Relational strategy, business scope, and firm performance: evidence from supplier-client relationships in knowledge-based services

Abstract

This dissertation examines the implications on the performance and business scope of knowledge-based service firms (???suppliers???) that build deeply embedded exchange relationships with their clients. Prior research in the relational view has revealed the potential for firms to gain advantages (but also to become exposed to hazards) through close inter-organizational relationships characterized by greater levels of relationship-specific investments (or ???relational commitments???). However, theory development and empirical examinations in the relational view have largely been at the level of the dyad. Thus, the firm-level impacts from deeper commitments across a firm???s portfolio of relationships, and whether firms can generate competitive advantages from being a more relational partner, are less understood. In my first empirical study (chapter two), I extend the relational view by examining the firm-level growth performance impacts of supplier firms choosing a more embedded relational strategy across their portfolio of client relationships. I find that suppliers who receive greater relational commitments from their existing clients can gain advantages for growing their business, but unilateral commitments by suppliers may not provide similar advantages. Rather, unilateral supplier commitments may be hazardous for supplier growth performance. Furthermore, consistent with the joint value-maximizing perspective of the relational view, I find bilateral, or mutual, relational commitments by suppliers and clients provide the greatest opportunity for supplier growth. By contrast, strong relational commitments constrain a supplier from taking advantage of more broad-based demand growth within the business domains in which that supplier operates, thereby negatively impacting supplier growth performance. In my second empirical study (chapter three), I extend the relational view -- and connect corporate strategy with business strategy -- by providing a novel, relational theory of corporate diversification. I show that the advantages suppliers gain in sourcing new business from existing clients lead those suppliers to expand their business scope in response to diversification by their clients. Furthermore, I reveal that this ???client-led diversification??? effect is strengthened by suppliers??? client-specific knowledge and clients??? relational commitment to suppliers, and when suppliers hold greater excess resource capacity. My third empirical study (chapter four), also connects the relational view and corporate strategy literatures by investigating how a broader portfolio of businesses impacts supplier survival, and how a supplier???s client management strategy moderates this scope-survival relationship. I find that suppliers gain survival advantages through a more diversified portfolio of client services, and these supplier scope-survival advantages are enhanced when suppliers dedicate a greater fraction of their business to serving long-term clients. In addition, a supplier???s scope-survival advantage is also increased when their clients have a greater presence in fast-paced, innovative markets, relative to the markets within the supplier???s own business portfolio. I test my dissertation predictions using detailed longitudinal panel data on legal patent prosecution work outsourced by corporate clients to patent law firms. The findings provide nuanced insights into the value of relationship-specific investments for firm performance and business scope, and test the limits to which deeply embedded relationships provide firm-level advantages.