Nasty, Brutish, and Short: Embeddedness Failure in the Pharmaceutical Industry

Abstract

Since the early 1990s, U.S. pharmaceutical firms have partially outsourced the coordination of the clinical trials they sponsor to specialized firms called contract research organizations. Although these exchanges appeared ripe for the development of close, “embedded” ties, they were in fact “nasty, brutish, and short” — i.e., marked by ill-will and a bias toward replacing current exchange partners due to perceptions of underperformance. Drawing on in-depth field work, we use causal loop diagrams to capture this puzzle and to help explain it. Our analysis suggests that attempts to build embedded relations will fail if the parties do not recognize the limitations of the commitments they can credibly make. More generally, when managers misdiagnose as failure what is in fact a trade-off inherent in the design of their organizations, they risk engendering even worse outcomes than those they would otherwise attain.