The role of relational and transactional factors in the adoption of virtual governance strategies

Abstract

Purpose This paper aims to understand the factors of the exchange relationship that influence a target-partner’s decisions to adopt virtual governance strategies. Design/methodology/approach Hypotheses are tested using an online panel of 259 key informants from manufacturing firms that sell goods to retailers. Data are analyzed using structural equation modeling. Findings The study confirms the hypotheses that the target partner’s trust in the initiating partner is a significant driver of supply chain management system (SCMS) adoption intention. While trust fully mediates the adverse effects of technological uncertainty on adoption intentions, asset specificity directly influences both trust and adoption intentions. Additionally, the initiating-partner’s incentive orientation mitigates these effects and encourages SCMS adoption. Research limitations/implications This paper contributes to the study of virtual governance and interorganizational adoption decisions in two primary ways. First, it elucidates the relationship between transaction costs and relational norms. Second, it examines the role that the shadow of past incentives has on the target-partner’s decisions to electronically integrate with the initiating partner. Practical implications The findings from this study contribute to the virtual governance and interorganizational technology adoption literature by demonstrating the relevance of characteristics of the exchange relationship in the target-partner’s decision to adopt the SCMS technologies necessary for electronic integration. This study provides a better understanding of the function of transaction costs and relational norms that paves the way for further exploration of the choice to adopt virtual governance strategies. Originality/value Given that SCMSs enable virtual governance, the findings of this study make important contributions to understanding how transactional and relational elements of the exchange relationship influence a target-partner’s decisions to participate in vertical control strategies with an initiating-partner.