Paper presented at the EMNet 2011
December 1 to 3, 2011, Limassol, Cyprus
(http://emnet.univie.ac.at/)
EVOLVING FUNCTIONS OF INTERORGANIZATIONAL GOVERNANCE
MECHANISMS
José M. Sánchez *
María L. Vélez
Concha Álvarez-Dardet
Universidad de Cádiz
Universidad de Cádiz
Universidad Pablo de Olavide
Dpto. Organización de Empresas
Dpto. Economía financiera
Dpto. Dirección Empresas
Gta. Carlos Cano s/n
Gta. Carlos Cano s/n
Ctra. Utrera, km. 1
11002 Cádiz (Spain)
11002 Cádiz (Spain)
41013 Sevilla (Spain)
T. +34 956015455
T. +34 956015435
T. +34 954349357
e-mail: maria.velez@uca.es
e-mail: mcalvesp@upo.es
F. +34 956015402
e-mail: josem.sanchez@uca.es
* Corresponding author
This research was partly financed by the research project SEJ-5061 from Andalucia government.
ABSTRACT
Through a longitudinal case study, this article examines the evolution of the
twofold function of formal governance mechanisms, for control and coordination, as an
interorganizational relationship between supplier and distributors evolves. We ask
whether all formal governance tools develop simultaneously, or whether each
mechanism is designed and used for only one function; whether different mechanisms’
attributes foster one function rather than the other; and whether different mechanisms
are developed over time in order to provoke both functions’ evolution. Finally, we
explore whether the IOR evolution in part explains the evolution of the two functions,
or vice versa. We find that in this case the various formal governance mechanisms were
developed sequentially over time; that each of them could be used for both control and
coordination, although from the supplier’s perspective certain tools had dominant
functions; and that as a suite the mechanisms evolved over time from more a more
coercive toward a more enabling character.
Key words: interorganizational governance, coordination, control
1. INTRODUCTION
There is a considerable body of research on the governance of interorganizational
relationships (IORs) among nonintegrated firms (Hendrikse and Windsperger, 2009).
Studies (e.g., Noordewier et al., 1990; Celly and Frazier, 1996; Vlaar et al., 2007;
Mellewigt et al., 2007) argue that there are two main reasons why partners in IORs draw
up interorganizational formal governance (IFG) mechanisms: control and coordination.
Mellewigt and colleagues (2007) propose to analyze through a longitudinal study
whether contracts serve more as safeguards in the initial stages and subsequently evolve
toward a coordinating function as a relationship develops. But contracts are only a part
of IFG mechanisms, and because in real life contracts are incomplete, they need to be
complemented by other control systems (Gulati and Singh, 1998; Baiman and Rajan,
2002). Managers combine different mechanisms to govern IORs (Baiman and Rajan,
2002); thus, studying only a specific mechanism in isolation from other parts of the IFG
system may show only partial results.
In this paper we study how the control and coordination functions of IFG
mechanisms evolve, emphasizing the relationship between these two functions and IOR
evolution. This project contributes to the related literature in several ways. First, we
widen our study to include IFG mechanisms beyond the contract: a commission system,
shared software, shared information, an evaluation system, and an operational manual.
This allows us to analyze whether all IFG mechanisms develop both functions
simultaneously, or whether each mechanism is designed and used for only one function.
Second, we keep in mind that different mechanisms that make up the IFG system can
have different attributes. Adler and Borys (1996) argued that there are two types of
formalization—enabling vs. coercive—and analyzed their characteristics (internal
transparency, global transparency, flexibility, and repair), the design process, and
implementation differences. Applying this framework allows us to study whether
mechanisms’ attributes foster one function rather than the other. Third, through a
longitudinal case study, we analyze whether different mechanisms are developed over
time to complete the contract. In fact, new IFG mechanisms can change the balance
between the two key functions either by being used predominantly for one of them
rather than the other, or by causing a decrease in the use of other mechanisms. Finally,
following the proposal of Mellewigt, Madhok, and Weibel (2007), we explore whether
the evolution of the IOR partly explains the evolution of both functions, or vice versa.
For the most part, research in this area has been conducted at the level of the
dyad; we examine a larger group: a marketing channel. A marketing channel can be
understood as a nonequity and open-ended IOR in which a set of smaller downstream
distributors assumes part of the value chain functions from a bigger upstream
manufacturer (Stern et al., 1996). Marketing channels are vertical and asymmetrical,
with a dominant firm determining the terms of the nonownership contractual
arrangement (Lassar and Kerr, 1996; Frazier, 1999).
IORs are developed and maintained over time, requiring the use of longitudinal
research designs. We study a long period, from 1985 to the present, from both sides of
the relationship. From the supplier side, the controlling firm unilaterally developed a set
of IFG mechanisms in order to increase the likelihood of attaining its objectives. From
the distributors’ side, controlled firms used IFG mechanisms to facilitate betterinformed decision-making.
2. THE
STRUCTURE
AND NATURE
OF
INTERORGANIZATIONAL
FORMAL GOVERNANCE FUNCTIONS
One important decision that executives make when forming an IOR is allocating duties,
risks, procedures, and so on through contractual provisions, which determine exchanges
in more precise terms (Ariño and Reuer, 2004; Mellewigt et al., 2007). These
contractual terms try to help firms devise remedies for foreseeable contingencies or
design processes for unforeseeable outcomes, protecting each firm against selfinterested behaviors by the other party. Moreover, contracts clarify mutual expectations,
enable goal congruence, and establish common ground. In order to manage their IORs,
firms have a range of contractual options available (Lassar and Kerr, 1996).
However, even if the partners clearly understand their relationship’s objective
and their mutual interests, it is not feasible to design a contract that anticipates all
possible eventualities, no matter how complex the contract may be (Ariño and Reuer,
2004). In real settings, complex and complete contracts are impossible to define because
of ex ante contingencies and ex post renegotiations (Gietzmann, 1996; Gulati and Singh,
1998). Furthermore, when a contract becomes excessively detailed, it will be inflexible
(Poppo and Zenger, 2002). Thus, researchers often describe interfirm contracts as
incomplete (Baiman and Rajan, 2002), pointing out that it may be impossible to
envisage all future contingencies, or may be costly or impossible to account for them in
the contract, so contracts never fully reflect working relationships (Gietzmann, 1996).
Sometimes contracts are merely legal bases on which long-term relationships can be
built. 1 Since self-interest makes partners likely to take advantage of any loopholes
(Geyskens et al., 2006), there are authors who maintain that contracts should be
complemented by other control mechanisms to mitigate the inefficiency of incomplete
contracts (Baiman and Rajan, 2002; Langfield-Smith, 2008). Firms can choose a set of
governance mechanisms shaping their IFG.
IFG mechanisms are generally understood as formal (written and standardized)
procedures and statements used by managers to monitor and influence the behavior and
activities in an IOR. IFG mechanisms include contracts, organizational structures,
performance measures, administrative controls, and operational procedures, among
others. They can play a vital role in creating a range of acceptable behaviors,
performance expectations, and dispute resolution mechanisms, and also in facilitating
knowledge transfer and structuring communication flows. To prevent IORs from failing,
IFGs have to realize a twofold goal: control the risks of opportunistic behaviors, and
coordinate activities and resources across firms (Mitchell et al., 2002; Gulati et al.,
2005; Vlaar et al., 2007; Mellewigt et al., 2007). However, as Hendrikse and
Windsperger (2009) note, the large majority of governance studies focus on mitigating
the risks of opportunistic behavior.
The conventional view held by users of agency theory and transaction cost
economics is that in an exchange relationship, agents tend to behave opportunistically,
prompting the principal to adopt mechanisms for curbing such opportunism.
Opportunistic behavior can arise from several sources, even in the absence of specific
assets. A firm can misrepresent its capabilities or resources during the selection process,
and/or during the relationship it can fail to contribute what it promised or can misapply
the resources it gains from the relationship. IFG mechanisms can assert control, provide
monitoring, and align incentives (Gulati and Singh, 1998), and thus mitigate agency
problems. In this control function, IFG mechanisms try to motivate the partners to
achieve desirable outcomes, inciting the agents to adopt the behavior required, and/or
dissuading them from adopting others.
From the resource-based perspective, an IOR enables firms, in their quest for
competitive advantage, to attain, through sharing and combining their resources, some
1
Vlaar et al (2007) note that contractual agreements in the United Kingdom, for example, are frequently
the result of exhaustive negotiations in which each party attempts to impose conditions on the other. In
Germany, in contrast, contracts are used to reassure partners of the common or shared legal principles to
which they wish to adhere.
beneficial outcome that they could not attain on their own (Mellewigt et al., 2006), even
without the threat of partners’ opportunistic behavior. IORs entail mutual dependence,
because tasks decomposed among partners need coordination and therefore
communication and joint decision-making. As the tasks become more interdependent
and more uncertain, this need increases (Gulati and Singh, 1998). Pooling resources,
dividing labor across partners, and subsequently integrating the dispersed activities are
critical to the generation of value in an IOR (Mitchell et al., 2002). Accomplishing this
coordination
requires
developing
complex
linkages
between
different
and
interdependent task units (Mayer and Argyres, 2004). From the perspective of the
resource-based view, as coordinating devices (Mellewigt et al., 2006), IFG offer the
proper information flow between each partner firm, enabling goal congruence, and
establishing common ground.
Some authors, like Dekker (2004), maintain that each mechanism is used
simultaneously for both functions: “A contract is not only used to reduce a partner’s
incentives to behave opportunistically, but in addition serves as a framework for
coordination in which the cooperation proceeds. And a joint venture’s administrative
hierarchy not only coordinates the joint venture’s day to day functioning and addresses
problems as they arise; simultaneously it is used to detect opportunism when it occurs”
(2004:31). However, other authors, like Hendrikse and Windsperger (2009), seem to
indicate that each function will have specific mechanisms: “Situations with a joint
interest problem require coordination by some mechanism, whereas situations with
conflicting interests require alignment of incentives (by allocating ownership, control,
and income rights) to a certain extent” (2009:3).
We must bear in mind that different tools that make up the IFG can have
different attributes that may determine whether a given mechanism is used for both
functions simultaneously, or whether different mechanisms suit each specific function.
Adler and Borys (1996) argued that there are two types of formalization—enabling vs.
coercive. Table 1 summarizes their framework. Any IFG mechanism can be categorized
on the enabling vs. coercive continuum, because formalization is a continuous variable
with a zone of indifference. Enabling tools provide detailed, objective, accurate
information; build connections among people and business units, giving people a sense
of the whole; and facilitate analysis and what-if thinking. Adler and Borys propose that
enabling formalization provides needed guidance and clarifies responsibilities, helping
individuals be and feel more effective. We may add that these characteristics favor
coordination, and vice versa. Thus it is possible to determine which function each IFG
mechanism serves by analyzing its characteristics as enabling or coercive.
RQ 1. Do mechanisms’ characteristics indicate their main function for control
vs. coordination purposes?
-- Table 1 here --
Negotiating and forming an IOR initiates a dynamic relationship that must
evolve if it is to be successful (Inkpen and Curral, 2004; Doz, 1996; Ariño and de la
Torre, 1998; Ring and Van de Ven, 1994; Inkpen and Curral, 2004). Interorganizational
governance is not static (Vlaar et al., 2007). During the relationship, managers wish to
bring about changes in the coordination and control mechanisms that they adopt
(Bijlsma-Frankema and Costa, 2005). Chenhall (2003) argued that control systems that
are valid today might lose validity as they evolve through time, and recent research calls
for further studies on IFG evolution.
As a logical extension of our first research question, we focus on the dynamics
of the twofold IFG function, and its potential association with IOR evolution over time.
The arguments above suggest that different mechanisms are developed over time,
completing the contract, and that this development can change both functions and
rebalance them. According to Baiman and Rajan (2002), IFGs may facilitate new
interfirm arrangements. Thus it is arguable that the evolution of the IOR is rooted in the
evolution of the two functions. In contrast, Mellewigt et al. (2007) propose that the
twofold function may vary over the life cycle of an IOR, the primary driver being the
level of trust. It could well be that IFGs serve more of a safeguarding function in the
initial stages of a relationship and subsequently evolve toward a coordinating function.
These contrasting arguments open our second research question, about what leads to
what:
RQ 2. Could the evolution of IORs be explained by / explain the evolution of
control and coordination functions?
3. CASE STUDY RESEARCH
In this paper we have adopted an exploratory longitudinal case study approach (Yin,
1984) to grasp the dynamics and complexities of IORs. We examined the distribution
channel of a supplier that has externalized its distribution functions, offering partners a
consignment contract, a geographical area, and a client portfolio. As a part of a bigger
research project, our nonrandom choice of this IOR was influenced by several factors
(Eisenhardt, 1989). First, the IOR is consolidated, longstanding, and stable. In 2010,
over 95 percent of the distributors had been part of the relationship for over two decades.
Second, this IOR is high performing: in 2010, the supplier’s return on investment ratio
from its IOR was 3.8 times higher than from direct sales. Third, this IOR is long term
and open ended. During the period of study (1985-present), the supplier progressively
introduced several IFG mechanisms to manage the relationship, making observable the
differences between IFG functions.
3.1. Research design and data sources
For proper triangulation (Eisenhardt, 1989) we obtained information from published
sources, internal documents, direct observations, and interviews. Archival data dating
back to 1985 included governance and financial documents; partners’ contracts; journals,
norms, and procedures; materials and slides used in meetings; and computer reports.
These data allowed us to identify the progression, objectives, and content of IFG
mechanisms, and to confirm what we learned from interviews.
Our semistructured interviews had a dual purpose: to gain more information on
topics whose clarification would be particularly interesting for the study; and to
complete and contrast information previously gathered, by tapping the wealth of
experience of those people who actually observed the IFG development. We held 35
interviews (from 2002 to the present) with supplier personnel who held or had held
management positions. We also interviewed 13 partners, whom the supplier categorized
into three groups: group A, with sales exceeding 600 thousand Euros per year; group B,
with sales of 360 to 600 thousand Euros per year; and group C, with sales of less than
360 thousand Euros per year. Our interviewees were chosen randomly from these three
groups (three representatives from group A, and five each from groups B and C). On
average, these interviews lasted about 120-150 minutes. All interviews were taperecorded and transcribed, and the completed write-ups were sent to the interviewees to
ensure their accuracy.
Also, we carried out direct observations at the supplier’s head office and in work
centers, as well as at several residential training and meeting sessions. Informally, our
presence at breaks during and after our interviews and direct observations meant that we
could listen to participants’ observations about the functions and objectives of IFG
mechanisms. We have been able to triangulate oral histories of the earlier years with the
archival data, because these materials were often presented and discussed during
interviews; we consider these narrations very useful to help us to understand how IFG
mechanisms were used (Chenhall and Langfield-Smith, 2003). We decided to terminate
our fieldwork after we felt that we had developed a clear sense of the IFG mechanisms’
functions within the IOR, as proposed by Miles and Huberman (1994).
Once the data collection ended, we carefully analyzed the interview transcripts
to understand areas of agreements between interviewees (Eisenhardt, 1989). Archival
data were used to confirm findings that arose in interviews and direct observations. We
then designed a table to reorganize the original transcripts around issues of significance
in order to elucidate the functions, characteristics, and objectives of IFG mechanisms.
Also, interview transcripts and archival data were organized chronologically, and the
common issues in the cells were analyzed, focusing on “what led to what and when”
(Miles and Huberman, 1994:110).
4. THE CASE STUDY
4.1. The supplier’s distribution channel
The supplier firm, CMD (a pseudonym), was established in the late nineteenth century.
It is currently one of the leading firms in the Spanish chemical sector and belongs to a
multinational group. This sector is characterized by a relatively stable market, in which
five giant companies share most of the world markets. CMD is organized into regional
districts, and its activity is now basically commercial, although it also packages its
industrial products into special containers. These containers are an important asset,
often outvaluing the cost of their contents. They are also an important source of income,
since daily rent is charged to the client, and they must be collected for reuse. Industrial
products are sold directly to major clients or through the IOR to a large number of small
and medium clients.
The IOR is configured as a nonequity alliance with a set of smaller partners.
Currently, its importance for the supplier can be seen from the fact that, in 2010, the
IOR accounted for 85 percent of CMD’s sales and catered to 95 percent of its clients.
Nowadays, distributors receive the products on consignment and are entrusted with
commercialization, storage, transport, and the management of CMD’s client portfolio in
exchange for a commission on sales. While delivery sales are carried out through the
IOR, CMD bills the client directly. CMD’s industrial products do not differ from those
of its competitors; its main added value is its distribution system, as its partners supply
the clients with a satisfactory standard of service while maintaining premium market
prices.
4.2. The development and functions of IFG mechanisms (1985-2010)
Practically from its foundation, CMD delegated the tasks of warehousing and transport,
for two primary reasons: logistical costs and market positioning. The 1980s were “a
moment when product demand outran our production capacity; therefore we were
oriented towards production, not sales” (District Director). Distributors were selected
mainly from existing transportation and client firms, entrusted with warehouse and
delivery tasks, and remunerated in different ways: by fees per container in storage or
sold, by remittance of a fixed monthly sum for storage or sales, or by reimbursement of
expenses. "It was difficult to maintain a transport network that could get to the furthest
client, so we thought we should have intermediate firms" (former CEO).
After 1980, gradually CMD began to regularize the IOR, focusing on its legal
and labor aspects. From 1985 onwards, only one standard contract was used for these
independent entities, regardless of their varying sizes, legal constitutions, and other
business activities. An analysis of the contract shows that it states only the basic
expectations and does not envisage every possible contingency. "The contract is only
the legal support" (former CEO). It is a starting point, outlining the legal relationship,
what parts of the business are delegated (geographical areas), the assigned client
portfolio, and some general guidelines for action. "The contract is general. Starting from
there, you enter into the business and you go on learning” (Partner B-3).
CMD next took advantage of the contract development to establish a single
system of remuneration: commissions on sales. "It is the system where if you sell more,
you earn more” (CMD manager of partners). “There was great heterogeneity and one of
the steps was to introduce the current commissions system” (District Director). From
the early 1990s onward, partners operated exclusively in a given geographical area and
received commissions on the area’s sales, even though on occasion CMD delivered the
product directly to the client, giving partners higher profitability. Distributors received
the supplier’s products on consignment and carried out their delivery and sales tasks
mainly in a passive way.
At the beginning of the 1990s, CMD’s sales department had new software,
called GESCOM, that provided monitoring information about sales: falls in demand,
registration and sales of new clients, container contracts, sales analyses contrasted with
the previous period (month/year), itemized sales breakdowns, and the total number of
containers per client. This database included sales information about all the firm’s
clients, but reports could be customized to describe concrete products, specific clients,
and/or distributors. However, at that time, this information was used unilaterally, mainly
by the supplier’s sales department, in order to control and monitor distributors.
According to our interviews, CMD employees tried to structure, limit, and regulate
distributors’ behaviors, telling them how to perform their activities. "To daily supervise
absolutely everything that they do, to give them methods, to set performance rules"
(CAC Director). "At all moments we control and investigate their performance" (CAC
manager).
In 1992, CMD incurred losses, for the first and only year in its history. The next
year, as part of a new downsizing strategy, the firm began to outsource more and more
complex functions. Though its relationship with distributors had been successful, it bet
that it could improve and strengthen its distribution channel. "That the partners worked
well did not mean that we could not make them work better, with a greater alignment"
(CEO). “We needed systems that allowed us to give them the same message at the same
time” (CMD manager of partners). Widening its former IFG system, CMD began to
pilot a new set of mechanisms.
In 1997, CMD decided to share its software, obliging distributors to buy a
specific computer on which to install it. In 1998, the supplier reached electronic
integration, supplying its entire channel with computers and delegating yet more
functions (through passwords, partners could now create and maintain client files, get
information on price discounts, monitor clients’ inventory, manage logistic issues,
receive complaints, and control outstanding payments). From this date, distributors had
to use the software to track deliveries and container movements or to open a new client
file. This decreased the mistakes that the previous handling system had generated, and
even allowed CMD to extract truthful private information or market knowledge from
partners. “We were able to free ourselves of a great deal of administrative work” (CAC
Manager). The software permitted it to externalize more product delivery and invoicing,
which from then onwards were solely partners’ responsibility. “They have given us a
very good tool, to see consumptions or levels of inventories. Now we control the market,
and inform the supplier about changes” (Partner B-5, C-2). Thus, CMD was able to
keep track of its containers and gain information on final clients. This shared system
enabled the supplier to monitor distributors’ inventory on line, gaining greater control of
partners and the end market. “We needed tools which would allow us to retain market
control, with the partners carrying out their activities under our supervision” (CEO).
"Integrating our systems, besides making the whole chain more efficient, allows us to
have a greater knowledge of the end market, although the management is more
expensive” (Commercial Director).
Next, CMD designed new reports from the existing GESCOM data base and
began to share them with its partners: falls in demand, registration and sales of new
clients, container contracts, sales analyses contrasted with the previous period
(month/year), itemized sales breakdowns, and the total number of containers per client.
“This step was indispensable; it was a change toward more proactive sales activities”
(Commercial Director). The new scorecard was developed in 1999 and refined in 2000,
by a team formed mainly of the supplier’s sales employees and distributors, that is,
boundary employees. According to the Shared Scorecard Project Report, “this
information would allow the partner to obtain better knowledge of the evolution of its
clients; plan and solve problems more quickly; and coordinate their work with our sales
department.” Monthly comments by the sales staff enabled them to establish shared
sales objectives and get information from partners. "It is very interesting information
that allows us to detect problems, helping in our management, allowing us to make
quicker decisions and to establish plans and targets” (Partner C-5). The supplier
managers felt that “in order to have partners, we needed to improve the systems, and we
started with the idea of giving in order to receive” (Internal Audit Manager). "It is the
second transformation; we have a system that supports operations, now it transforms
them into partners" (CEO). “It allows us to control partners” (CMD manager of
partners).
CMD’s sales department provided training in the use of the new information.
"Thus they are able to detect market opportunities" (Sales Manager). Boundary
employees also analyzed this information monthly, providing an extra management tool
to monitor distributors and enabling both parties to establish and manage sales
objectives. Although partners already had access to the same information (through client
invoice copies), the newly designed format was more organized, useful, and aggregated.
“We devised a tool to let them know that clients must be managed and that they were
responsible” (CAC Director). "It is very useful, to see what happens, to compare…to
negotiate" (Partner A-1). In most cases, this information even improved sales
department activities by providing an extra control tool. “They need more information,
and it allows us to demand more of them” (CEO).
The supplier also drew up a Distributors’ Management Manual to help partners
better perform their daily tasks, with information and forms about client contracts,
products, containers, safety norms, etc. This manual established guidelines for storage,
distribution, administration, and commercialization, as well as templates of documents
and forms both for internal use and for the final client.
In 2001 and 2002 CMD introduced a Distributors Evaluation System (DES)
developed by another team, this one composed of top managers and experts from a
consultant firm. (Although the system was known internally as DES, the supplier
decided to present it initially as the “Distributors Incentives System” to obtain greater
acceptance from partners.) As CMD managers pointed out, this system had two
objectives: “to reward those who obtained the best results and to identify those who
needed more assistance or more support in order to pre-empt possible conflicts” (DES
Project Report). "It is a very important relationship, and the fact that we had so little
control information was not proper. Starting from here you can begin to think about
how we pay and how we establish incentives. The commissions system is very simple,
it is easily calculated and explained, and partners understand it quickly. The
disadvantage is that it does not motivate appropriately. It sets incentives toward serving
the biggest client, more commission with less work [...] if we have the information and
the profile, the following step is to evaluate them" (CMD manager of partners).
Analyzing the IOR value chain, the supplier defined 37 performance measures
(including financial and nonfinancial, and internal and external measures), their relative
weights, and the desired level of development. These performance measures covered all
the
channel
activities,
including
warehousing,
delivery,
administration,
and
commercialization. "They know what points we will value, and both parties agree
yearly where they want to arrive in each one of these areas" (District Director). It was a
system for continuous improvement whose principal goal was the enhancement of
partners’ sales activities. “We already have the personnel and systems necessary for
control. What we are after is to clarify, both for us and for them, what we want them to
do, encouraging improvements” (CMD manager of partners). “The supplier now
demands more; they want us to visit and assist clients. Before this was secondary, and
now it is more valued" (Partner C-4). Through this mechanism, CMD obtained a
ranking of its partners every year, so it could reward best performances. The system also
allows the supplier to identify distributors who require more assistance, enhancing
strong points and eliminating weak ones. “It is useful, you can see your defects and you
can try to correct them" (Partner A-2). However, each distributor knows only its own
evaluation, and which distributor is the best in each category (group A > 600,000
Euros/year; group B > 360,000 Euros/year; and group C < 360,000 Euros/year). CMD
can now detect shortfalls item by item and partner by partner, in order to implement
pertinent individual objectives. Each year, the supplier and the partner have meetings in
order to mutually agree exactly what each one is willing to give, establishing joint
improvement projects. "These tools allow us to settle objectives; every year we have a
meeting and we establish them, together with the supplier personnel. The point is that
each one knows what he has to do and where to do it" (Partner B-1).
From 2002 to 2006, CMD designed a distributors’ web page that included all of
the former IFG mechanisms, as well as some new services and information (optional
low-cost responsibility insurance, a safety advisor, ISO-9000 consulting, email, a client
complaint resolution program, processing of client debts, and ISO-14000 consulting).
"To be able to use the web page and the new applications more efficiently, a specific
training program has been elaborated…it is an open environment that will incorporate
all those contents that are considered of interest to the channel. Please, send me any
suggestions" (Agents Manager letter to the channel).
In 2005, the US headquarters decided to change its worldwide enterprise
resource planning (ERP), migrating to SAP. This change over took 4 years, from 2005
to 2009. Initially, because of the need to homogenize all processes, and because the
Spanish business style was different from that of other countries, the parent firm
decided to eliminate the IFG mechanisms described above. Over time group member
companies in other countries had developed different distribution channels focused
mainly on distributors acting as resellers, and they perceived no need to develop any
concrete IFG mechanisms because in their philosophy they saw distributors as end
clients. However, a headquarters team did a deeper analysis and decided to select
CMD’s system as a worldwide best practice, including it in the new SAP, and investing
more time and money in their distribution channels. In a first step, CMD decided to
maintain the distribution channel’s software in a parallel way, while it adapted its own
procedures and software to the new context. In the second step, the supplier developed
new interfaces and software for distributors in order to update former shared software,
making it compatible with the SAP environment. This model of IOR management was
being exported to other European countries with excellent results, as CMD’s CEO
stated. One of the managers underlined the reasons for implementing this system
throughout Europe. First, distribution costs: “At the moment, in France, our trucks are
half loaded. Second, we will offload a heap of administrative work”. Second, inventory
reduction: “Currently we have 325 distributors in France who have at least 15,000
containers. If we improve routes and rotation, we improve asset management and reduce
costs.” Third, improved market presence: “We will improve our proximity to the clients.
Usually, these are two conflicting concepts: if you reduce costs you reduce service. But
in this case, curiously, by reducing costs we improve service.”
Currently, the distribution channel management is based on this set of IFG
mechanisms: contract, commission system, updated software, shared management
information, distributor evaluation system, and distributor operating manual. The
content has changed slightly to correct some errors, but overall CMD maintains the
same philosophy: give to receive. In most of these changes, the supplier took into
account distributors’ suggestions. Now, distributors work in SAP and have new
software to do the same tasks, with a few improvements. For example, since 1998
distributors have opened new client files; nowadays, they have a concrete program with
more fields to fill (e.g., more contact fields, information about timetable, special
discounts, etc). Or, for example, since 2005, distributors have had a client complaint
program, and now they have an improved version in the SAP environment.
As a result, interviewees commented that IFG had brought about operating
improvements, greater efficiency in externalization of existing and new functions, lower
personnel and structural costs, greater control of stocks and of the end market, the
optimization of logistic routes, and the ability to track assets (containers). As
interviewees stated, they previously had only sales data; they were unaware of the
impact of the partners’ behavior, the excellence of their management, the potential of
their zones. Both parties did have data, but dispersed; now, with these new shared IFG
mechanisms, data are better and more concise, known to both parties, and jointly
assessed and validated each year. In order to avoid suspicion, the supplier’s policy was
to “give in order to demand,” because, as managers argued, they must always sell what
they do. They wanted to share systems that eased partners’ management and at the same
time allowed them to gather more information. “You must always sell what you do. We
want to devise systems which ease [partners’] management, at the same time allowing
us to gather better information” (Former CEO). This approach evidently worked;
Partner B-2 commented, "With these changes, now we have more responsibilities, for
the same commissions…I believe that the supplier has opted for us; they are setting up
more means and tools…they provide us with all the data that interest us for our
management."
Likewise, our interviewees drew attention to market positioning, highlighting the
importance of the sales and commercial tasks in the new partner profile, and of reaching
remote clients while maintaining acceptable operating costs and a high, homogeneous
level of quality – better than that of their competitors, as CMD’s CEO argued. An
increase in sales after 1999 (see Table 2) can be attributed to several factors, among
which are the evolution of the market itself, the premium prices policy, and the
introduction of new services supplied to end clients by partners (services that were
billed by the supplier to the final clients). The profitability of the IOR is more than three
times that of the direct sales, because “partners cater to small clients at a higher price,
with a range of more profitable products, smaller structural costs, and more timely
payment” (controller). According to interviewees, the more consolidated market that the
IOR had achieved played an important role in this growth, as it permitted a sharp
increase in prices while maintaining market share. It also freed CMD’s sales staff for
other functions (development of new applications for products, attention to strategic
clients, etc.). “Although our system is more costly [than those of competitors], we know
who our partners sell to, when, and in what way” (Sales Manager). “Clients value
having closer distribution centers, able to offer an agile delivery service, 24 hours, to
assist with urgencies; and not all companies do that. Clients value that the distribution
channel is able to offer other services, such as advice, facilities, training, and
maintenance; and that differentiates us" (Commercial Director).
5. ANALYSIS AND DISCUSSION
In this section, using the framework of Adler and Borys (1996), we analyze the
formal mechanisms’ characteristics on the coercive vs. enabling continuum to determine
how each mechanism relates to the two main functions. Second, we discuss whether
IOR evolution causes or results from the evolution of the IFG mechanisms.
5.1. Analysis of the formal mechanisms’ characteristics and their function
Since 1985, when CMD decided to formalize its distribution channel, the complexity of
its IFG has progressively increased. The supplier increased the number of formal
mechanisms from 2 to 6, also increasing the variety of their characteristics. Taking into
account the evidence about the function of each mechanism, we can differentiate two
clear periods of time, each of which presents different mechanisms and IFG functions.
Table 2 lists the similarities and differences between the early period (1985-1997),
when the supplier introduced mechanisms to monitor the IOR unilaterally; and the later
period (1998-2010), when the supplier began to share its IFG information with its
multiple partners, allowing them to use it also. We differentiate between dual use,
meaning that both parties in the relationship can use a given mechanism, and twofold
functions, referring to use for different purposes (to control and coordinate). Overall, the
IOR has evolved from an arm’s-length toward a partnership relationship.
-- Table 2 here --
5.1.1. Unilateral use of IFGs (1985-1997)
From 1985 to 1997, CMD had a simple IFG (according to Stern et al., 1996), formed by
two mainly coercive mechanisms (see Table 3): the contract and the commission system.
The consignment contract was standard for the entire channel, and established the duties
and risks assumed by all members. The commission system aligned the supplier’s and
distributors’ objectives. It was calculated on the basis of sales over the period – more
sales more commission – regardless of what led to them, and did not facilitate “what if
analysis.” Both tools were imposed by the supplier, take it or leave us, shaping a rigid
operational rule that all distributors had to accept. Both mechanisms were inflexible and
did not recognize exceptions nor customizations. These mechanisms were unilaterally
developed by CMD, and unilaterally used by its own employees, who sought to reach
the firm’s desired results by dissuading distributors from opportunistic behaviors. For
example, sales employees had a data base (GESCOM) that stored information about
clients, sales, prices, units, and so on. This internal tool provided them with standard
and/or ad hoc reports. This information could be classified by distributors, but the firm
did not share it with the distribution channel. Only its own employees used its
information. During this period, IFG tools were monitoring devices that took into
consideration only the results and not how they were achieved. The only exception was
the contract, which obligated both sides, and was lightly used by distributors in order to
know what they had to do, and by the supplier as a coordination device (e.g., to assign
geographical areas and the client portfolio).
-- Table 3 here –
5.1.2. Dual use of IFGs (1998-2010)
Since 1998, CMD has gradually developed four additional mechanisms to complete and
improve its IFG (see Table 3): shared software, a management manual, an evaluation
system, and the GESCOM scorecard. These mechanisms were developed progressively
without discarding the older tools, increasing IFG complexity and the variety of tool
characteristics in terms of Adler and Borys’s framework. In this period of time,
information began to be shared with distributors, and distributors began to use the
information to coordinate with the supplier (dual interorganizational use). From the
qualitative analysis shown in Table 3, we have established Figure 1, which represents
from the supplier’s perspective how the tools serve both functions and where they fit on
a coercive-enabling continuum.
-- Figure 1 here -Some of the new tools are very enabling (the scorecard) and others very coercive
(the evaluation system), but all are more enabling than the previous tools (contract and
commission). Basically, we found that CMD has become more interested in managing
the distribution channel, taking into account the interest and opinions of distributors
when its employees are designing and developing the new mechanisms, and being more
flexible in their design and use. This seems to show that IFG tools present more
coercive characteristics in the initial stages of a relationship and subsequently evolve
toward a more enabling nature.
In accord with Dekker’s (2004) arguments, when one considers both sides of the
relationship the evidence shows that all of these new tools are used simultaneously for
control and coordination. However, when each side is contemplated alone some
differences can be appreciated. From CMD’s perspective, generally, all the new shared
tools, regardless of their characteristics, allow the supplier to delineate roles, rules,
programs, and procedures, and thus to integrate more and more complex externalized
activities. CMD coordinates and gets better control, seeing the end market through
distributors’ eyes. But Figure 1 also shows that some tools are used more for control
than for coordination (e.g., the evaluation systems) and vice versa (e.g., the scorecard).
Although CMD employees recognize that all the tools can be used for both functions,
the supplier’s dominant use of each tool seems to be related in some degree to its
enabling/coercive attributes.
From the partners’ perspective, shared tools are used to coordinate the
relationship. They support partners, putting them in a better position to manage their
client portfolio and to make better decisions. Distributors’ use seems not to be affected
by IFG tool characteristics: distributors seem to see all IFG mechanisms as
complementary devices that allow them to understand the supplier’s expectations, and
as ways in which the supplier empowers them and values them. It is the more enabling
character of the tools that is affecting the distributors’ positive view of the supplier’s
monitoring, which they now consider friendlier and less aggressive.
5.2. Analysis of the evolution of IFG
In the earlier period (1985-1997), distributors received CMD products on
consignment and carried out their distribution and sales tasks. IFG mechanisms were
used, mainly by CMD’s sales department, in order to control and monitor partners.
Through this unilateral use, the supplier tried to structure, limit, and regulate
distributors’ behaviors. The outsourced tasks were few and not complex, and the scant
necessity for coordination was formalized by the contract, and in an informal way
through the sales employees. The commission system pressured distributors only to
increase sales, and distributors were evaluated only by their sales/commission evolution.
The sales department was the only link between the supplier and partners, a situation
that often led to misinterpretation, oversight, or loss of information. In fact, top CMD
managers found that not all the partners were receiving the same message at the same
time, and they lacked the proper information to manage their geographical areas and
client portfolios. In sum, CMD managers thought that they had dispersed and sporadic
information and little influence over partners’ behaviors. They felt limited capacity for
monitoring (as argued by Celly and Frazier, 1996), as neither the contract nor the sales
department communicated to the partners exactly what the supplier expected of them.
The IFG tools, basic and commonplace in distribution channel management (Stern et al.,
1996), failed to define proper efforts and behaviors for the distributors. For example: (a)
distributors could be satisfied to maintain the current client portfolio, not seeking new
market opportunities. With a portfolio assigned by the supplier, partners had a fixed
remuneration, which meant that bad distributors in good areas could obtain bigger
commissions, and vice versa. (b) Distributors could deliver inadequate goods or services,
acting inefficiently or providing distorted information, and thus harming the supplier’s
reputation. (c) The commission system also failed to motivate container collection, so
CMD could not meet its targets for container rotation. (d) Some distributors favored
high-volume clients that generated high profits, a problem when a client made an urgent
order that the partner had to fulfil, even though the service cost outweighed the
commission. Furthermore, partners, although they had exclusive sales territories, could
also carry out other economic activities that took their time and attention away from
CMD business.
These control problems, although perceived, did not provoke an IFG change
because CMD did not then value distributors’ activities as strategically relevant. In this
period of time, CMD was more focused on production. After 1992, the company moved
toward a market-based strategy, valuing distributors’ activities and closeness to the end
market. Willing to externalize more and more complex functions and impelled by
control problems with the previous tools, CMD started step-by-step to develop new IFG
tools and share IFG information with distributors.
CMD began with limited and standardized information; shared software allowed
distributors to execute routine jobs that were new administrative tasks for them. Partners
had private information regarding their geographical areas, and their own effort, skills,
and productivity, that the supplier lacked. This tool gave the supplier access to better
and more complete information about end clients’ activities, frequency, and problems,
and about the market in general. Consequently, this IFG mechanism improved both
coordination and control.
The supplier’s effort to outsource more tasks necessarily increased the
distributors’ sales autonomy (empowerment), because the new commercial tasks were
more uncertain and less standardized, needing better knowledge and information about
local business. The coercive characteristic of the older tools left the partners little room
to adapt their actions to local needs and changing circumstances. For that reason, CMD
promoted a joint design that could better satisfy partners’ local information needs. This
new and enabling mechanism allowed distributors to better coordinate their commercial
actions, interacting creatively with clients, other distributors, the supplier, and the local
environment.
But whereas environmental uncertainty requires flexibility, the efficiency of
day-to-day operations requires standardization. The importance of the recently
outsourced tasks brought about the development of a new coercive tool, a management
manual. With this, CMD standardized some basic commercial and administrative
procedures for its partners. This manual specifies in advance some key eventualities and
the operational rules and standards by which to handle them. This new tool clarified the
technical characteristics of each party’s work, preparing distributors and conditioning
their behavior.
Both parties used IFG mechanisms to coordinate former and new and more
complex activities. As Gulati and colleagues (2005) theorize, the supplier realized that it
needed to share information to enable partners to deal more effectively with inevitable
operational contingencies. As they have engaged in more valuable and complex
endeavors that entail greater interdependence, the coordinating role has become
increasingly important (Mellewigt et al., 2007), but IFG also must influence the level of
effort once everything is in place. Accordingly the new evaluation system was
implanted to complete the former commission system. It allowed aligning partners’
behavior with the new strategic tasks, focusing their attention on new functions that
were more relevant from the strategic point of view.
Our evidence shows how IFG functions have evolved intentionally with the IOR.
Figure 1 exhibits the path of IFG development. This development path shows CMD’s
decision to outsource new tasks, provoking the gradual development of new tools, and
in turn the evolution toward coordination. But the execution of these new tasks
necessitates new government mechanisms. Overall, the supplier’s decision to provoke
an IOR evolution makes it necessary for IFG mechanisms to evolve from control
functions towards coordination purposes (see Figure 1). In contrast to Mellewigt and
colleagues’ (2007) proposal, our study also shows that this development gives the
supplier increasingly reliable and timely information to control its partners and the end
market. That is, the control function maintains its importance over time, even when the
IOR evolves.
The case shows that keeping the contract constant, IFG development has created
a frame where information flows to facilitate problem solving, resolve disputes
promptly, improve relation fluency, and manage interdependencies. The combination of
different tools with different formalization attributes (Adler and Boris, 1996) has
allowed the establishment of some minimal structures that define responsibilities,
priorities, and procedures for participants, while at the same time creating for them
“zones of maneuver” within which they can interact, communicate, and create
knowledge, as Van der Meer-Kooistra and Scapens (2008) proposed. As Figure 1
summarizes, in completing the contract and commission system, the supplier developed
a new, less coercive tool in order to externalize new administrative tasks. Next, in order
to outsource proactive sales activities, the supplier established a more enabling tool. To
complete both tools, a more coercive tool was considered necessary to standardize these
activities. Additionally, in order to motivate these new activities, the supplier instituted
the coercive evaluation system. The resulting relationship is highly structured but
allows partners to use their own knowledge and experience to react to environmental
changes. Consequently, the supplier was developing specific tools depending on the
characteristics of each intended outsourced activity.
Although CMD initially sought to outsource more activities, the combination of
tools (with different enabling and coercive characteristics) used by both parties for
control and coordination purposes has created a dynamic “style” maintained over time.
It has allowed the growth of unique organizational capabilities, forming CMD’s main
competitive advantage, capabilities that this supplier transfers to other European
countries as best practices and that have even survive SAP implementation.
6. CONCLUSIONS
According to the agency theory and the resource-based perspective IFG has two
functions, control and coordination. Whereas control tends to mitigate agency costs,
coordination serves the effective actual management of the IOR, facilitating value
creation. This longitudinal case study emphasizes the relationship between both
functions and IOR evolution. Distinguishing two clear periods allows us to deepen our
analysis. The early stage presents a unilateral use of IFG mechanisms for only one
function; it was mainly the supplier that used IFG, and mainly for control purposes. In
this period, by developing basic and commonplace mechanisms, the supplier tried to
mitigate classic agency problems. In the second stage both parties worked with the same
IFG mechanisms, and these mechanisms served both functions. Our analysis of these
mechanisms on the coercive vs. enabling continuum (Adler and Borys, 1996) shows
that each mechanism presents diverse attributes, seeming to highlight two interesting
results:
(1) According to Dekker’s (2004) arguments, both functions are simultaneous.
Our findings highlight that in general, taking into consideration both perspectives, each
tool does simultaneously develop both functions. However, a deeper analysis from each
perspective presents interesting differences. From the supplier’s perspective, some tools
are used more for control than for coordination and vice versa, and the use seems to be
partly related to the tool’s enabling/coercive attributes. From distributors’ perspective,
all IFG mechanisms are complementary devices, opening an interesting research avenue
to analyze why tool characteristics do not affect their use. The more enabling character
of the new tools is reflected in the distributors’ positive view of the supplier’s control
use.
(2) The case suggests that IFG tools present more coercive characteristics in the
initial stages of a relationship and subsequently evolve toward a more enabling nature.
Developing new and more complex mechanisms, the supplier opted to invest in
managing its distribution channel, taking into account distributors’ interest and needs as
its employees were designing and developing the new mechanisms, and being more
flexible in their design and use. The case seems to indicate that the coercive vs. enabling
characteristics of each tool may be determined by the characteristics of each intended
outsourced activity.
The evolution toward dual interorganizational use favored a more structured
relationship that allowed partners to use their own knowledge and experience to react to
environmental changes. Because more activities were outsourced, each tool came to
complement, rather than replace, earlier tools. Different mechanisms were developed
over time, flexibly completing the incomplete contract.
This case shows how IFG can influence the development of a long-term
partnership, completing and redriving the contractual agreement in a flexible and
unforced way. When combined, dual use and the twofold function of IFG can produce
unique organizational capabilities – the distribution channel management style –
creating key competitive advantages.
The results and the constraints of our study suggest avenues for further research.
It would be interesting to compare and contrast these results with data from other case
studies. For example, our results might not be applicable to nonvertical relations. Also,
we focused on common aspects of the relationships between the supplier and all of its
distribution channel members. An extension of this work could carry out another
research strategy to consider each dyadic relationship, in order to analyze different rates
of IOR evolution provoked by IFG development, as well as moderating variables that
can explain such differences, such as different levels of trust.
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Table 1. Adler and Borys’s (1996) Framework

To a great extent 
 To a minimal extent 
Characteristics
Enabling
Repair
More enabling tools integrate information about process and task to reach targets and to search for solutions to potential
problems. They generate information that facilitates responses to real work contingencies. So an IFG tool will be considered
more enabling if it
1. is designed and implemented so that it might be reconfigured by users,
2. is designed and implemented so that it might be reconfigured by designers following users’ recommendations,
3. acts as a valuable resource informing users about their actions,
4. signals problems and opportunities for improvement,
5. gives users access to very detailed information in order to investigate problems or deviations,
6. is designed so that user-driven changes to the format and make-up in terms of measurements of reports are possible,
7. facilitates what-if analysis and investigation about causes of performance rather than simply facilitating the production of
routine reports, focused only on target achievement.
More enabling tools explicate the key components of processes, guide understanding of processes, and give users quick
feedback on their performance by providing metrics that help them to assess their performance. So an IFG tool will be
considered more enabling if
1. It is a working tool instead of a monitoring device.
2. It seeks to give a common data set and clearly mapped business processes.
3. It helps to clarify the activities that make up every business unit.
4. It increases the user’s knowledge of the operations of every business unit.
5. It provides an excellent platform that can inform its users in detail concerning the inner workings of the processes it acts
upon.
6. It gives detailed information on the drivers of results, allowing a better understanding of what drives revenue/cost levels.
7. Its integrated measures are objective and accurate.
8. It increases the knowledge of how each business unit works as a whole.
This refers to the breakdown of control processes,
providing capabilities for fixing them. The intuition is
that not everything can be foreseen, and some intellectual
work (and consequent freedom) must be left to users to
determine the appropriate course of action in such
unforeseen circumstances.
Internal transparency
This is about understanding the working of local
processes.
Global transparency
This refers to understanding where and how the local
processes fit into the organization as a whole.
Coercive
If a system is to facilitate responses to emerging contingencies, then it must be used to provide a sense of where local actions sit
in relation to larger organizational strategies, goals, and agendas. Enabling formalization is not simply an exercise in
decentralization and delegation; it is an attempt to harness local creativity and flexibility. So an IFG tool will be considered
more enabling if
1. It offers a wide range of contextual information designed to help users interact with the broader organization and
environment.
2. It helps to communicate business unit strategy.
3. It is explained in detail to all users.
4. It signals areas in which we may need to change business unit strategy.
5. It reflects the users’ contribution to the organization.
6. It shows users where their own tasks fit into the whole, showing a larger representation of organizational activities and
Characteristics
Flexibility
This captures members’ discretion over the use of control
processes (i.e., the extent to which they can turn them
off).
Development process
(Design and implementation activities)
Enabling

To a great extent 
 To a minimal extent 
Coercive
business.
7. It helps the business unit to understand the overall context in which it is working.
8. It encourages interaction between previously distant individuals.
9. It generates regular and frequent flows of strategic information between operational and senior management
10. It allows analyzing information in order to come up with ideas for improving operations under control.
11. It allows thinking of new ways of doing things.
12. It positions individual units within a larger representation of organizational activities.
Because unconstrained flexibility is unlikely to be beneficial, IFG can offer an effective framework for mapping out individuals’
areas of responsibility and control. Flexible tools encourage users to adapt tools to their specific work demands. So a tool will
be considered more enabling if
1. It seeks to facilitate flexible responses to emerging events to the extent that the control systems can be turned off when
not needed.
2. It allows customization.
3. It allows for the setting of a variety of options ranging from blocking specific actions to automatic reporting options.
4. It allows activities that have not been built into the agreements.
5. It assumes that deviations are also learning opportunities, allowing a detailed analysis, and providing a flexible guide to
act.
6. It allows for members’ discretion to use it. It is not compulsory, allowing exceptions.
7. It is not focused on ensuring strict adherence to original assumptions and action plans.
The manner in which the development process is carried out affects how the tool will be perceived. So a tool will be considered
more enabling if
1. It allows users’ involvement.
2. Its development process is experience-based.
3. It utilizes local knowledge.
Source: Adapted from Adler and Borys (1996), Wouters and Wilderom (2008), and Chapman and Kihn (2009)
Table 2. IFG Usage and Main Characteristics of the Interorganizational Relationship
Supplier orientation
Main targets
Relationship benefits for the
supplier
Percentage of the supplier
total sales (average)
% supplier total client
accounts (average)
IFG users
IFG functions
IFG mechanisms
IFG designers
IFG effects
Involved supplier
departments
Problems
Control focus
Communication flows and
links
Relationship type
Unilateral use of IFG
1985-1997
Production
Logistics. To create a distribution
channel to cut logistic costs.
Cost and investment reductions
Client proximity
66 %
85 %
80%
95%
Supplier employees
Control
Contract, commission system and direct
supervision
Lawyers and top managers
Sporadic and dispersed information
gathered in a nonhomogeneous, sparse
way
A feeling of poor control
Sales department
Higher
Output
Sporadic
Sales department
Arm’s length
Dual use of IFG
1998-2010
Market-Clients
Client services. Giving to receive. To
reduce
the
supplier’s
costs,
outsourcing administrative and sales
activities. To detect weak points in the
relationship and to create a closer IOR
with a team feeling
Centers, staff, and cost reductions
Client proximity
Homogeneous client service
Higher quality service
Supplier employees and distributors
Control and coordination
Contract, commission system, software
GESCOM, management manual, DES
Marketing, logistics, control, and sales
managers (middle managers)
Gathering and sharing information in a
homogeneous way
A feeling of proper control
Sales,
logistics,
and
control
departments and client attention center
Lower
Output, activities, and relationship
Continuous and formalized IFG
All departments
Partnership
Table 3. Main Features and Functions Associated with IFG Tools
Contract
Control / Coordination
Enabling / Coercive characteristics
Control
It is the same contract for all distributors, not accepting changes or customizations. It establishes only the main legal provisions, not
“It is only a legal framework” (Supplier and
generating responses to actual contingencies. It does not provide a guide to understand the processes. It is only a legal framework, but
distributors). “Mainly, the contract gathers the
clarifies the main activities and their geographical scope. It provides task delegation, but not a sense of how local actions fit with
legal relations, the geographical area assigned,
organizational goals. Although it is explained in detail it does not help people communicate or interact. From a variety of optional
general instructions and economic conditions”
clauses, the supplier set a homogeneous contract, not allowing customizations or exceptions. It was designed by lawyers and supplier
(Supplier).
managers.
“We established an unique contract for all distributors” (Supplier).
“The main goal was legal” (Supplier and distributors).
Commission system
“It allowed us to dismiss some distributors, contracting others” (Supplier).
Control
It is the same system for all distributors, allowing only a few changes in special cases. It merely establishes the economic amount to
“We give a report with sales detail, and the
be paid, not allowing any analysis of it. It does not provide a guide to understand how to improve distributors’ commissions, only
commissions […] We compensate cash sales
showing their commission per product and per client. Although it is explained in detail and can be used to interact, it does not provide
with commissions. The distributor will give us a
a sense of how local actions fit with organizational goals. It is automatically calculated. It was created by supplier managers, and
promissory note with the difference. When the
established without their partners’ participation.
distributors have discrepancies, we will negotiate
“It is a system where if you have more sales, you earn more money” (Supplier).
the following month” (Contract clauses).
“It is a system which is clear, simple, understandable and reliable” (Supplier and distributors).
Shared software
Control / Coordination
Enabling / Coercive characteristics
Control & Coordination
It facilitates routine jobs and reports. The supplier’s top managers decide the list of tasks to be included. It is not open to suggestions
“We needed systems allowing us to maintain
by distributors, because in the end they all use the same supplier’s system. It flatly asserts tasks and activities. It establishes all
control,
through
distributors’ administrative activities but does not increase distributors’ knowledge of their main operations. It does not provide
distributors, under the supervision of our sales
distributors with the rationale for their work process. Information is presented in language familiar to the supplier, but not to
managers.” “Integrating our systems facilitates a
distributors. It does not allow a global vision of the contribution from each distributor to the global strategy. The information is
more efficient chain, increasing your knowledge
available to distributors on a restrictive need-to-know basis. It is a compulsory tool; they were forced to buy new computers. It was
about the final market. Although now the
developed by supplier demand, to satisfy the need for control and to increase outsourcing. It was designed by top managers;
management is more costly, we needed to invest
distributors did not participate in any phase of its development.
in it, with more resources and time” (Supplier
“We installed specific software to develop our tasks and to control the activities. It allowed us to reduce duplicated activities.
managers). “It is a part of a big program. They
Furthermore, we reduced our structure through distributors” (Supplier).
bet on us, and now we have the same tools [...]
“Now we develop the work of the supplier” (Distributors).
They
processing
incentive
the
us,
activities
valuing
our
work”
Scorecard
(Distributors).
Control & Coordination
Information can be reconfigured by both boundary employees and distributors. One year after implementation, the tool was changed
''It is very useful, to analyze, to compare, to
to include information suggested by users. It provides details in order to investigate causes of deviations. It provides objective,
negotiate" (Supplier). "It allows an ongoing
accurate, monthly feedback on how each distributor works, showing their internal process as a whole. It provides information on the
dialogue, helping in the analysis of contingencies
drivers of sales, distributors’ source of revenues. It provides information designed to help distributors interact creatively with clients,
[…] It allows us to have our independence and
other distributors, the supplier, and the environment. It shares information that was previously considered private. It allows
not to depend on the supplier […] It allows us to
distributors to interact with previously distant supplier employees. It is voluntary and can be customized for different purposes by
have a more direct relationship with the supplier.
both sides. It was derived from the distributors’ daily work. It was developed by a team that included distributors. A pilot experience
This tool allows us to be more integrated”
that also involved some distributors allowed correcting the tool before its definitive development.
(Distributors).
“It is a working tool” “It picks up information that some distributors were already demanding” (Supplier).
“It helps in our management, allowing us to take quicker decisions and to establish plans”
“This tool allows us to control our market” (Distributors).
Evaluation system
Management manual
Control / Coordination
Enabling / Coercive characteristics
Control & Coordination
Coercive. It establishes rules and task procedures. It looks for a homogeneous service, and cannot be reconfigured by users, not
“It allows us to have all the needed information
allowing customization. It is a working tool that seeks to give a common data set and clearly mapped business processes. It helps to
and forms (contracts, safety norms, etc.) to give
clarify the activities that make up every business unit, increasing the distributors’ knowledge of the operations of every business unit.
proper information to our clients” (Distributors).
It provides a wide range of information designed to help users interact with the supplier and clients. However, it does not help to
communicate business unit strategy and it does not show users where their own tasks fit into the whole. It seeks to facilitate
homogenous responses to emerging events. It cannot be turned off, and does not allow customization. It was designed by top
managers; distributors did not participate in any phase of its development
“This manual was edited as a support tool for the distributors’ daily work” (Management manual report)
Control & Coordination
It facilitates routine reports. The supplier’s top managers decide the list of performance measures. It is not open to suggestions by
“We agree with them, each year, what each one
distributors. It flatly asserts duties. It provides aggregated information on the execution of objectives. It highlights weak points to
is willing to give” (Supplier).
improve, but it does not show how to improve them. It provides yearly feedback on 37 performance indicators. Some measures are
“We can see our defects and try to correct them”
seen as subjective and inaccurate. It assesses all activities but does not increase distributors’ knowledge of their operations. It does not
(Distributors).
provide distributors with the rationale for their work process. Information is presented in language familiar to the supplier, but not to
distributors. It shows each distributor’s absolute results, but not ranking. It informs distributors about strategic aspects of the channel,
allowing a global vision of the contribution from each distributor to the global strategy. It signals areas in which distributors need to
change. The information is available to distributors on a restrictive need-to-know basis. It is a compulsory tool. All distributors are
measured with the same parameters. It was developed by supplier demand, to satisfy the need for control. It was designed by top
managers, with the help of an external consultant firm; distributors did not participate in any phase of its development and did not
even know that the supplier was working on it. It was completely new for distributors. Its items and measures had never been used
until then.
“We do not want distributors knowing the results of others” (Supplier).
“The supplier gives us a list of targets and objectives to reach”
“It is an evaluating device” “The supplier controls us” “They tell us only how an ideal distributor is” “We miss our participation to
create a mixed system that was good for both parties” (Distributors).
Figure 1. IFG functions on a coercive-enabling continuum from the supplier’s perspective