Inter-Organisational Power in Outsourcing Relationships

Abstract

Research frequently advocates trust-based partnerships as a superior method for managing long-term interorganisational relationships. Such research often treats power either as a static relationship determinant or normatively dismisses it as dysfunctional and destructive. Yet many relationships, e.g., in the logistics area, seem at odds with this: heterogeneous goals, conflicts, and increasing dependence drive outsourcing parties to assert their individual interests. Informed by power-dependence theory, power-political theory, and inter-organisational relationship literature this study argues that power, understood as a wider and multidimensional concept, is a key explanatory variable of outsourcing relationships. The research explores the mechanisms of interorganisational power and its impact upon the state and development of logistics outsourcing relationships. Five logistics outsourcing relationships in Germany were analysed through in-depth case studies. A dynamic relationship-over-time perspective was adopted and matched pairs of customers and providers were selected to identify the parties' divergent perspectives. Neither approach has been used often in previous research. The results reveal that the state and development of outsourcing relationships shape and are shaped by the incidence of power. While high-quality relationships can contain the exercise of power, power is exercised covertly and in ways not envisaged under the prevalent theoretical conception of power. The effects of power on the relationship are shown to depend on the frequency, quality, and recognition of its exercise as power. The results suggest that organisations may be so enmeshed in power structures and concerned with relationship ideals or contract renewals that they do not recognise the influence of power in their own and the other’s behaviour. The study contributes to the existing body of knowledge on outsourcing relationships and power theory through reinitiating the discussion of the role of power in interorganisational relationships. The operationalisation of power as a multidimensional concept provides valuable support for the development of future research instruments. The findings further reinforce the need for cultural and linguistic sensitivity in cross-cultural research.