Productive Governance of Interfirm Innovation Projects

Per Anders Sunde (Statoil)
Svein Ulset (Norwegian School of Economics and Business Adm)

Abstract: Formal and relational governance mechanisms are used in interfirm innovation projects to coordinate interfirm value creation and mitigate the risk of opportunistic behavior. While recent work has shown that the performance effects of such governance modes may vary with transaction attributes and industry conditions, our knowledge about when one contractual governance mode is superior to the other is still inadequate. Using data on the governance choices and subsequent performances of interfirm innovation projects in the Norwegian offshore oil and gas cluster, we find that the performance effects of such interfirm projects depend on project governance, project specific investments and their interactions, as well as on the type of performance being pursued. Whereas both governance modes may function as safeguard against the hazards of project specific investment in project heading for ordinary project performance and in project heading for extraordinary customer performance, formal governance seems best suited as such safeguard in project heading for extraordinary contractor performance. Our findings contribute to transaction cost economics, to the literature on relational governance, to recent literature studying their interactions, and indirectly also to the resource based view and to cluster theory.

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