Order 810354: Sourcing

The Hazards of Sole Sourcing Relationships: Challenges, Practices, and Insights Mark O. Lewis, Appalachian State University

Scott D. Hayward, Appalachian State University

Vijay Kasi, AT Kearney's Supply Chain Practice

Introduction Fueled by advances in information technology, supply chain management has moved from a back office administrative function to a board room imperative. Today, companies work more closely with their suppliers to be more respon- sive to customers' changing needs and to build competitiveness. Many firms have significantly reduced the number of suppliers they use, sometimes to a single, trusted source to enable tight integration between firms. Operations management scholars continue to examine the effects of tight supplier integration and often point to the positive relationship between in- tegration and performance (Handfield, Ragatz, Peterson, and Monczka, 1999; Kulp, Lee, and Ofek, 2004; Rosenzweig, Roth, and Dean Jr, 2003). With a relationship built on a foundation of trust, single supplier relationships potentially offer many benefits. The buyer and a single supplier can better coordinate shipments and production, share technological knowledge to integrate the input into production, and com- municate design changes to mutual benefit. Multiple sourcing, in contrast, may weaken the ties between the firm and its suppliers making communication, control, and standardization more difficult.

Though the potential benefits of single sourc- ing and tight integration are many, the strategy has its drawbacks. For example, Horwitch and Thietart (1987) uncovered the costs of coordina- tion, compromise, and rigidity that may follow from especially tight firm-supplier relationships. Similarly, Das (2006) argued that the increased virtual span of control stemming from tight inte-

gration may lead to coordination costs that offset savings incurred from single-sourced relation- ships. In addition to the explicit costs of integra- tion, Sorenson (2003) focused on other costs of tight integration that were less measurable, such as the absence of learning that may come from limiting a firm's contact with its external envi- ronment. Clearly, management scholars disagree about the utility of developing tight firm-supplier relationships, such as those that might arise from sole sourcing strategies.

Against this backdrop, this paper offers two core contributions. First, while grounded in a real life case study of a large consumer products company, it offers a theoretical explanation of the perils of single-sourcing relationships. In doing so, it shows the actual drivers of bound- ary drift, a term we develop to represent the change in organizational boundaries that result from sourcing decisions. Furthermore, we show how such a phenomenon can lead to unintended, and potentially detrimental, strategic outcomes. Second, by following the focal firm as they design a new sourcing strategy, we offer impor- tant insights for practicing managers who might face similar challenges. In the next section, we provide a theoretical explanation of boundary drift including drivers and consequences. We then discuss the methodology that guided this study before applying the theoretical lens to the case and illustrating the six-step process used by the focal firm to re-design their sourcing strategy. We conclude with a summary of contri- butions, limitations, and opportunities for future research.

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Drivers of Boundary Drift: Trust, efficiency, and asset ownership Governing the single-source relationship Interorganizational relations, including sole- sourcing supplier relationships, are intermediate forms of organizing, resting somewhere be- tween pure markets and pure hierarchies. Like other forms of organizing, they are governed along three dimensions: incentives, authority, and ownership (see Makadok and Coff, 2009). Incentives include not only the rewards avail- able for good performance, but also the mea- sures that define good performance. Authority is the power or right to control how one conducts an activity and what activities to engage in. Organizational hierarchies establish authority relationships and determine-through official norms-which activities fall under the control of which positions within the firm (Thompson, 1956). Asset ownership grants property rights to determine when and how critical assets are used. While seemingly overlapping, control and ownership of key assets may be allocated in dif- ferent ways given the relative financial strength and capabilities of the two firms (Elfenbein and Lemer, 2003). At one end of the spectmm, for example, in a typical market-based, buyer- supplier relationship, suppliers determine how to do the work, own the key assets to conduct the work, and are rewarded according to their output. At the other end, in a typical hierarchy, the employees performing the work are subject to their superior's authority on which activities to perform and how, do not own the key as- sets, and are rewarded based on the inputs they provide. Single-supplier relations incorporate to varying degrees each of these dimensions to create a supply-chain solution helping both firms reach agreed upon goals.

Efficiency goals The nature of these goals becomes a critical point in the incentives provided to the employ- ees and managers responsible for implementing the relationship. Eirms enter into close relation- ships with other organizations for a multitude of reasons: to lower costs and improve efficiency (e.g., Williamson, 1985), to gain power over extemal resources (e.g., Pfeffer and Salancik, 1978), to build legitimacy and prestige (Baum and Oliver, 1991), and to leam from others (Doz, 1996). Here, we argue, once the relationship is established, managers of these relationships tend to focus on efficiency gains, putting the firm at odds with other motives.

Figure 1. Drivers of Boundary Drift and Strategic Rigidity in Single-Source Relation- ships

Inter- organizational

= = = -I ;=trust:l ; Primacy of

efficiency goals Focus on asset

ownership

Strategic rigidity

Efficiency measures how well the relation- ship improves the focal firm's ability to meet its output objectives given the resources it con- sumes. A single-supplier strategy can improve the buyer's efficiency through standardized inputs that allow the focal firm to have a more consistent end-product and a more standardized process for creating it. In the face of uncertainty about consistent suppliers, a firm may find locking-in a durable relationship with one firm to be preferable than procuring the input on the market. While efficiency is often a key motivator to initiate a relationship, without continual reex- amination, most relationships will feel the pull of efficiency goals. "Efficiency" has a taken- for-granted value in society; adjustments made for the sake of efficiency are rarely questioned for their motivation (Meyer and Rowan, 1977). Eurthermore, efficiency goals are relatively user- friendly for the line manager. Most organizations maintain records of their expenses and their production, so they have data to determine how much was produced at what cost. While stra- tegic concerns may consider what to produce, line managers tend to focus on how much they produce and at what expense. In most cases we should expect that during implementation most interorganizational relationships will begin to focus on the efficiency of the assets and activi- ties engaged.

Hierarchy and trust Trust is a fundamental component of successful sole-sourcing relationships. While the responsi- bilities of each party may be determined at the

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formation of the relationship, once the relation- ship begins to operate, repeated interactions and shared goals between both organizations and employees builds an expectation that the other can fulfill its obligations (Anderson and Weitz, 1989) and will act fairly even with the possibil- ity of opportunism (Anderson and Narus, 1990; Bromiley and Cummings, 1995). While the possibility of betrayal is always present, trust between the employees and organizations can reduce conflict and facilitate mutually agreeable adjustments to the relationship. Ultimately, trust should improve the relationship performance in terms of supplier price, delivery, quality, and flexibility (Zaheer, McEvily, and Perrone, 1998).

As the relationship meets expectations and trust develops, line managers seek ways to improve the relationship's efficiency. The rela- tionship's initial hierarchy granted authority to coordinate activities and routines in their current form. Yet, when units are asked to cooperate to resolve issues requiring new routines, the hierar- chy may prove too rigid (Adler, 2001; Burns and Stalker, 1994). Instead, trust between the buyer and supplier may offer a better coordinating mechanism allowing those with the most abil- ity and knowledge to take over the task (Adler, 2001). To implement, managers decompose the relationship into activities. Actively or passively, they re-allocate those activities according to the relative capabilities (or eagerness) of the two firms. Under efficiency goals, the steps taken to improve performance are valid as long as they increase production or lower costs. Thus, we see boundary drift as a natural outcome of the focus on organizational efficiency and interorganiza- tional trust.

The boundary between any two organizations reflects an atomistic and evolutionary process. As Santos and Eisenhardt (2005) note, under the logic of efficiency, boundaries result from a series of decisions about which activities to conduct and which to let others conduct. As an organizational concern, it can be described as "logical incrementalism" in which incremental changes are made in response to opportunities (Quinn, 1978). Managers aware of boundaries take purposeful steps in their sphere of influence to improve performance.

Asset ownership Throughout this process, asset ownership may remain constant. Asset ownership provides some protection for boundary drift, as the owner can always "take his ball and go home." Yet, focus-

ing on asset ownership may provide a partially false sense of security and obscure the true shift in organizational boundaries. First, current theo- ry suggests that homogenous, marketable assets will not be a source of sustainable performance advantages (Barney, 1986). Rather, the activities built in the firm and the firm's processes lead to long-term performance advantages (Teece and Pisano, 1994). Therefore, reallocating control of an activity outside of the firm's hierarchy may provide short-term efficiencies but lead to a long-term "hollowing out" of the firm's ability to compete.

Second, a focus on asset ownership may obscure the true shift in organizational boundar- ies. Companies tend to define the boundaries of their firm by the assets they own. This makes sense because describing boundaries is difficult, and ownership laws provide perhaps the clean- est way to describe where one firm ends and the other one begins. Still, this definition can be troubling. When employees go to work at anoth- er's site, are they still part of their original firm? While one firm may pay their salary and have them under contract, the more they interact with another's employees, the more they identify with the other firm (Ashforth and Mael, 1989).

Boundary drift and strategic rigidity As the structure of the single-source relationship evolves through trust and efficiency goals, the boundaries of the firm may shift. Trust and ef- ficiency goals become the necessary conditions for boundary drift, as motivated by the man- ager's drive for better performance. As opportu- nities appear to improve the buyer's efficiency by replacing its authority over an activity with trust in the supplier, some of those opportunities may run counter to other strategic goals of the relationship. After returns from efficiency-based initiatives begin to lessen or level off for the buyer, the goals of the relationship often change. Strategic goals often expand from efficiency- based to innovation-based, as the buyer looks for new ways to enhance its competitive position. If vendors do not perceive innovation practices as potentially profitable, the following issues may arise: reduced autonomy, reduced competencies, and reduced identity.

Reduced autonomy. Efficiency gains may not take into account current or future sources of strategic uncertainties that influence perfor- mance (Pfeffer & Salancik, 1978; Thompson, 2007). Firm boundaries define the activities over which the firm has influence. For activities that

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are unimportant to the firm's ability to reach its goals, outsourcing may make sense. But other activities are critical to the firm's ability to con- sistently produce its product or service, namely, those that create significant value to the final customer, are necessary steps in the production process, and have no alternatives. These must be controlled by the firm so that it does not become dependent on the supplier. Without power over the relationship, the firm is at the mercy of its supplier's continued goal alignment and trust- worthiness.

Reduced competences. Efficiency gains may not take into account current or future sources of firm-specific, resource-based advantages (Chan- dler, 1993; Penrose, 1995). Firm boundaries define the organizational resources and capabili- ties that make it unique and provide potential competitive advantages (Barney, 1991; Werner- felt, 1984). Boundary drift changes the portfolio of the firm's resources. Decisions over which activities to engage in and which to outsource should take into consideration the value of the portfolio, including not only the value of the activity but also how that activity complements others. While a supplier may be able to perform any given activity more efficiently than the buyer, re-allocating the activity to the supplier may erode the buyer's abilities in other activi- ties. In the future, these activities, too, may be logically outsourced, further reducing the firm's potential advantages.

Reduced identity. Efficiency gains may not take into account how organizational members define the firm and their identity. Recent studies in organizational theory shed light on the impor- tance of the organization's identity, which can both categorize it within an industry and distin- guish it from competitors. For external audienc- es, the firm's identity helps in assessing its value and future performance (Porter, 1998; Zucker- man, 1999, 2000). For managers and employees, the firm's identity can inspire emotional attach- ment and commitment (Kogut, 2000). Within the organization, Elsbach (1999) suggests that values and activities are intertwined; "who we are" defines "what we do" and vice versa. Out- sourcing particular activities may lead to identity inconsistencies affecting employee motivation (Kogut, 2000) and managerial decision-making.

Methodology This study was guided by an action research methodology, which is an iterative process com- bining theory and practice by bringing research-

ers and practitioners together to create learning that is actionable and useful to organizations (Avison et al., 1999). Action research has the dual objective of contributing to the practical concerns of people in an immediate problem- atic situation while at the same time advancing the current state of knowledge in management science (Rapoport, 1970). We realized early on in our collaborations with the focal firm, a large consumer product goods company that we call MultiBrand, that its current situation—where existing tight linkages with suppliers were in- hibiting innovation—presented a perfect oppor- tunity to contribute to practice and management research simultaneously. With our research experience in relational governance and process innovation, we sought to help MultiBrand man- agers design new relational linkages with the firms that made up their supply base for poly wrap, the clear plastic wrap that covers many of MultiBrand's paper products. In the spirit of ac- tion research, we sought to work coUaboratively with MultiBrand's management team to design and implement a multi-phased intervention that would help alleviate some of the company's problems associated with its current sourcing strategy. In turn, we observed the intervention's effects on the performance of the poly wrap sourcing function.

Research roles and approach In action research, the researcher and the client coUaboratively pursue intervention design and research activities (Rapoport, 1970), the client not only learns about implementing existing practices, but also contributes to theory building in a particular discipline (Whyte, Greenwood, and Lazes, 1989). In a traditional sense, re- searchers are seen as the expert and are in charge of research design, data collection, and analy- sis, whereas in more collaborative situations, these duties are shared among the researcher and the client (Liischer and Lewis, 2008). Since one member of our research team was part of the strategic sourcing team in the focal firm, he acted as the liaison between both groups, play- ing a crucial role in bridging the objectives of both teams. Our study started when the focal firm realized it was in a conspicuous place rela- tive to its existing sourcing strategy and needed to make some important changes to increase future competitiveness. At this point, we began to hold weekly and often biweekly meetings with the person who was a member of both the strategic sourcing team at the focal firm and of

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our research team. Meetings focused on describ- ing details of the situation as it was evolving in practice, reflecting on theoretical explanations of current observations, and discussing useful de- sign elements to improve the existing situation. As the intervention was implemented, the con- versations shifted to issues of efficacy and ongo- ing evaluation to create an important feedback loop to aid learning. In the following section, we utilize the theoretical framework developed in the prior section to describe the boundary drift and strategic rigidity that occurred at Multi- Brand.

Boundary Drift and Strategic Rigidity at MuitiBrand According to MultiBrand sourcing executives, the clear packaging (poly wrap) that covers many MultiBrand products, such as paper towels and toilet paper, plays a surprisingly important role in the overall profitability of a given product set. First, poly wrap packaging plays an im- portant role in top-line growth, as it has a large effect on brand equity and identity. In fact, poly wrap is often considered more important than the actual product to drive sales and create brand equity; it shapes purchasing decisions in retail stores, as the messaging and graphics are often what customers remember and rely on during repeat purchases. Second, it plays an equally important role in bottom-line initiatives, because it not only has an obvious impact on direct mate- rial costs but also affects indirect costs resulting from rework and associated opportunity costs resulting from downtime (i.e., no packaging - no product output = no sales). According to MultiBrand executives, though poly wrap only represents about 2% to 5% of the finished product cost, out-of-stock poly (resulting from the wrong poly, defective poly, no poly) would halt production and lead to tens of thousands of dollars every hour in opportunity costs. Third, in addition to the sales and marketing significance, packaging represents one of the most complex components of MultiBrand's global supply chain due to a plethora of product SKUs with unique and often changing requirements. For these reasons and more, poly wrap is seen as a stra- tegically important component of MultiBrand's global supply chain.

A focus on efficiency and asset allocation As MultiBrand continued to focus more intently on packaging as a core element affecting its competitive performance, it strives to achieve

high degrees of standardization (of poly wrap) across both products and locations. Standardiza- tion provided an opportunity to cut costs through greater economies of scale and also helped ensure consistency across product groups, which enhanced the overall quality of the MultiBrand brand. As a result, MultiBrand standardized the available colors product groups could choose among, as well as the look and feel of the pack- aging across numerous locations throughout the corporation. To achieve such brand standardiza- tion and consistency across its many product groups and manufacturing facilities, MultiBrand pursued another strategic initiative: it slowly reduced the number of suppliers from about 10 in 1995 to about four in 2001. As the reduction in its supply base continued, MultiBrand chose to move business from smaller suppliers to WrapCo due to WrapCo's superior performance in quality, consistency, and delivery. As a result, WrapCo benefitted mightily as its sales to Multi- Brand increased from about $15 million in 1995 to nearly $40 million by 2001.

Between 2001 and 2004, MultiBrand realized much greater consistency in its poly wrap sourc- ing initiatives and was very satisfied overall with the performance of WrapCo. Consequently, in 2004, when the end of contracts with its suppli- ers drew near, MultiBrand made another bold decision to continue on the path of increasing operational efficiencies. Instead of distributing its business across four suppliers, MultiBrand decided to give it all to one, WrapCo. After intense negotiations with WrapCo, they agreed on the following objectives:

• MultiBrand moved all the flexible packaging production to WrapCo, thereby increasing the business to $80 million annually.

• WrapCo invested in two new W&H flexo- graphic printing presses to offer a consistent quality to MultiBrand.

• WrapCo guaranteed to provide MultiBrand with any help necessary to expedite orders.

• WrapCo agreed to work closely with the mills to provide them any necessary support and to improve the overall process of sup- plying flexible packaging to the mills.

Increasing trust and changes in hierarchy As WrapCo became their only poly wrap pro- vider, MultiBrand gradually allowed it to take on more operational responsibility in coordinating with the manufacturing tmlls. An indication of this was that MultiBrand relinquished tight con- trol over the poly film specifications within each

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manufacturing facility (e.g., coefficient of fric- tion, dart, tensile, strength, etc.). Therefore, just a few years after pursuing a singular sourcing strategy, MultiBrand stopped keeping track of these specifications altogether. It shifted its at- tention away from the operational aspects of the packaging process and instead focused on the innovation and design of new packaging strate- gies. To WrapCo's credit, the company worked continuously on refining the specifications for each mill in an effort to achieve a high level of efficiency. After a few years, WrapCo's knowl- edge of the overall packaging process and how it integrated with MultiBrand's global supply chain operations far outweighed MultiBrand's knowledge of its own processes. Ultimately, WrapCo became the owner of the specifications and managed interactions with each mill inde- pendently without a corporate-wide MultiBrand liaison. The mills still retained bits and pieces of information, but, collectively, MultiBrand had fully outsourced these interactions to WrapCo. Printing standards, such as delta-E, densities, and dot gain, were managed by WrapCo, thereby delivering the quality needed. Eurthermore, WrapCo directly worked with the mills and their specific setups and issues and was responsible for implementing changes at all MultiBrand locations.

Efficiency gains were realized in several ways as WrapCo worked closely with the mills. Lead times for new SKUs were reduced from four to five weeks to two to three weeks. Rush orders could be filled in three to four days where the standard lead time was three weeks. Techni- cal support was available within 24 hours, and WrapCo even handled vendor-managed inven- tory programs at three MultiBrand locations. As a result, MultiBrand achieved faster and cheaper SKU changeovers along with improved quality.

The onset of strategic rigidity Despite the early successes of its sole-sourcing strategy, MultiBrand began to face some chal- lenges after several years of the new contract. In 2004, when establishing WrapCo as the sole supplier of poly wrap, MultiBrand identified "down-gauging" as a key area where it expected WrapCo to deliver improvements and innova- tions. Down-gauging is the process of reducing the thickness of the wrap while still maintaining or improving its strength. This is not only a cost- saving benefit but is also more eco-friendly, an important aspect of MultiBrand's sustainability initiatives. Unfortunately, despite continuous

questioning from MultiBrand sourcing execu- tives, WrapCo did not fulfill this down-gauging obligation. Much to their dismay, MultiBrand discovered that its gauge was about 30-40% higher than competitors for some SKUs. Eur- thermore, MultiBrand learned that WrapCo was innovating with other customers on down- gauging initiatives and had actually made some technological advances in printing that would have enabled higher-quality plastic wrap with re- duced costs. Despite the fact that WrapCo was at the leading edge of these technological advances in the mid-2000s, MultiBrand did not receive any of the benefits.

To better understand the situation, Multi- Brand's strategic sourcing group did some com- petitive analysis and found that other companies were using the down-gauged film for their processes but that these firms actually had older assets than MultiBrand's. Through continuous inquiry, MultiBrand sourcing executives basi- cally determined that WrapCo was unwilling to innovate within this relationship for the follow- ing reasons:

• Down-gauged film means "less" flexible film, which would effectively reduce an- nual revenue at WrapCo, and as its margins were propoitional to annual revenues, down- gauged film would mean fewer profits, too.

• Down-gauged film would require WrapCo to make some technological advancements, as the variability in its current process would not allow the company to produce the down- gauged film without significant problems.

• Therefore, from WrapCo's perspective, MultiBrand was asking the company to invest more money into the relationship to earn fewer profits.

MultiBrand's inquiry generated a greater understanding of WrapCo's lack of interest in investing in the relationship, but it also provided insight into other aspects of the relationship that created some metaphorical red flags for MultiBrand executives. MultiBrand found that WrapCo was unwilling to share important in- formation related to key process specifications, because it realized MultiBrand would likely use this information for benchmarking purposes as it pursued future requests for proposals (REPs) with new suppliers. Eurthermore, the executives learned that WrapCo was actually in control of the interface to MultiBrand's internal processes. For example, MultiBrand's strategic sourcing group approached a few manufacturing locations

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Figure 2. AT Kearney Strategic Sourcing Process

O G O Assess \ Evaluate \ D Current ) Supplier ) s

Situation / base / í

Evaluate \ Determine Supplier ) sourcing

base / strategy

Commit- ment GO

\ Implement plans

to compare certain efficiency and quality specifi- cations with other companies, and to its surprise, the locations were not even sure of the actual film that was being run on their manufacturing lines. The tnill supervisors repeatedly directed the team back to WrapCo saying "WrapCo knows our specifications better than we do." MultiBrand had lost control; they were feeling the effects of strategic rigidity.

Six Steps to Change: Re-designing their Sourcing Strategy As the first step to gain control of the situation, MultiBrand established a center of excellence for flexible packaging. This group was led by the strategic sourcing group and involved other relevant functions, such as marketing, graphics, packaging engineering, production planning, product supply functions, and manufacturing operations. A group of about 12 professionals from all the groups was established to form the Packaging Transition Team (PTT).

MultiBrand decided to utilize the following six-staged strategic sourcing process framework to redesign its sourcing strategy (see Figure 2):

Step 1. Assess current situation The PTT started the strategic sourcing process by assessing the current situation to understand the various requirements for flexible packaging across the company. Assessing the current situ- ation included various stages to analyze spend and volume across the entire system; to analyze the various SKUs by each brand, manufacturing mill, etc.; and to analyze the packaging speci- fications that meet manufacturing and market- ing requirements. As discussed, the PTT faced tremendous challenges in this initial step of the process, as WrapCo was in total control of the situation and had no incentive to share infor- mation. According to the MultiBrand sourcing team, a process that should have taken about a week took about four to five months for the PTT to complete.

Step 2. Evaluate supply base The PTT evaluated the supply base by issuing a

request for information (RFI) to more than 100 suppliers in the market to understand supplier capabilities related to the following key strategic attributes:

• Supply assurance • Quality performance • Service history and commitment • Cost position and structure • Innovation capability • Sustainability commitment

Step 3. Determine sourcing strategy MultiBrand established an RFI combined with reverse auctions as the suitable sourcing strategy to get the best pricing from the market for the required specifications. The strategy was to seg- ment all the requirements into different market baskets by "brand type," such as premium, mainstream, and economy. This enabled Multi- Brand to convey the different levels of quality requirements. A detailed RFI was issued, which included all the SKUs for the MultiBrand portfo- lio with volume information. About 52 suppliers were selected to move to the next round of the bidding process after scoring and assessing each on the above dimensions.

Steps 4-6, Engage, negotiate, and implement Based on the results from the auctions, the top- performing suppliers were invited for negotia- tions. Pricing was set from the reverse auctions, but the negotiations ensured commitment around quality, supply assurance, service, and other re- quirements. Even before the negotiations ended, the PTT was preparing for the implementation of new suppliers. Thus, as soon as the auction ended, the team performed several trials with the "potential" suppliers' films.

Outcomes of intervention As a result of this intervention, MultiBrand achieved a number of important objectives. First, the company realized tremendous cost savings of about 18-20% annually, providing a great benefit to bottom-line cost savings. Sec- ond, MultiBrand eliminated full dependence on one supplier, awarding business to three

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Table 1. Signals of Boundary Drift

Signals

1. Imbalanced goals

2. Diminished returns

3. Reduced autonomy

4. Decreased competency

5. Confused identity

Description

Relational governance should balance short- term (efficiency oriented) and long-term (strategically oriented) goals and objectives.

Capturing low hanging fruit by improving operational efficiency is fine, but pay atten- tion to the trajectory of returns. If returns continue to get smaller and smaller and a pat- tern is obvious, use this as a red flag that the emphasis may weigh too highly on efficiency metrics.

Control and decision authority is important, and who has it can change and become al- lusive over time. Intentional awareness and purposeful reflection are necessary for keep- ing issues of power and control in check.

The building blocks of an organization are its resources, capabilities, and competencies that enable it to create value for stakehold- ers. Such competencies can grow or attenu- ate over time, and organizations need to continually assess their evolution across core dimensions (core, product, market, internal coordination, external coordination, etc.).

The firm's identity can both group it within an industry and distinguish it from competi- tors. For internal employees it also provides boundaries to clarify "who we are" relative to other flrms within a given ecosystem. When such boundaries become blurred, employee motivation can take a hit, as the firm's identity can stimulate emotional at- tachment and cultivate commitment.

Questions to Ask

• Do we have a mix of both short-term (0-12 months) and long-term (1-3 years) objectives?

• How has the relative importance of short- term and long-term goals and objectives changed throughout the relationship?

• How have cost savings changed as a percentage of relational expenditures over time?

• Has the relationship hit a "brick wall" in terms of value that is being created for both firms?

• Do we need our supplier's consent when setting the procurement budget?

• Do we know and decide how and where that money is actually spent?

• Who determines the work and production schedules?

• How much consent do we need from our supplier?

• Core - do we employ groups of people with the critical knowledge or routines for working together that drive our sourc- ing effectiveness?

• Product - do we employ groups with key knowledge and routines for making and improving the product?

• Market - do we employ groups with the knowledge and routines driving customer satisfaction and market development?

• Internal coordination - do we have routines that encourage and monitor information flows across activities within the firm?

• External coordination - do we have routines that encourage and monitor information flows across organizational boundaries with our supplier?

• Employee self-perceptions - do our employees believe our firm acts in ways and does things that match their own sense of who they are and what they want todo?

• Employee expectations - do our employees believe our company acts in ways and does things it should to fulfill our mission?

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new suppliers to reduce the dependence on WrapCo. Third, it regained control of intemal specifications and knowledge, as the trial and qualification of the new suppliers further im- proved MultiBrand's intemal knowledge base. Eourth, through gain-sharing arrangements, MultiBrand ensured that new suppliers would bring innovative ideas to the relationship, which would translate to both cost savings and qual- ity improvement. Finally, by regaining control of specifications and introducing capable new suppliers into its sourcing strategy, MultiBrand ensured that it would keep abreast of the fiexible packaging market.

Conclusion, Implications, and Limitations We began by asking: How do single-source rela- tionships go wrong? Conventional wisdom holds that single-source suppher relations require tmst and a long-term view of the relationship to be successful. As we saw in the case of MultiBrand, tmst allows for reduced monitoring, thus en- hancing efficiency and reducing the operational costs of the relationship. Despite the benefits of tmst and efficiency gains, both if left unchecked as drivers of relational performance may sow the seeds of the single-source relationship's future discontent. As tmst develops and managers seek greater efficiencies, the firm's boundaries shift in ways that may eventually lead to strategic de- pendence and rigidity. This we called boundary drift. Over time, firm boundaries shift in ways that improve current efficiencies but may lead to longer-term reduction of autonomy, growth, and coherence.

At the heart of boundary drift are managers making operational decisions. Given the devel- oping trust those managers have with managers from the partner, efficiency-seeking managers deconstmcted the relationship into activities, and reallocated them accordingly. In our case, managers faced with the challenge of integrating two firms delegated responsibility for produc- tion to those who designed the input, basically integrating the poly wrap product rather than the knowledge itself, allowing the supplier to tackle the integration issue intemally. Rather than fixing the integration issue, the firm aggravated the problem by pushing the required knowledge further out of reach. This meant that any kind of direct infiuence through authority was no longer possible. Even an attempt to change the incen- tives would be more complicated, because they had to fit with the suppher's organizational goals for the relationship.

Nevertheless, despite the negative ramifica- tions that may result from boundary drift and strategic rigidity, our study showed that through intentional redesign sourcing strategies can provide efficiencies and flexibility through a focus on teaming. After recognizing that bound- ary drift had led to dependence on the single supplier, our company unwound the relationship and shifted to a multi-suppher sourcing strategy. Companies in mature markets still require ef- ficiency gains through standardization, but these gains may be available through a multi-partner knowledge-sourcing strategy. A successful knowledge-sourcing strategy requires a deep un- derstanding of one's own capabilities and needs, particularly as they relate to the industry envi- ronment. A knowledge-sourcing strategy also requires a careful selection of partners including a clear understanding of their capabilities and needs. Once in place, knowledge from multiple suppliers may still lead to standardization ef- ficiencies, but it requires the firm to focus less on leveraging the partner's abilities and more on leaming, integrating, and intemalizing knowl- edge from across partners. Managers should be aware of the signals of potential boundary drift and be prepared to act upon early detection (see Table 1 for signals of potential boundary drift).

As with all studies, this one has limitations. Studying only one relationship can lead re- searchers away from general trends, focusing instead on issues and events particular to a given situation (Markus et al., 2006). As a result, gen- eralizing the findings is always a potential issue with single case studies. However, to develop new insights into designing sourcing strategies, this study was purposefully organized as a form of action research. According to Van de Ven (2007), "The status quo approach to social re- search has many variations, but it tends to reflect an unengaged process of inquiry." Instead, we followed Van de Ven's guidance and organized this study around one core principle: A deep form of knowledge related to the firm-supplier relationships would only result from close and ongoing interaction between academic and prac- ticing members of the research team.

Before joining academia. Dr. Lewis was a busi- ness analyst with IBM Global Services. His research, which has been published in various journals, now focuses on the strategic use of information technology within global supply chains and on patterns of collective action in

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and among organizations. Dr. Hayward's re- search focuses on the intersection of economic geography and innovation, and he uses case studies and interviews to examine the manage- ment of inter-organizational relationships. Dr Kasi, a manager at AT Kearney's Supply Chain Practice, specializes in global sourcing. He has published widely in technology- and supply chain-related journals and conferences.

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RETRACTION

Understanding Strategic Alliances from the Effectual Entrepreneurial Firm's Perspective - An Organization Theory Perspective

By: Eugene Geh

SAM Advanced Management Journal, Volume 76, Number 4, 2011, pp. 27-36 and 46.

A part of this article appears to be copied without appropriate citation of the publication: Do Effectual Approaches to Entrepreneurship Destroy Value? Ye, Q., Fitzsimmons, J. and Douglas, E. (2008). Retrieved at https://fusionmx.babson.edu/entrep/fer/2008FER/chap- ter_04/paperfr_iv_2.html

SAM Advanced Management Journal — Summer 2013 45

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