Chapter 6: Trust and Control in Strategic Alliances: An Instrumental Perspective

This chapter analyzes the control structures parties can choose and put in place to control strategic alliances. Based on transaction cost economics, it distinguishes two control patterns: a market-based pattern and a bureaucratic pattern. It is claimed that the choice between these patterns is dependent on contingency variables: that is, the characteristics of the transactions, the transaction parties, and the alliance’s environment. When a strategic alliance is characterized by high levels of behavioral and environmental uncertainty, control structures do not suffice—there is a control structure deficit. In such strategic alliances, trust is the dominant control force. In a trust-based control pattern the parties have to build trust at the level of the strategic alliance. The chapter sets out that the process of trust building is a process of relational signaling that is driven by a party’s frame, which is a cognitive state that generates positive expectations about the abilities, intentions, and integrity of the other parties of a strategic alliance. Particularly in solidarity situations, parties experience strong cognitive drivers to voluntarily signal co-operative behavior to the other parties. The chapter demonstrates that relational signaling leading to the building of trust is in need of control structures, while credible control structures are in need of trust. It is argued that stable and durable strategic alliances are the result of interaction between control and trust building.