To conduct business with customers, suppliers, partners and other external parties, companies have three options: arm's-length, socially embedded and virtually embedded ties. Arm's-length ties are connections that exist solely for a particular business transaction. The problem with arm's-length ties is that they have difficulty handling transactions that are uncertain, complex or opportunistic. Embedded ties are connections that overcome the weaknesses of arm's-length ties by inserting the transaction in a supportive context, either social or virtual. With a socially embedded tie, trust, sharing of proprietary information and joint problem solving form the foundation for an economic relationship to minimize the risk of transactions. In a virtually embedded tie, an economic relationship is facilitated and maintained through the use of electronic technologies that help minimize the risk of transactions through increased transparency, widespread information sharing and community-based problem solving. Companies in different environments are likely to benefit from the use of different combinations of those types of connections.
Thomas B. Lawrence is the Weyerhaeuser Professor of Change Management with the Faculty of Business Administration, Simon Fraser University, in Vancouver, British Columbia. Eric A. Morse is the JR Shaw Professor of Entrepreneurship and Family Business with the Richard Ivey School of Business, the University of Western Ontario, in London, Ontario. Sally W. Fowler is an assistant professor with the Kogod School of Business, American University, in Washington, D.C. They can be reached at tom.lawrence@sfu.ca, emorse@ivey.uwo.ca and sfowler@american.edu.
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