Outsourcing & Culture what about Trust and Control?

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Outsourcing & Culture

what about Trust and Control?

Lotte Span

Student number: S2341239

University of Groningen Faculty of Economics and Business MSc BA Organizational & Management Control

Supervisor: A.R. Abbasi

2015

Word count: 13.908

Abstract

Outsourcing is a form of a vertical inter-‐organizational relationship, is an increasingly popular method, and is incredibly important to achieve competitiveness. Although an increasing competitive advantage is gained by becoming involved in inter-‐organizational relationships, there is also growing evidence of high failure rates of the relationships; this can be attributed to the increased risk compared to in-‐house activities, and also to the difficulty of managing them, to a lack of cooperation, or to partners behaving opportunistically. Control and trust play a prominent role in the success or failure of any collaboration, and there is plenty of research concerning these concepts. This master’s thesis investigates the effects of organizational culture on the concepts control and trust. The theory is developed based on a case study of two outsourcing relationships in the Netherlands. The results of the interviews show that the organizational culture has a substantial influence on the success of an outsourcing relationship.

Keywords: Outsourcing; inter-‐organizational relationships; control, formal control mechanisms;

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TABLE OF CONTENT

1.

INTRODUCTION ... 4

2.

LITERATURE REVIEW ... 7

2.1.

TRUST ... 7

2.2.

CONTROL ... 9

2.3.

RELATIONSHIP BETWEEN CONTROL AND TRUST ... 11

2.4.

ORGANIZATIONAL CULTURE ... 11

2.5.

EXPECTATION FRAMEWORK ... 13

3.

METHODOLOGY ... 15

3.1.

RESEARCH APPROACH ... 15

3.2.

RESEARCH PROCESS ... 15

3.3.

QUALITY CRITERIA FOR RESEARCH ... 16

3.4.

CASE DESCRIPTION ... 17

3.5.

METHOD OF DATA COLLECTION ... 17

3.6.

METHOD OF DATA ANALYSIS ... 18

4.

RESULTS ... 19

4.1.

RELATIONSHIPS ... 19

4.2.

TRUST ... 20

4.3.

CONTROL ... 23

4.4.

ORGANIZATIONAL CULTURE ... 25

4.5.

5.

DISCUSSION ... 30

5.1.

INFLUENCE OF TRUST ON THE RELATIONSHIP ... 30

5.2.

INFLUENCE OF CONTROL ON THE RELATIONSHIP ... 30

5.3.

INFLUENCE OF CULTURE ON THE RELATIONSHIP ... 31

5.4.

5.5.

SUMMARY ... 32

6.

CONCLUSION ... 33

6.1.

IMPLICATIONS ... 33

6.2.

LIMITATIONS AND FUTURE RESEARCH ... 34

7.

REFERENCES ... 35

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1. Introduction

In order to compete in a globalised market place, organizations use inter-‐organizational relationships. This is a way of gaining access to specialised skills and competencies that the organizations need to survive (Coletti, Sedatole & Towry, 2005). Such inter-‐organizational relationships have become an important research topic in strategy, economics, and organizational science areas (Dekker, 2004). A review of the current literature indicates that networking boosts innovation output and firm competitiveness in a diverse range of industries (Jolink & Dankbaar, 2010). An example of this is Coca-‐ Cola: In order to cut costs, the company transferred a part of the production into a strategic alliance; the goal was a savings of three billion dollars by 2019 (Het Financieele Dagblad, 2014).

There are many variations of inter-‐organizational relationships: Between competitors (horizontal), between buyers and suppliers (vertical), and between firms that operate in different industries (diagonal) (Nooteboom, 1999). These relationships can encompass many forms, including franchises, joint marketing ventures, joint product development, joint research and development, joint marketing arrangements, long-‐term supply arrangements, and outsourcing relationships (Das & Teng, 1998; Langfield-‐Smith, 2008; Nootenboom, Berger, & Noorderhaven, 1997; Van der Meer-‐Kooistra & Vosselman, 2000). The focus of this master’s thesis is outsourcing relationships because outsourcing is an increasingly popular method, and it is extremely important in order to achieve competitiveness (Belcourt, 2006; Langfield-‐Smith, 2008; Sky & Stenbacka, 2003; Vining & Globerman, 1999). Outsourcing is a form of vertical inter-‐organizational relationship, since organizations that are participating in the relationship are operating in the same industry and are not competitors (Nooteboom, 1999). When a third party is contracted to complete a service or an activity, there is an outsourcing relationship (Langfield-‐Smith & Smith, 2003). There are several reasons to outsource activities, for example, using outside resources (Arnold, 2000), reducing costs (Hendry, 1995), providing quality support, or focusing on the core competencies (Belcourt, 2006; Vining & Globerman, 1999).

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commonly drawn conclusions are that the relationship between trust and control is complex, as well as dynamic. Control and trust are not isolated concepts; they interact (Vosselman & van der Meer-‐Kooistra, 2009, p.269), but the way they interact is not clear.

As mentioned, plenty of research has been conducted concerning the relationship between the concepts of trust and control. Prior research has resulted in multiple suggestions for future research. One of the points for future research, which is also often made in other fields, is that the prior research was conducted at one case company (Dekker, 2004; Langfield-‐Smith & Smith, 2003). Obviously, the more research undertaken in different case studies, the more empirical data will be available to explore the dynamics of trust and control (Costa & Bijlsma-‐Frankema, 2007; Dekker, 2004; Langfield-‐Smith & Smith, 2003). Understanding of this dynamic is increasing in importance (Costa & Bijlsma-‐Frankema, 2007). Furthermore, most case studies occur at the perspectives of one of the collaborating companies, so both the outsourcer and the outsourcing company in the relationship should be investigated (Langfield-‐Smith & Smith, 2003). A further suggestion is to examine the influence of the organizations’ cultures in the relationship (Van der Meer-‐Kooistra & Vosselman, 2000). Fourth, Dekker (2004) completed a study about the control in inter-‐organizational relationships; in that case study, the partner had already been chosen before the purpose of the relationship was determined. Then, the following suggestion arises: Study the relationship when the firms start by identifying the need or the problem that causes a need for an inter-‐organizational relationship and then start the process of partner selection. Fifth, the paper from Langfield-‐Smith and Smith (2003) focused on a case study of an outsourcing relationship and how control mechanisms and trust worked together to achieve control. The outsourced function was information technology, and it may be questioned whether the control patterns extended to other outsourced functions, such as human resource management or production maintenance. Another suggestion is to examine how the inter-‐organizational relationship develops over time, particular evolutions of the control mechanisms and trust, and the choices that are made in the inter-‐organizational relationship over time (Dekker, 2004).

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thesis’s research question is the following: How are the concepts trust and control, and their

relationship, influenced by the different organizational cultures in an outsourcing relationship?

This study could have implications for entrepreneurs that are in inter-‐organizational relationships or starting them and might help to build and sustain successful relationships. Since inter-‐organizational relationships involve coordination of multiple partners (Das & Teng, 1998), control can be an important aspect. Also, the activity of management control goes beyond the boundary of the organization, and this is no longer confined within the organization’s legal boundaries (Otley, 1994), so trust can be an important aspect. In addition, the activity of management control is affected not only in the organization but also between the cooperating organizations (Dekker, 2004), so the organization’s culture can be an important aspect. This research studies these aspects and the relationships between these concepts.

In the next chapter, the theoretical backgrounds of the concepts trust, control, and culture will be given and discussed. Second, an explanation, according to the current literature, of the relationship between trust and control will be provided. This literature analysis will result in sub-‐questions, which will help answer the main research question as previously formulated. Then, the study’s expectations model will follow. The third chapter will include the methodology section. This will give an explanation of the method used to answer the research and sub-‐questions, as well as a description of the companies that will be interviewed, followed by the results chapter, showing the data gathered from this research. In the next chapter, the results will be discussed; thereafter, the conclusion will be presents and will also incorporate the limitations of the study, managerial implications, and suggestions for future research.

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2. Literature review

This master’s thesis’s research question is as follows: How are the concepts trust and control, and their relationship, influenced by the different organizational cultures in an outsourcing relationship? The research field for studying the relationship between trust and control and the influence of the organizational culture is the outsourcing relationship. The form of inter-‐organizational relationships is the outsourcing of the company’s non-‐core and core activities (Langfield-‐Smith & Smith, 2003). Outsourcing is a form of vertical inter-‐organizational relationship, since organizations that are participating in the relationship are operating in the same industry and are not competitors (Nooteboom, 1999). When a third party is contracted to provide a service or an activity, an outsourcing relationship occurs (Langfield-‐Smith & Smith, 2003). There are differences in outsourcing, for example, manufacturing activities, traditional in-‐house administration, and management functions (Langfield-‐ Smith & Smith, 2003). This study will focus on manufacturing activities. The key terms of this research are trust, control, the relationship between trust and control, and organizational cultures. These key terms will be described first, followed by an expectation model.

2.1. Trust

2.1.1. Why is trust needed?

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2.1.2. What is trust?

Trust is seen as a complex phenomenon to understand (Oza et al., 2006). There is little consensus on the definition; as a consequence, there is no generic definition of trust (Mayer et al., 1995). This makes it a difficult concept with which to work (Oza et al., 2006). For instance, in Gambetta’s (1988) definition, trust is defined “as the expectation that another’s action will be beneficial rather than detrimental” (p. 217). This definition suggests that risk taking is related to trust because the trusting party expects by trusting the partner that the outcome is suitable; however, there is a chance of becoming disillusioned (Costa & Bijlsma-‐Frankema, 2007). The definition of Mayer et al. (1995) includes the previous definition but also includes the willingness of a party to be vulnerable and the ability to control the other party. This definition is relevant for a relationship with a partner who is willing to perform and respond with volition toward the partner of the inter-‐organizational relationship. Taking risks is not always needed for trust, but the willingness to take risks is important (Mayer et al., 1995). Many other scholars have adopted the definition of Mayer et al. (1995); this increases its credibility. The following definition of Mayer et al. (1995) will be used for this research:

The willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party. (p. 712)

Trust manifests itself in different ways and can have several origins (Dekker, 2004). Trust can relate to distinct firm characteristics, of which in inter-‐organizational relationships the intention and capabilities of the partners are important (Sako, 1992). Trust can be divided into many categories. For example, the distinction between affect-‐based trust and cognition-‐based trust (McAllister, 1995) or the distinction between deterrence-‐based, knowledge-‐based, and identification-‐based trust (Sheppard & Tuchinsky, 1996). Another distinction is from Barney and Hansen (1994); they suggested that there are three forms of trust, depending on the degree of vulnerability of the inter-‐organizational relationship: weak, semi-‐ strong, and strong. Another distinction of trust’s different origins is the differential of calculus-‐based trust, relational trust, and institution-‐based trust (Rousseau, Sitkin, Burt & Camerer, 1998), or the distinction between thin trust and thick trust (Vosselman & van der Meer-‐Kooistra, 2009). Although many categories exist, the distinction between contractual, competence, and goodwill trust is seen as the most relevant, regarding the formation and management of inter-‐organizational relationships (Sako, 1992)

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2008; Nooteboom, 1996). On the other hand, goodwill trust, Sako’s (1992) third type of trust, focuses on the expectation of the partner’s goodwill to perform in the interest of the inter-‐organizational relationship, even if the action is not in the interest of the partner (Dekker, 2004; Langfield-‐Smith, 2008; Nooteboom, 1996; Ring & Van de Ven, 1992). This type of trust is associated with dependability, responsibility, and integrity (Das & Teng, 2001a). Both the perceptions of competence trust and goodwill trust may arise from prior work experiences with the partner and other interactions. When there is no experience with the partner from earlier relationships, the partner’s reputation will influence the perception of trust (Langfield-‐Smith, 2008).

The three types of trust are important for this study in multiple ways. First, they may explain the reason why partners are chosen at the beginning of the relationship. Also, when a party knows the reason for choosing a particular partner, the right control mechanisms can be chosen. Understanding of the different types of trust and their risks can reduce the risk of the relationship and increase the change of success of the inter-‐organizational relationship (Das & Teng, 2001b; Langfield-‐Smith, 2008; Spekle, 2001). Therefore, it is important to know the different types of trust and what their influences are on the inter-‐organizational relationship, as well as how to react when there are changes, for whatever reason.

With the previous theory as background, the following sub-‐question is formulated as follows:

1. What is the influence of goodwill, contractual, and/or capability trust in an outsourcing relationship? Is there change to this influence overtime?

2.2. Control

2.2.1. Why is control important?

Control is generally viewed as a process of monitoring and regulating the achievement of (inter) organizational goals (Das & Teng, 2001a). The purpose of control is to fashion activities in accordance with expectations so that the ultimate goals of the organization can be attained. Partner control in an inter-‐organizational relationship can be seen as a regulatory process by which the partner's pursuit of mutually compatible interests is made more predictable (Das & Teng, 1998). There are several well-‐ established models or frameworks for studying management control systems’ designs (Flamholtz, 1983; Merchant, 1985; Ouchi, 1979; Simons, 1995). The majority of models and frameworks examine control systems within an organization; there are just a few models/frameworks that consider management control systems in outsourcing relationships (Langfield-‐Smith & Smith, 2003).

2.2.2. What is control?

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rewarding. Control systems have been designed and divided into types in various ways (Langfield-‐Smith & Smith, 2003).

According to Das and Teng (1998), goal setting, structural specifications, and cultural blending are three important control mechanisms in inter-‐organizational relationships. Goal setting is important because it gives a direction for the tasks’ performance, increases the goal agreement, and explains the expectations of both the partners. Structural specifications are the centre of formal control and can be like rules and regulations. A variety of structural specifications are normally used in an inter-‐ organizational relationship due to the will/need to create desirable behaviour (Geringer & Hebert, 1989). Cultural blending is important because the organization’s culture gives some degree of control. When one knows the culture of the organization, one also knows how the other party processes information and how that party responds to the environment. This is useful for predicting a partner’s behaviour (Trice & Beyer, 1993). Compared to single organizations, in an inter-‐organizational relationship dealing with organizational culture creates opportunities as well as challenges (Sankar, Boulton, Davidson, Snyder & Ussery, 1995), especially regarding two different organizational cultures that can have conflicting elements (Wilkof, Brown, & Selsky, 1995). Many inter-‐organizational relationships fail because of cultural conflicts (Das & Teng, 1998).

Another distinction is between formal and informal control mechanisms (Smith et al., 1995). Informal control is based on the mechanisms that induce self-‐regulation. It is related to the cultures and other systems that influence the partner (Ouchi, 1979). Formal control concerns the contractual obligations and the formal mechanisms that create cooperation. Formal control can be distinguished by outcome control and behaviour control (Eisenhardt, 1989; Ouchi, 1979). Outcome control focuses on measuring and monitoring task or behaviour outputs. This can be accomplished by performance measurement. On the other hand, behaviour control concerns rules and standard procedures that review the behaviours of the individual (Langfield-‐Smith & Smith, 2003). It is also applicable when monitoring whether the actual behaviour of a partner is the same as the expected behaviour (Dekker, 2004). In a situation where the output measurability is high and task programmability is low, outcome controls are appropriate. Conversely, in a situation where output measurability is low and task programmability is high, behaviour controls are appropriate. If output measurability and task programmability are both high, behaviour and outcome controls are both appropriate. When the output measurability and task programmability are both low, informal control is needed (Langfield-‐Smith & Smith, 2003).

With the previous theory as background, the following sub-‐questions are formulated as follows:

2. What is the influence of using outcome, behaviour, and/or social control in an outsourcing relationship?

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2.3. Relationship between control and trust

There has been a multitude of research conducted on the relationship between control and trust. This relationship has been much disputed in academic literature. There are still contradictory interpretations about how the concepts trust and control are related (Costa & Bijlsma-‐Frankema, 2007). The main question, which is much debated in inter-‐organizational relationship literature, is whether the relationship between trust and formal control mechanisms is a substitute relationship or a complementing relationship (Adler, 2001; Das & Teng, 1998; Gulati, 1998; Jones et al., 1997; Nooteboom et al., 1997; Poppo & Zenger, 2002; Ring & Van de Ven, 1992; Rousseau et al., 1998; Tomkins, 2001; Zaheer & Venkatraman, 1995). If the concepts have a substitutive relationship, then trust and formal control are inversely related, meaning more formal control mechanisms provide less use of trust and vice versa. When a partner has a trustworthy reputation, it is possible that the partner will choose less formal control mechanisms than when a partner has a less trustworthy reputation (Dekker, 2004). On the other hand, if the concepts have a complementary relationship, then they are additively related, meaning both concepts contribute to a common goal, for example, building an inter-‐ organizational relationship (Das & Teng, 1998). Some academics, however, suggest that the relationship between control and trust is dynamic, complex, and open to debate (Dekker, 2004; Velez, Sanchez, & Alvarez-‐Dardet, 2008; Vosselman & van der Meer-‐Kooistra, 2006; Vosselman & van der Meer-‐Kooistra, 2009). According to Tomkins (2001) and Vosselman and van der Meer-‐Kooistra (2009), the dynamics between trust and control are trivialized by making the choice between substitutes and complements. Klein Woolthuis et al. (2005) concluded that the relationship between trust and control can be both complements and substitutes, depending on the contracts, intentions designs, and uses in practice. Regardless of the recent interest, there is still no conclusive evidence on the relationship between control and trust in an inter-‐organizational setting.

2.4. Organizational culture

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organizational culture develops due to the interactions of different factors. These interactions lead to different cultures in organizations and enable changes over time. The four factors are organizational structure, organizational ethics, characteristics of people within the organization, and property rights systems. Each type will be explained in detail in the following sections.

2.4.1. Organizational structure

The structure of an organization increases the effectiveness of the organization’s control to accomplish its goals. It is the formal system of task and authority relationships and is described in order to control how the people of the organization use resources and cooperate. This is all necessary to accomplish the organization’s goals. Important subjects for the organizational structure are hierarchy and the structure of the divisions. The type of structure chosen has a substantial influence on the organizational culture that arises (Jones, 2012).

2.4.2. Organizational ethics

Organizational ethics are the moral values, beliefs, and rules that establish the appropriate way for organization members to deal with the organization’s stakeholders and with one another (Jones, 2012, p.213). Organizational ethics are influenced through individual, professional, and societal ethics. The actions of the people in an organization are a constant reminder of what is right or wrong in the organization and for the stakeholders, as well as which interest is decisive (Goodin, 1975). Ethical values are inseparable from the organization’s culture because they are used as a foundation to manage situations and make decisions. Some examples of organizational ethics are high quality standards, safety standards, creativity, hard work, and attention to detail (Jones, 2012).

2.4.3. Characteristics of people within the organization

The people that work in the organization are the ultimate source of the organizational culture. The reason that organizations develop different cultures is because organizations consist of different people with different assumptions and beliefs (Schneider, 1987). People are more attracted to organizations with similar assumptions and beliefs than to organizations with the opposite assumptions and beliefs. This results in organizations with people who have similar assumptions and beliefs. The founder of the organization has a substantial influence on the initial culture of the organization (Schein, 1983) because he or she designs the new organization with matching values and he or she selects the first employees. There are many different characteristic people can have, for instance, creativity, flexibility, honesty, intelligence, laziness, dominance, calmness, and quietness (Jones, 2012).

2.4.4. Property rights systems

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over organizational resources. The property rights’ distribution design has a direct effect on the organizational members’ motivations and the values that shape employee behaviours (Jones, 1983). With the previous theory as background, the following sub-‐question is formulated as follows:

3. What is the influence of the organizational culture on the outsourcing relationship?

2.5. Expectation framework

Figure 1 summarizes the main predictions of the literature review. It shows how the concepts trust and control and their relationship are influenced by the different organizational cultures in an outsourcing relationship. The numbers in the figure are the sub-‐questions.

Figure 1: A presentation of the study’s main expectations

Research question: How are the concepts trust and control, and their relationship influenced by the different organizational cultures in an outsourcing relationship?

1. What is the influence of goodwill, contractual, and/or capability trust in an outsourcing relationship? Is there change to this influence over overtime?

Control 2 3 Goal setting, structural specifications, and cultural blending Trust Contractual trust

Goodwill trust Capability trust

1 Organization culture factors:

-‐ Org. structure -‐ Org. ethics

-‐ Characteristics of the people within the organization

-‐ Property rights system

4 OUTSOURCING RELATIONSHIP

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2. What is the influence of using outcome, behaviour, and/or social control in an outsourcing relationship?

3. What is the influence of using goal setting, structural specifications, and cultural blending in an outsourcing relationship?

4. What is the influence of the organizational culture on the outsourcing relationship?

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3. Methodology

3.1. Research approach

As previously mentioned, the contribution to the literature provides a better understanding of the relationship between control and trust, and the concept itself is influenced by the different organizational cultures in an outsourcing relationship. Since this master’s thesis will try to provide a better understanding of the phenomena that occur, the research approach “Theory Development” is best applicable. Additionally, the immature literature field and the contradicting findings in previous research are reasons for choosing theory development. The theory development process is based on the first part of the empirical cycle from Eisenhardt (1989) and will be explained in Section 3.2. Theory development also benefits from flexible data collection. Thus, there is a possibility to include important variables that might occur during the data collection; in this way, the shortages are repaired during collection (Eisenhardt, 1989). The process structure for completing fieldwork is the empirical cycle (van Aken, Berends, & van der Bij, 2012), explained in Section 3.2. The literature field is immature, but research has been completed with contradicting findings. Therefore, case studies are a relevant method to observed the concepts in practise (Eisenhardt, 1989) and to understand the social phenomena that occur.

3.2. Research process

According to van Aken et al. (2012), the empirical cycle starts with observation of the phenomena in practice and in literature. This cycle can result in a high appearance of the phenomena in practice, while in the literature, it is not adequately addressed. During the induction step, possible explanations for the issue are developed, aided by related literature, i.e., the academic literature dealing with this issue or, at least, that is expected to deal with the issue. During the deduction step, the most promising ideas of the induction step are transformed into hypotheses: statements that can be verified by empirical observation and measurement. In the next step, testing, the hypotheses are empirically tested. Finally, during the evaluation step, the outcomes of the empirical test are examined and interpreted. This step may lead to a new research question and a re-‐start of the empirical cycle.

Figure 2: The theory development process

The theory-‐development process, Figure 2, is based on the first part of the empirical cycle and is aligned with the work of Eisenhardt (1989). The research process roughly follows the steps of the empirical cycle. The outcome of the theory development process is a set of propositions, so it is completed at the

Business phenomenon

Observanon of phenomenon in

one ore more case studies Develop explananons while comparing ﬁndings with exisnng theories Formulate proposnons that

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end of the induction step or at the beginning of the deduction step. The theory development process is described in the following paragraph (van Aken et al., 2012).

The first stage of this research process was exploring the business phenomenon. The business phenomenon in this master’s thesis is the concepts trust and control and their relationship and how this is influenced by the organizational culture. In order to complete this research, several interviews were held, so a good picture was created of the phenomenon. The organizations that were selected for this study had experience with the business phenomenon and had different organizational cultures. The second stage was the observation of the phenomenon by these organizations. To collect data regarding the business phenomenon, semi-‐structured interviews were used. To explain the business phenomenon, a foundation of academic literature was needed. Also, the interviews provided new information. The data from these interviews were analysed by making pattern-‐codes and coding schemes. The final stage of the theory development process was to formulate propositions that were changes or additions to existing theories and, mainly important in this research field, contradicting findings.

3.3. Quality criteria for research

The more a study meets the quality criteria, the less reason there is to question its results. The requirements for reaching inter-‐subjective agreement on research results are controllability, validity, and reliability. Controllability is a prerequisite for the evaluation of validity and reliability. In order to make research results controllable, researchers have to reveal how they executed a study. Second, reliability is a concept that seems to be easy to grasp but, nevertheless, difficult to define. In general, something is called unreliable when one cannot depend upon it or trust it. Third, validity refers to the relationship between a research result and its conclusion and the way this research has been generated (van Aken et al., 2012). For this research, controllability was reached through conducting semi-‐ structured interviews, which were recorded with permission of the interviewees. Additionally, notes were made during the interviews because emotions are not audible. The interviewees were selected by the following criteria: The interviewee had to work in a company that was located in the technical industry and was involved in an outsourcing relationship. Reliability was reached because the results of the study are independent of the study’s particular characteristics and can, therefore, be replicated in other studies due to the high level of register of the findings and the interview protocols. Finally, validity was reached because the study is reliable and the method, semi-‐structured interviews, gave the needed results because the interviewees had the opportunity to add information to understand the business phenomenon with unexpected results. Also, the research method, theory development, provided opportunities to add variables during the data collection, and multiple people were interviewed from different companies in case one person was exceptionally negative, resulting in an incorrect picture of

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3.4. Case description

The case study takes place in three companies: Lacquer, Stud and Metal. These names are not the original names but indicative. The companies were chosen by purposive sampling; this type of sampling allows choosing a case because it illustrates the phenomenon in which the researcher is interested (Silverman & Marvasti, 2008). Stud and Metal are two different companies in size and type. Thus, different results interesting for this research might be obtained. The companies in this case study were related by an outsourcing relationship. Stud and Metal outsource their products at Lacquer. Stud and Metal were not related. Because this case study provides a way to compare outsource relationships with one fixed company, it is possible to examine the influence of different organizational cultures on the inter-‐organizational relationship.

3.5. Method of data collection

In order to provide a wider range of coverage to obtain a picture of the business phenomenon, and so increase the reliability and validity, multiple data collection techniques were used to ensure that one thought as the data required (Saunders et al., 2009). In this research, the mean data was derived from the semi-‐structured interviews. An interview protocol was made to ensure that all the concepts (trust, control, culture, and their relationships) were measured. The interviews were with one person at a time. The director and manager of Lacquer were interviewed twice, once for each outsourcing relationship. A list of the interviews is shown in Table 1. Another source to include in the interviews is quantitative questions, which ask for answers on a scale.

Table 1: List of the interviewees

Interviewee Company Time

Director Lacquer (about relationship with Stud) ±60 min.

Director Lacquer (about relationship with Metal) ±45 min.

Director Stud (about relationship with Lacquer) ±45 min.

Director Metal (about relationship with Lacquer) ±105 min.

Business manager Lacquer (about relationship with Stud) ±60 min.

Business manager Lacquer (about relationship with Metal) ±45 min.

Business manager Stud (about relationship with Lacquer) ±45 min.

Business manager Metal (about relationship with Lacquer) ±60 min.

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3.6. Method of data analysis

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4. Results

The data obtained by interviews and documents will be analysed in the following section. First, some general information about the relationships between the companies will be presented. As state in Chapter 3, Stud and Metal did not have any relationship. The rest of the analysis will be presented according to the structure of the research questions.

4.1. Relationships

4.1.1. Relationship between Lacquer and Stud

The relationship started approximately four years ago, then it stopped and again started three years ago. Stud went to Lacquer, according to Stud’s director, due to the following:

We had some problems with another company about the quality of the coating and problems in the communication, and there was no opportunity for changing these problems. Then we searched for another company, and we went to Lacquer with some products and the question if Lacquer was able to coat the product. Lacquer did some tests and the results were good, so the relationship started.

The Lacquer interviewees and the Stud manager gave the same answer to the question why Stud went to Lacquer, so the relationship is transparent. Stud outsourced because the company did not have the resources and they did not have the investment opportunities to create them, it is also not a goal to do everything self. According to Stud’s manager: “We are an assembling company; we purchase all the ingredients and assemble them to an end product, so it is not our goal to do everything by ourselves”. They stayed in/built the relationship with Lacquer because, according to Stud’s manager, “Lacquer is transparent, flexible, has opportunity that gives Stud the possibility to offer more to its customers”. Stud’s Director also explained, “Lacquer is good in problem solving and appointments are fulfilled and when persons talk with each other, it is informal and directly”.

The relationship development was positive; the trust grew because more projects were brought to success together. Overall, the people in the relationship gave that relationship an excellent grade. According to all the interviewees of Lacquer and Stud, “It is a pleasant relationship”.

4.1.2. Relationship between Lacquer and Metal

The relationship started approximately five/six years ago. Metal went to Lacquer due to, according to all the interviewees, Lacquer’s location. Metal’s director explains the process as follows:

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The director created some criteria when searching: ”The criteria were that the size of the company was not to big, no-‐nonsense mentality, easily assessable, and that it has no outsource relationship with competitors”.

The director was not familiar with Lacquer. The company met the selection criteria, so the relationship started. Two years ago Metal moved to another industrial estate 11 kilometres further away. Thus, the location was no longer a reason for the relationship. Metal’s director explained the reason for continuing the relationship as follows: “The relationship continues because of the good price-‐quality ratio and the good quality that Lacquer is offering, and it has increased during the relationship”. Metal’s manager explained it thus: “The thoughtful attitude, good communication, fast completion time, and flexibility are advantages and reasons for keeping the relationship”.

According to Lacquer’s manager, it was difficult to give the relationship a grade for the following reason: “Metal is a company with 32 employees, and it really depends on the person you work with what the grade is”.

Overall, the people in the relationship gave the relationship a sufficient grade. It was a relationship with considerable pressure, and this occasionally resulted in a less positive feeling about it. As the manager of Lacquer said: “It is a relationship that needs a lot of effort, but eventually the results are good”.

4.2. Trust

The first sub-‐question concerns the influence of the different types of trust (goodwill, contractual, and competence) on the relationship and if this changes overtime. From the interviews, it became clear that the three types of trust were different in the relationship. According to all the interviewees, trust was a combination of the three types:

There is not one type more important as the other in a relationship; first, you have the goodwill actor. Is there a personal connection between each other? Then, the company must be able to complete the tasks. You can have a connection, but if they are not capable, then it becomes problematic. (Director of Stud)

The Lacquer directed had this to say:

Competence trust is very important; otherwise, you do not succeed. Goodwill is, of course, also giving space in order to develop, and you do have to register things; otherwise, there is no clarity, but contractual trust is only there to give clarity.

The Director of Metal added this:

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a combination. In the beginning, contractual trust is very important because you don’t know how able they are.

Lacquer’s manager explained, “I think it is a combination. In the beginning, goodwill trust is very important, but you never get everything outsourced only on a goodwill basis. You need to reach certain points on the other factors and keep reaching them”.

Before the relationship with Lacquer, Stud had a relationship with another company. This is an good example of an relationship where goodwill trust was high, but in the end, the rest was too low and the relationship failed, proving that all three types of trust are important and needed for a relationship to succeed. The director from Stud explained why they went to another company:

Someone recommended us that company and that person has a good reputation. Unfortunately, the company that he advised was a company that said that they could do it, but they were not capable of doing it, through that we were almost bankrupt, so in my opinion, first you have goodwill trust, then comes competence trust, and contractual trust is important for keeping a good relationship.

The influence of every type in a relationship will be explained per relationship in the following sections, and then the results will be summarised.

4.2.1. Relationship between Lacquer and Stud

The relationship started, as explained in the relationships section, because Stud had some bad results and problems with another company and, therefore, was searching for another partner. The director was searching for a company that was able to accomplish the needed goals, where appointments were fulfilled and the company had a good partner for the future. Therefore, Stud needed contractual, goodwill, and competencies trust in its partner. One example of the fulfilment of this need was, according to the director of Stud, as follows:

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All three types of trust were present. Some examples of the three types of trust in the relationship are as follows:

• “We know what the capabilities of Lacquer are and how far we can go” (Manager of Stud). • “The arrangements that are made are not on paper, but in this relationship, all the

arrangements that are done verbally or by email are accomplished” (Director of Stud).

• “We do not send a product to laboratory to test it; we make arrangements about the wanted quality, and if we meet these criteria, it is good” (Director of Lacquer).

• “The relationship between Lacquer and Stud is transparent, and we all know where we stand” (Manager of Stud).

The relationship clearly had a high level of trust and goodwill, competency, and contractual trust were present. Through transparency and good communication in the relationship, it is successful and efficient.

4.2.2. Relationship between Lacquer and Metal

The relationship started, as explained in the relationships section, because Metal found a location close to Lacquer. Metal did not choose Lacquer because it knew the company or the director, but Metal’s director heard nothing negative about Lacquer. Additionally, Lacquer agreed to all the requirements important to Metal, and the director felt the company was the right choice. The director of Metal described the process as follows: “I did not know the company beforehand, but I was familiar with other coating companies, and I wanted a company that was located close to my own company so that I was able to control it all by myself”.

The director was searching for a company that was, in his expectation, able to provide the service, had a structure and culture similar to his own company, and was a good partner for the future. Thus, Metal needed goodwill and competencies trust in its partner in the beginning, and the contractual trust grew during the relationship. Now the three types of trust are present. Metal’s manager described the three types of trust in the relationship as follows:

The relationship starts with goodwill trust, and when you have a certain goodwill trust feeling in the other, you outsource large projects and you do not move from one company to another when, for example, one company is one hundred euros cheaper or something like that, then it is important to make arrangements. Contiguously, you need the feeling that the partner is capable of the required production.