says.
"Take contracts, for example. Contracts are good at the things you can state clearly, such as delivery dates, measurable standards of performance and so on. They're also useful during a dispute, as a contract is something you can take to court.
"But there are limits. They can help when it comes to asset specificity, but you can't use a contract to measure how much effort someone puts into their work, or – if the partnership is research-based – to require that they find the exact solution you want in the time-frame given."
Research Within Reach is a regular publication from Melbourne Business School designed to explain the latest research by our academic faculty in easy-to-understand language. You can download the latest report here (PDF, 2.5MB).