The Dark Side of Close Relationships
The very factors that make partnerships with customers or suppliers beneficial can leave those relationships vulnerable to deterioration.
For decades, close relationships between firms and their suppliers and customers have been highly touted as a business strategy that can expand the pie of benefits for the parties involved. From 1996 to 2001, companies formed these relationships at a brisk pace: CEOs signed a partnership into existence every hour of every day, resulting in 57,000 alliances over this six-year period.1 And as the economy grows, firms are continuing to rely on close collaborations to grow their pie of benefits.
However, there is a persistent problem with this strategy that cannot be ignored: Close relationships are not always synonymous with good relationships. This is evidenced by the fact that many of these close relationships — whether they are joint ventures or loose alliances — fail. Indeed, a number of studies put the failure rate of joint ventures at anywhere from 30% to 50%.2
This reality of close relationships has been studied from a variety of perspectives, including psychology, marketing, management and economics. Each offers its own causal explanation. For example, psychologists have found that the closer and safer the parties of a relationship feel, the likelier they are to raise annoying issues and generate conflict.3 Marketing researchers speculate that partners grow increasingly dissatisfied as the relationship persists.4 Perhaps each side becomes less objective and its offerings stale, even as expectations grow unreasonably high. Strategic management research on joint ventures posits that partners initially depend highly on each other. Over time, as each party learns what the other knows, the relationship becomes unstable and vulnerable.5 Economists point to the growth of opportunism — self-interest seeking with guile — as the key factor that destabilizes close relationships between organizations.6
Several studies, involving thousands of ongoing business relationships, offer insights into how seemingly good relationships may go bad. The results suggest a striking phenomenon: Relationships that appear to be doing well are often the most vulnerable to the forces of destruction that are quietly building beneath the surface of the relationship. In other words, close relationships that seem the most stable can also be the most vulnerable to decline and destruction. We refer to this phenomenon as the dark side of close relationships.
Acknowledging the dark-side phenomenon of close relationships is not the same as saying that such relationships are dysfunctional and therefore prone to dissolution.
References
1. J.H. Dyer, P. Kale and H. Singh, “When to Ally and When to Acquire,” Harvard Business Review 82 (July–August 2004): 109–115.
2. P.W. Beamish, “The Characteristics of Joint Ventures in Developed and Developing Countries,” Columbia Journal of World Business 20, no. 3 (1985): 13–19; J.P. Killing, “Understanding Alliances: The Role of Task and Organizational Complexity,” in “Cooperative Strategies in International Business,” eds., F.J. Contractor and P. Lorange (Lexington, Massachusetts: Lexington Books, 1988), 55–68; B. Kogut, “Joint Ventures: Theoretical and Empirical Perspectives,” Strategic Management Journal 9 (1988): 319–332; S.H. Park and G.R. Ungson, “The Effect of National Culture, Organizational Complementarity, and Economic Motivation on Joint Venture Dissolution,” Academy of Management Journal 40 (1997): 270–307; and A. Stuckey, “Vertical Integration and Joint Ventures in the Aluminum Industry” (Cambridge: Harvard University Press, 1983).
3. R.H. Ephross and T.V. Vassil, “The Rediscovery of Real World Groups,” in “Social Work With Groups: Expanding Horizons” (Binghamton, New York: Haworth Press, 1993).
4. K. Grayson and T. Ambler, “The Dark Side of Long-Term Relationships in Marketing Services,” Journal of Marketing Research 36 (February 1999): 132–141; and C. Moorman, G. Zaltman and R. Deshpandé, “Relationships Between Providers and Users of Market Research: The Dynamics of Trust Within and Between Organizations,” Journal of Marketing Research 29 (August 1992): 314–329.
5. A.C. Inkpen and W.B. Paul, “Knowledge, Bargaining Power, and the Instability of International Joint Ventures,” Academy of Management Review 22, no. 1 (1997): 177–202.
6. O.E. Williamson, “The Mechanisms of Governance” (New York: Oxford University Press, 1996); and B. Klein, “Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships,” Economic Inquiry 34 (July 1996): 444–463.
7. J.D. Hibbard, N.Kumar and L.W. Stern, “Examining the Impact of Destructive Acts in Marketing Channel Relationships,” Journal of Marketing Research 38, no. 1 (2001): 45–61.
8. J.B. Heide and G. John, “The Role of Dependence Balancing in Safeguarding Transaction-Specific Assets in Conventional Channels,” Journal of Marketing 52 (January 1988): 20–35.
9. J. Neuville, “La Stratégie de la Confiance: Le Partenariat Industriel Observé Depuis le Fournisseur,” Sociologie du Travail 20, no. 3 (1997): 297–319.
10. G. Soda and A.Usai, “The Dark Side of Dense Networks: From Embeddedness to Indebtedness,” in “Interfirm Networks: Organization and Industrial Competitiveness,” ed. A. Grandori (London: Routledge, 1999), 276–302.
11. W. Reinartz and V. Kumar, “On the Profitability of Long-Life Customers in a Noncontractual Setting: An Empirical Investigation and Implications for Marketing,” Journal of Marketing 64, no. 4 (October 2000): 17–35.
12. T.K. Das and B.S. Teng, “Instabilities of Strategic Alliances: An Internal Tensions Perspective,” Organization Science 11, no. 1 (2000): 77–101.
13. E. Anderson and T.S. Robertson, “Inducing Multi-Line Salespeople to Adopt House Brands,” Journal of Marketing 59 (April 1995): 16–31.
14. S.D. Jap, “‘Pie-Expansion’ Efforts: Collaboration Processes in Buyer-Supplier Relationships,” Journal of Marketing Research 36, no. 4 (1999): 461–475.
15. Ibid.
16. S.D. Jap and E. Anderson, “Safeguarding Interorganizational Performance and Continuity Under Ex Post Opportunism,” Management Science 49, no. 12 (2003): 1684–1701.
17. Ibid.
18. B. Klein, “The Economics of Franchise Contracts,” Journal of Corporate Finance 2, no. 1 (1995): 9–37.
19. Jap and Anderson, “Safeguarding Interorganizational Performance.”
20. B. Klein, “Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited,” Journal of Law, Economics, and Organization 4, no.1 (1988): 199–213; and B. Klein, R.G. Crawford and A.A. Alchian, “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21 (October 1978): 297–326.
21. J.C. Anderson, “Relationships in Business Markets: Exchange Episodes, Value Creation, and Their Empirical Assessment,” Journal of the Academy of Marketing Science, 23, no. 4 (1995): 346–50.
22. S.D. Jap, “The Strategic Role of the Salesforce in Developing Customer Satisfaction Across the Relationship Lifecycle,” Journal of Personal Selling and Sales Management 21, no. 2 (2001): 95–108 (special issue on strategic issues in salesforce management).
23. R. Gulati and M. Gargiulo, “Where Do Interorganizational Networks Come From?” American Journal of Sociology 104, no. 5 (1999): 177–231.