Measuring Compatibility Gaps in Strategic Relationships

Organizational change on a global level has arrived. Competition is no longer constrained by borders, industry parameters or geographic considerations. In order to face this level of competition, firms are focusing on their core competencies and outsourcing the rest to strategic partners. This intense level of competition will require firms to rethink how they can leverage these relationships to bring innovation into their firms rapidly to sustain their market advantage. The problem now facing them is: what criteria should be used to identify with whom to develop long-term strategic partnerships? On the surface this may seem to be an easy task, but becomes rather challenging as one considers the hundreds to thousands of global suppliers many firms have today. Even if the largest suppliers are identified as being top candidates for strategic partnerships, what assurance is there that there is a compatible fit between the two organizations? John Nash quantified long term advantage of cooperation between firms/parties. Oliver Williamson envisioned transaction cost economics and acknowledged the lack of quantifiable relationship models in firms’ interactions and partnerships. In addition, the evolution of Kraljic’s strategic partnership model requires a relationship model to dovetail the work of Nash, Williamson and Kraljic into a cohesive whole. This paper intends to develop the relationship dynamics view of strategic partnerships while integrating cooperative game theory, transaction cost economics and market dynamics into the package of constructs with regard to strategic relationships among firms.