Framing contractual performance incentives: effects on supplier behaviour

Fairness and Contractual Performance in Vertical Linkages Within an Uncertain Environment: A Case of a Tomato Value Chain

In developing countries with uncertain institutional environments, ensuring fairness in contractual arrangements within food value chains is crucial to overcome modern challenges. This paper empirically investigates the vertical relationship between tomato growers and canneries in Algerian agriculture to assess the determinants of contractual performances and price fairness implications. The study is based on an analysis of a comprehensive dataset of 9127 tomato growers engaged in contract farming over four years (2018-2021). Three regression methods were estimated, namely logit, tobit, and quantile regressions, alongside exploratory analysis. The main findings shed light on the factors influencing contractual performance among contracting producers, primarily farm scale and distance from the contracting processor. Additionally, the findings highlight the key role of contract enforcement mechanisms in influencing the contractual performances of tomato growers. Several recommendations are made to incentivize tomato growers and improve overall contractual performance within such public policy settings. Contract arrangements, including fair price negotiation and the requirement for tomato processing firms to make specific investments, are advocated to foster self-enforcement and significantly enhance the growers' contractual performance. This is particularly important in many developing countries where the business environment is characterized by an absence of effective public enforcement institutions along with a highly uncertain environment.

Impact pathways: managing relational risk in project operations

Purpose

The purpose of this paper is to assess how we implement new ways of managing relational risk at the operational level of outsourced projects and to provide guidance to project management (PM) policy makers and practitioners seeking to ensure project operations consistently deliver project relational risk management (PRRM) strategies.

Design/methodology/approach

Through exploratory study data were obtained from a panel of six experts in PM and from a pilot survey of PM practitioners. The data reveal future directions and vectors for scholarship and research activity in terms of the impact of PRMM-related mechanisms and deliverables on project success and the implementation process to enhance PRRM as a key PM capability.

Findings

Deliverables for PRRM need to part of a multidimensional framework that includes mechanisms besides the contract. Such a framework enables the codification of PM knowledge so that PRRM contributes to project success. With knowledge codified, PRRM strategies can be consistently delivered at the operational level. The framework is novel in that it integrates hereto disparate elements that are encompassed under the broad umbrella of relational governance mechanisms.

Practical implications

PM policy makers and practitioners recognise the importance of effective relationships to deliver projects successfully, yet they lack practical solutions to address the negative effects of dysfunctional relationships. The authors provide a list of PM deliverables for effective PRRM, including deliverables besides those related to the contract, which can be used in practice to bring the gap between PRRM strategy development and implementation. This will enable client organisations that outsource their projects to an external contractor to enhance their PRRM capability and increase the likelihood of project success.

Originality/value

The authors provide insights into how PRRM is practised at the project operations’ level where PM is outsourced. These insights lead to three pathways of impactful Operations Management (OM)/PM scholarship and research, namely, the following: 1) How PM deliverables act as a key success factor for effective PRRM? 2) How the duality of roles carried out by PM actors influences PRMM practices? 3) How companies innovate to enhance their PRMM capability? These pathways will enable PM research and scholarship to address disconnects between PRMM strategy and operations and hence go beyond answering “what” PRMM is to encompass “how” it is implemented.

Alignment in the Hospital-Physician Relationship: A Qualitative Multiple Case Study of Medical Specialist Enterprises in the Netherlands

BACKGROUND

Policy-makers and hospital boards throughout the world have implemented different measures to create and sustain effective hospital-physician relationships. The 'integrated funding' policy reform in the Netherlands was aimed at increasing hospital-physician alignment and led to the unforeseen formation of medical specialist enterprises (MSEs): a fiscal entity representing all self-employed physicians in a hospital. It is unknown how hospitals and MSEs perceive their alignment and how they govern the relationship. This study explores the hospital-MSE relationship, and how governance styles influence perceived alignment in this relationship.

METHODS

A multiple case study of five non-academic hospitals in the Netherlands was performed. Data was derived from two sources: (1) analysis of hospital-MSE contracts and (2) semi-structured interviews with hospital and MSE board members. Contracts were analysed using a predefined contract analysis template. Interview recordings were transcribed and subsequently coded using the sensitizing concepts approach.

RESULTS

Contracts, relational characteristics, governance styles and perceived alignment differed substantially between cases. Two out of five contracts were prevention contracts, one was a mixed type, and two were promotion contracts. However, in all cases the contract played no role in the relationship. The use of incentives varied widely between the hospitals; most incentives were financial penalties. The governance style varied between contractual for two hospitals, mixed for one hospital and predominantly relational for two hospitals. Development of a shared business strategy was identified as an important driver of relational governance, which was perceived to boost alignment.

CONCLUSION

Large variation was observed regarding relational characteristics, governance and perceived alignment. MSE formation was perceived to have contributed to hospital-physician alignment by uniting physicians, boosting physicians' managerial responsibilities, increasing financial alignment and developing shared business strategies. Relational governance was found to promote intensive collaboration between hospital and MSE, and thus may improve alignment in the hospital-physician relationship.

Knowledge sharing in project-based supply networks

Purpose

Project-based supply networks are an emerging form of organizing used to meet a buying organization's operational and innovation goals. Knowledge sharing among suppliers in the network plays a key role in successful project delivery but is challenging to achieve in practice. The authors draw on self-determination theory (SDT) to examine the interactive effect of incentive provisions (penalties and bonuses) and network governance (lead or shared) on knowledge sharing motivation by individual boundary-spanners within project-based supply networks.

Design/methodology/approach

A scenario-based behavioral experiment of 217 professionals within the UK using the online platform, Prolific, was conducted. A Hayes Macro PROCESS model was used to analyze the data. The authors pilot-tested the scenario with project management experts, senior managers, and directors.

Findings

The findings highlighted that the effectiveness of incentive provisions on knowledge sharing may be dependent on the mode of network governance. Where suppliers have shared responsibility for managing the network (shared governance), bonuses were more effective than penalties in motivating knowledge sharing through support of boundary-spanners’ autonomy needs. However, where the buying organization has transferred responsibility for managing the network to an external third-party organization (lead governance), the authors found no significant difference between the effectiveness of penalty versus bonus provisions in motivating knowledge sharing.

Originality/value

Prior research in operations and supply chain management (OSCM) has shown the positive effect of incentive provisions on knowledge sharing motivation, but largely overlooked the effectiveness of such incentives when nested within broader governance mechanisms used in projects and their networks. Moreover, while scholars have started to highlight the importance of governance mechanisms in knowledge sharing at the dyadic level, the authors know very little about the impact of network governance.

Contract design and supplier performance: an empirical investigation using multi-criteria, decision analysis

Purpose

This study aims to investigate how contract design influences supplier performance. This study synthesises three theoretical views (efficiency, relational, contingency) and provides empirical support on how effective contract design improves supplier performance.

Design/methodology/approach

This study reviewed contract design literature and uncovered 18 factors that may impact supplier performance. Multi-criteria, decision-making analysis examined the impact of contract factors on three supplier groups: average-, over- and under-performers. Procurement experts working with a large multinational company dealing with hundreds of procuring contracts, yearly, provided their judgement on the impact of these factors on supplier performance. Semi-structured interviews with experts and other evidence were used for data and method triangulation.

Findings

Results show that contracting with under- and over- performers presents significant differences: in the case of over-performers, contracts have a dual, yet discrete, efficiency and relational role: at transaction level, they emphasise formality, protect from opportunism and include both liquidated damages and legal action clauses. At relational level, they focus on relational learning and incentivising suppliers. However, in the case of under-performers, contracts appear to focus on contingency factors, which can be a source of ambiguity, particularly in complex environments, and trust, which has a negative impact on supplier performance.

Social implications

Improving contract design can help reduce partner opportunism, reduce inter-firm conflicts and avoid disputes that can bear a social cost. This study demonstrates that companies can use advanced analytical tools to reflect upon their own decision-making process of contact design in making transparent supplier performance assessments.

Originality/value

To the author’s knowledge, this is the first study using decision-making techniques to enhance supplier performance by improving the contract design process.

Managing information asymmetry in public–private relationships undergoing a digital transformation: the role of contractual and relational governance

Purpose

Inter-organisational governance is an important enabler for information processing, particularly in relationships undergoing digital transformation (DT) where partners depend on each other for information in decision-making. Based on information processing theory (IPT), the authors theoretically and empirically investigate how governance mechanisms address information asymmetry (uncertainty and equivocality) arising in capturing, sharing and interpreting information generated by digital technologies.

Design/methodology/approach

IPT is applied to four cases of public–private relationships in the Dutch infrastructure sector that aim to enhance the quantity and quality of information-based decision-making by implementing digital technologies. The investigated relationships are characterised by differing degrees and types of information uncertainty and equivocality. The authors build on rich data sets including archival data, observations, contract documents and interviews.

Findings

Addressing information uncertainty requires invoking contractual control and coordination. Contract clauses should be precise and incentive schemes functional in terms of information requirements. Information equivocality is best addressed by using relational governance. Identifying information requirements and reducing information uncertainty are a prerequisite for the transformation activities that organisations perform to reduce information equivocality.

Practical implications

The study offers insights into the roles of both governance mechanisms in managing information asymmetry in public–private relationships. The study uncovers key activities for gathering, sharing and transforming information when using digital technologies.

Originality/value

This study draws on IPT to study public–private relationships undergoing DT. The study links contractual control and coordination as well as relational governance mechanisms to information-processing activities that organisations deploy to reduce information uncertainty and equivocality.

Short of drugs? Call upon operations and supply chain management

Purpose

This “impact pathways” paper argues that operations and supply chain management (OSCM) could help address the worsening drug shortage problem in high-income countries. This significant societal problem poses difficult challenges to stakeholders given the complex and dynamic nature of drug supply chains. OSCM scholars are well positioned to provide answers, introducing new research directions for OSCM in the process.

Design/methodology/approach

To substantiate this, the authors carried out a review of stakeholder reports from six European countries and the academic literature.

Findings

There is little academic research and no fundamental agreement among stakeholders about causes of shortages. Stakeholders have suggested many government measures, but little evidence exists on their comparative cost-effectiveness.

Originality/value

The authors discuss three pathways of impactful research on drug shortages to which OSCM could contribute: (1) Developing an evidence-based system view of drug shortages; (2) Studying the comparative cost-effectiveness of key government interventions; (3) Bringing supply chain risk management into the government and economics perspectives and vice versa. Our study provides a baseline for future COVID-19-related research on this topic.