The Individual Aspect of Interorganizational Cooperation: Favor-Based Cooperation

ABSTRACT Purpose Interorganizational (IO) cooperation has been examined primarily as a role-based concept. This research seeks to extend this concept by examining a distinct mode of IO cooperation: favor-based cooperation. This concept refers to voluntary exchanges of preferential treatments between boundary personnel across organizations that are perceived as going beyond the requirements of their role relationships. Methodology/Approach A qualitative case research design is used to build a grounded theoretical framework on favor-based cooperation. The empirical basis of the proposed framework includes around 300 favor incidents gathered through multiple sources to get a broad and balanced view of the phenomenon. Theoretically, the author employs role theory to conceptualize favor-based cooperation as qua persona, extra-role behavior; additionally, he draws on transaction cost economics (TCE) to examine the value of favor-based cooperation as a means of adaptation relative to TCE relational contracting. Findings As an extra-role behavior, the added value of favor-based cooperation lies in its capability to provide extra flexibility in the system via informal consent to adaptation requests and preferred access to exchange partner’s time availability. But this mode of cooperation involves a high risk of opportunism when a lot is at stake. Thus, favor-based cooperation best suits IO exchanges that require highly frequent but lowly consequential coordinated adaptation and can enhance IO value creation beyond role-based cooperation (relational contracting) in these situations. Since favor-based cooperation involves transgressing the market forces, it ill-suits IO exchanges that require autonomous adaptations. As a qua persona behavior, favor-based cooperation first and foremost serves the interests of the individuals involved. Thus, whereas interorganizational interest alignment provides sufficient incentive for beneficial role-based cooperation to occur, beneficial favor-based cooperation also requires organizational-individual interest alignment. Research Implications The inclusion of the favor-based cooperation concept in the study of IO cooperation helps address the overlooked individual aspect of IO cooperation. In the role-based approach that is typical in research on IO cooperation, boundary personnel are viewed as organizational agents who act to maximize their respective organizational interests. In viewing IO cooperation as qua persona behavior (as in the case of favor-based cooperation), the current research explicitly accounts for boundary personnel’s individual interests. While individual interests do account for certain harmful behaviors (e.g., buying business or covering poor performance), they also account for beneficial behaviors that have not been adequately accounted for in role-based theories of IO cooperation. For example, it is individual interests (e.g., the desire to help a friend) that motivate some boundary persons to exert extra efforts to accommodate exchange partner’s unplanned requests for adaptation. Accordingly, knowledge of how the individual interests of the decision-makers affect IO cooperative activities and the outcomes of these activities (via, e.g., favor behaviors) can enhance the explanatory power of theories of cooperation. For example, favor-based cooperation is beneficial particularly in certain exchange situations where role-based cooperation (TCE relational contracting) will likely fail, such as exchange situations that require highly frequent (but lowly consequential) coordinated adaptations. Knowledge of how boundary personnel’s individual interests affect IO cooperation and its outcomes via favor behaviors is also relevant for the understanding of the incentive required for mutually beneficial IO cooperation to occur. According to the role-based view, boundary personnel’s personal motivation is irrelevant. Accordingly, IO interest alignment established via, e.g., mutual credible commitment provides sufficient incentive for mutually beneficial IO cooperation to occur. But to the extent that boundary personnel’s individual interests are relevant, IO interest alignment is necessary but insufficient; organizational-individual interest alignment within each participating organization is also needed for mutually beneficial IO cooperation to occur. Practical Implications Findings have implications for the role of favor-based cooperation in organizations and effective management of this mode of cooperation. While many organizations appear to value favor-based cooperation, its role is not without controversy, as some scholars view it as harmful behavior that should be discouraged. The findings of this research support a balanced view. Favor-based cooperation is an ultra-flexible means of coordinated adaptation that can help organizations respond effectively to accelerating change in their business environment. However, favor-based cooperation may not be the optimal cooperative mechanism when a lot is at stake; thus, in most exchange situations it should play only a supplemental role. Moreover, this mode of cooperation involves a high probability of misuse. Findings yield unobtrusive measures for effective management of favor exchanges. To benefit from these informal and discretionary cooperative activities, organizations need to develop organizational-individual interest alignment by economic and social incentives. They need to provide boundary personnel with decision criteria to help them select and structure beneficial favor exchange opportunities, and sufficient discretion and resources to realize these opportunities. Originality/Value/Contribution This research extends the role-based IO cooperation concept to include favor-based cooperation – a qua persona and extra-role behavior. To the author’s knowledge, this research is the first in-depth investigation of this mode of IO cooperation. The findings highlight the distinct scope of favor-based cooperation, specify its added value and downsides as a means of adaptation, and explain the incentive required for beneficial favor-based cooperation to occur. Given that TCE currently has a prominent role in the IO marketing literature, by specifying the value of favor-based cooperation relative to TCE modes of cooperation the current research helps position favor-based cooperation within mainstream IO marketing research.