The objective of this thesis is to show an overview of existing literature about contract violations and trust. The goal is to combine research on different aspects and reveal differences. Lastly, this thesis aims to develop a framework showing the whole process of contract violations and to establish propositions showing the causes and reasoning behind drivers, perceptions and reactions of contract violations.
In the last decades, challenges of globalization like globalized competition, rapid technological change, shorter product life circles and the rising demand of differentiated products by customers have made it difficult for organizations to stay competitive. As a result, cooperation between companies is increasing, because cooperation allows organizations to better focus on their core competencies while staying competitive at the same time. Therefore, the management of business relationships is of growing importance. In fact, the ability to develop and maintain strategic interorganizational relationships has become a critical competence in the last years. A major method to manage such relationships is through contracting. Contracts govern economic exchanges and help to align the expectations of partners involved in the relationship.
Table of Content
1 Introduction
1.1 Methodology
2 Theoretical background
2.1 Contracts
2.2 Trust
3 Contract violation
4 Drivers of contract violations
4.1 Bounded rationality and opportunism
4.2 Uncertainty, asset specificity and complexity
4.3 Misaligned expectations
4.4 Relationship strength
4.5 Trust and distrust
4.6 Contract specificity
5 Perception of the contract violation
6 Reaction following the contract violation
6.1 Modification of the contract
6.2 Trust repair
7 Discussion
7.1 Managerial and theoretical implications
7.2 Limitations and further directions
Research Objective and Core Themes
The primary objective of this thesis is to provide a comprehensive overview of existing literature concerning contract violations and trust in interorganizational relationships. It aims to synthesize fragmented research, develop a unified framework for the process of contract violations, and establish propositions regarding the drivers, perceptions, and potential reactions to these violations.
- The theoretical foundation of contracts and trust in business relationships.
- Identification and analysis of key drivers that facilitate contract violations.
- Psychological mechanisms behind the perception and interpretation of contract violations.
- Strategic approaches to contract modification and trust repair following a violation.
Excerpt from the Book
6.2 Trust repair
Like mentioned in chapter three, organizations often behave in ways that violate trust, like by exploiting dependencies or by neglecting to fulfill expectations (Kim, Dirks and Cooper, 2009). Trust damage can have disastrous effects on relationships (Lewicki, Bunker 1996). It can take a long time to repair trust and, in some cases, it can never be restored (Schweitzer, Hershey and Bradlow, 2006). Furthermore, Kim et al. (2004) argue, that repairing trust is even more difficult than building initial trust.
Literature addressing trust repair reveal different ways of how the violator can approach trust repair, such as an apology, excuses, promises or denials (Kim, Dirks and Cooper, 2009). Following, this thesis will outline the findings of the effectiveness of these actions and how they are linked to either intentional or unintentional violations. First, the violator could apologize. Apologies are referred to be an “admission of blameworthiness and regret for an undesirable event” (Schlenker and Darby 1981, p. 271). For an apology to be effective, the non – violating party must perceive the apology as sincere (Shapiro, 1991). Kim and Harmon (2014) found out, that an apology is effective to rebuild trust, if the violation was perceived as unintentional and therefore because of incompetence. Trust is repaired more successfully when the violator acknowledges responsibility (Lewicki and Bunker 1996), and the signal of regret signalizes that the violator has the intention to avoid contract violations in the future, which in turn rebuilds trust (Kim et al., 2006)
Summary of Chapters
1 Introduction: Provides an overview of the challenges in modern business environments and establishes the need for studying contract violations and trust.
2 Theoretical background: Explains the purpose of contracts as governance structures and the essential role of trust in interorganizational relationships.
3 Contract violation: Defines contract violations as unfulfilled obligations and categorizes them based on their impact on relationship performance.
4 Drivers of contract violations: Examines factors such as bounded rationality, opportunism, uncertainty, and relationship strength that increase the likelihood of contract violations.
5 Perception of the contract violation: Analyzes how non-violating parties interpret violations and the role of attributions in determining whether a breach is seen as intentional or unintentional.
6 Reaction following the contract violation: Discusses practical strategies for contract modification and bilateral trust repair efforts to restore damaged business relationships.
7 Discussion: Synthesizes the findings into a holistic framework and offers implications for both academic research and managerial practice.
Keywords
Contract Violation, Trust, Interorganizational Relationships, Transaction Cost Economics, Bounded Rationality, Opportunism, Contract Specificity, Trust Repair, Relationship Management, Intentionality, Attribution Theory, Governance Mechanisms, Strategic Alliances, Contract Modification, Performance Risk.
Frequently Asked Questions
What is the core focus of this thesis?
The work focuses on the intersection of contract violations and trust within interorganizational relationships, analyzing how these violations occur, how they are perceived, and how organizations can react to them.
What are the central thematic fields covered?
The research explores transaction cost economics, the psychological aspects of trust and distrust, contract design, and the processes involved in repairing damaged business relationships.
What is the primary objective of this work?
The goal is to provide a comprehensive framework that connects the drivers, perceptions, and reactions to contract violations to assist managers and researchers in navigating these complex situations.
Which methodology does the author apply?
The thesis uses a systematic literature review approach, focusing on foundational papers in the fields of contract design, trust dynamics, and organizational conflict to derive its propositions.
What does the main body of the paper address?
The main body examines the specific drivers of violations, the interpretation of intent by the non-violating party, and strategies for contract modification and trust restoration.
Which keywords best characterize this research?
Key terms include contract violation, trust, interorganizational relationships, transaction cost economics, and trust repair.
How does the author distinguish between intentional and unintentional violations?
The distinction is based on the interpretation of the violating party's intent; unintentional violations are typically attributed to bounded rationality or ambiguity, while intentional violations are associated with opportunism and potential deception.
What role does contract specificity play in the framework?
Contract specificity acts as a double-edged sword: while it can prevent opportunistic behavior, it may also signal distrust, potentially damaging the relationship if it is perceived as an attempt to restrict partner autonomy.
Why is trust repair considered a bilateral effort?
The author argues that trust repair should not be viewed as a passive process where only the violator acts, but rather as an active interaction where both parties must work together to resolve discrepancies and rebuild the relationship.
- Arbeit zitieren
- Myrna Hantke (Autor:in), 2018, Contract Violations in Interorganizational Relationships. Drivers, Perceptions and Reactions, München, GRIN Verlag, https://www.grin.com/document/947689
