Entrepreneurship & Innovation

Between Hope and Disappointment

How internal differences affect the relationship between partner organizations

Interest groups within organizations can have a much greater influence on the relationship between two organizations than previously thought. They pursue their own agenda and try to exert influence. Sometimes their goals are even opposed to the concept favored by the executive board. Corporations therefore need to make sure that their efforts are not undermined by the individual interests of certain groups.

Collaboration between two partner organizations of any kind can become a delicate matter if differences emerge between the partners. Trust can be quickly lost – even to the point where the project or the entire collaboration is cast into doubt. Although much research on conflicts between two partner organizations has been conducted in the past, the impact of differences within an organization and how it affects the relationship between the partners has long been regarded as a black box. But it is important to know that different interest groups within companies can have a severe impact on external business relationships between two partner companies.

Strategic partner or one supplier among many?

Our longitudinal study, worked on between 2012 and 2016, focuses on an automotive manufacturer (Alpha) and one of its suppliers (Beta; names changed). Both companies are similar in size, maintain their own research and development department, and operate on a global scale. Alpha intends to strategically reposition itself and shift its production from manually driven cars with combustion engines to vehicles that enable autonomous driving with electric propulsion.

In this regard, Alpha’s executives are counting on a deep strategic alliance with Beta for a new research project to implement the strategy. The partnership should entail for example cost-sharing in development as well as extensive knowledge transfer, and even partial disclosure of the automotive group’s business model. Both sides know each other well thanks to an existing research project and supplier relationships. Through the new undertaking, Beta would be visibly upgraded from being just an arbitrary supplier to a privileged partner. Alpha’s management expects joint innovations to be accelerated through such closer collaboration.

The heads of Alpha’s technology department see this as a major threat. They fear a sharp increase in costs if some suppliers become privileged because this new status would take them outside the rules of the market. Furthermore, there would be a risk of their own company becoming dependent. They also see a danger to the long-term development of the company if too much of their own, self-generated knowledge is simply passed on to partners operating in the same sector. Ultimately, their own position in Alpha’s research and development team could be called into question because it may become at least partially obsolete as a result of the cooperation with a specialized company. The technology managers therefore advocate a regular, supplier-style partnership with Beta that does not go beyond the level of cooperation enjoyed by other suppliers.

The differences between Alpha’s management and the technology department shed light on an emerging conflict. In that respect, it is worth noting that the issue is not initially between the partner organizations, Alpha and Beta, but between the different stakeholders within Alpha.

No organization is a monolithic entity

Relationships between partner organizations can be manifold. They range from strategic alliances to joint ventures between companies. No organization represents a monolithic entity without individual interests. Internally, they are made up of different coalitions with their own goals, perspectives, and expectations. They can use the relationship between two partner organizations as a battleground for their own politically motivated agendas. Conversely, the study showed that external relationships between partners are capable of fragmenting groups within an organization and fueling their disputes.

Signals to the partner organization – a political act

How the respective faction within a company behaves toward the partner organization is a political decision as the faction seeks to strengthen its own position or advance its own agenda. In the present example, Alpha’s technology department used this emerging opportunity to push through its own idea of a partnership with Beta as a regular supplier. Consequently, the engineers of Alpha spread the word to the partner Beta that the joint research project, which was already ongoing, would be stopped. While this was true, it was revealed without the approval of the company’s own executive board, which had been trying to reach an amicable agreement and a softer settlement for the project. Beta’s management was shocked and felt that it was being taken advantage of, while Alpha’s management felt snubbed. An invoice raised by Beta in this situation almost resulted in a full-blown lawsuit.

In the aftermath of this event, the relationship between Alpha and Beta regarding the new research project was marked by conflict and disappointment. While the respective management teams assured each other of a close cooperation and joint assumption of costs, emails and interviews showed that major doubts about the real intentions of the opposite party prevailed. They sometimes even surfaced as open mistrust. Alpha’s technology department had thus successfully pursued its own policy and halted a strong strategic alliance with Beta. This behavior led to mixed emotional reactions on both sides of the negotiating table, ranging between hope and disappointment.

Cooperation between hope and disappointment

Feelings in exchanges between partner organizations are often characterized by two dynamics of alternating intensity: disappointment with former patterns of behavior and hope for successful cooperation in future. This may lead to the paradoxical situation where organizations hold on to the partnership and even foster a deeper cooperation amid declining trust between them. Despite Beta’s disappointment in the discontinuation of the previous research project and Alpha’s perception that Beta was not showing enough appreciation at being promoted to a new privileged partner, both sides still harbored hope for the successful realization of the new project.

When considering the relationship between partner organizations, it is not only the current state of collaboration that counts, but also a shared confidence in working together successfully in the future. Additionally, it is not only conflicts between organizations that are important when considering the relationship, but also where they originate and which currents of group interests within the companies affect them.

Tips for practitioners
  • When evaluating relationships between partner organizations, always consider the mixed situation within the organizations as well! Most of the time, there are different groups pursuing their own agendas for political reasons. No organization is a monolithic entity.
  • Different ideas about approaches within your organization create mixed signals and frustration for the partner organization. Make sure to appear as unified as possible to the outside world!
  • Do not judge the partner organization only by the current state of collaboration. A common perspective for the future may be a driver for increased cooperation.
Literature references and methodology

In a longitudinal study, Professor Dr. Dries Faems of WHU – Otto Beisheim School of Management and his co-author Professor Dr. Anna Brattström of Lund University in Sweden have investigated the impact that different interest groups within companies have on external business relationships between two partner companies. In their paper “Inter-Organizational Relationships as Political Battlefields” published in the Academy of Management Journal, they provide a detailed example and a new line of research for the future.

Authors

Professor Dr. Dries Faems

Professor Dr. Dries Faems holds the Chair of Entrepreneurship, Innovation and Technological Transformation at WHU – Otto Beisheim School of Management. He is an expert on the topic of collaboration for innovation. In his teaching and research, he focuses on phenomena such as R&D alliances, collaboration for digital transformation, and innovation ecosystems. Professor Faems also is the coordinator of the WHU Innovation Ecosystem Hub, which aims to connect academics and practitioners on the topic of collaboration for innovation.

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Professor Dr. Anna Brattström

Professor Dr. Anna Brattström is specialized on the people’s side of innovation and entrepreneurship: i. e. how people come together and work together when developing new technologies or new ventures. Most of her research is based on longitudinal data, collected in the context of new venture teams or inter-organizational R&D alliances. It is published in journals such as the Academy of Management Journal, Organization Studies, Research Policy, Entrepreneurship Theory and Practice and Journal of Product Innovation Management.

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