Towards a Dialectic Perspective on Formalization in Interorganizational Relationships: How Alliance Managers Capitalize on the Duality Inherent in Contracts, Rules and Procedures

Abstract

The mainstream literature on contracts, rules and procedures presumes that formalization is directed at coordination and control, and that its influence on performance is contingent upon firm, transaction and contextual characteristics. In response to recent calls for inquiries into dialectics in interorganizational relationships, and in an effort to provide managerial choice with a more prominent position in research on formalization, a complementary perspective is here being developed. We propose a framework in which formalization is presented as a duality, involving trade-offs between its functions and dysfunctions, and eventuating in dialectic tensions with which managers have to cope. In line with this, we argue that researchers should not only be preoccupied with assessing the `rightness' of governance solutions, but also with the trade-offs and tensions associated with them. Our framework is illustrated by a case study of an alliance between a major European financial services firm and one of the world's leading retailers. The alliance managers in this particular relationship attempted to reduce or capitalize on the tensions associated with formalization by: (1) adopting a semi-structure, in which outcomes were formalized, but behaviour was not; (2) justifying formalization through referring to factors that were beyond their control, and; (3) alternating their emphasis on different requirements by each of the partner firms. The article shows that a dialectic perspective on formalization in interorganizational relationships offers a promising complement to the mainstream literature.