According to Essential Science Indicators from
Reuters, the paper, "The relational view:
Cooperative strategy and sources of interorganizational
competitive advantage," (Dyer JH and Singh H, Academy
of Management Review 23: 660-79, October 1998) is
currently ranked at #2 among Economics & Business
papers published between January 1, 1998 and April 30,
2008. At present, the paper has 561 cites.
The paper's authors are Dr. Jeff Dyer and Dr. Harbir Singh. Dr. Dyer is
the Horace Beesley Professor of Strategy in the Department of
Organizational Leadership and Strategy at Brigham Young University's
Marriott School. Dr. Singh is the Mack Professor of Management, the Acting
Chairperson of the Management Department, and the Co-Director of the Mack
Center for Technological Innovation at the Wharton School of the University
of Pennsylvania. Both authors are among the top 20 authors in the field of
Economics & Business.
This month, ScienceWatch.com
talks with Dr. Jeff Dyer and Dr. Harbir Singh, about the
Would you please sum up your 1998
Academy of Management Review paper, "The relational view:
cooperative strategy and sources of interorganizational competitive
advantage," for our readers?
The main contribution of the "relational view" paper was that it outlined a
theory for considering dyads and networks of firms as a key unit of
analysis for explaining superior individual firm performance. The strategy
field is fundamentally concerned with explaining differential firm
performance, and before the relational view paper two prominent
views dominated our perspective regarding the sources of supernormal firm
profit returns. The first or industry structure view (IS),
associated with Porter (1980), suggests that supernormal returns are
primarily a function of a firm's membership in an industry with favorable
structural characteristics (e.g., relative bargaining power, barriers to
entry, etc.). Consequently, many researchers focused on the industry as the
relevant unit of analysis for explaining why individual firms differ in
performance. Some firms performed better because they were members of
industries with attractive structural features.
The second view, the resource-based view (RBV) of the firm, argues
that differential firm performance is fundamentally due to firm
heterogeneity rather than industry structure (Rumelt, 1984, 1991;
Wernerfelt, 1984; Barney, 1991). Firms that are able to accumulate
resources and capabilities that are rare, valuable, non-substitutable, and
difficult to imitate will achieve a competitive advantage over competing
firms (Rumelt, 1984; Barney, 1991; Dierickx & Cool, 1989). Thus, extant
RBV theory views the firm as the primary unit of analysis, and the search
for competitive advantage has focused on those resources that are housed
within the firm.
The relational view paper offered a view which suggested that a
firm’s critical resources may span firm boundaries and may be
embedded in interfirm resources and routines—that
idiosyncratic interfirm linkages may be a source of relational
rents and competitive advantage. Thus, the primary purpose of the paper was
to examine how relational rents are earned and preserved. We identified
four potential sources of interorganizational competitive
advantage: (1) relation-specific assets, (2) knowledge-sharing routines,
(3) complementary resources/capabilities, and (4) effective governance. We
examined each of these potential sources of rent in detail, including
identifying key sub-processes. We also discussed the isolating mechanisms
that serve to preserve relational rents. Finally, we discussed how the
relational perspective may offer normative prescriptions for firm-level
strategies that contradict the prescriptions offered by the industry
structure view and resource based view.
This final issue—offering different prescriptions for firm
behavior—is particularly important if the relational view is worthy
of being considered alongside the IS and RBV as a prominent theoretical
lens for understanding differential firm performance. Let us offer two
brief illustrations of how the relational view may offer different
normative implications for the strategies firms should use to achieve high
According to the RBV, an individual firm should attempt to protect, rather
than share, valuable proprietary know-how to prevent knowledge spillovers,
which could erode or eliminate its competitive advantage. However, an
effective strategy from a relational view may be for firms to
systematically share valuable—even proprietary—know-how with
alliance partners (and willingly accept some spillover to competitors) in
return for access to the stock of valuable and proprietary knowledge which
resides within its alliance partners. Of course, this strategy makes sense
only when the expected value of the combined in-flows of knowledge from
partners exceeds the expected loss/erosion of advantages due to knowledge
spillovers to competitors.
"...studies have shown that a
firm’s market value will be determined
by the quality of its partners or will be
influenced by economic events that influence
The relational view and IS view may also offer different prescriptions for
firm-level strategies. For example, according to the IS view, firms should
be eager to increase the number of their suppliers, thereby maximizing
bargaining power and profits. States Porter (1980:123):
In purchasing, then, the goal is to find mechanisms to offset or
surmount these sources of suppliers' power. . . Purchases of an item
can be spread among alternate suppliers in such a way as to improve the
firm's bargaining power.
This strategy is in direct contrast to the relational view, which argues
that firms can increase profits by increasing their dependence on
a smaller number of suppliers, thereby increasing the incentives of
suppliers to share knowledge and make performance-enhancing investments in
relation-specific assets. By committing to a small number of suppliers, the
buyer firm can guarantee them greater ex post bargaining power and
therefore greater ex ante incentives to make noncontractible investments in
innovation, responsiveness, and information sharing; the buyer ends up
being better off by keeping a smaller piece of a bigger pie.
Thus, a relational view may differ from existing views in the normative
prescriptions offered to practicing managers. The fact that there are clear
contradictions between these views suggests that the IS and RBV theories of
advantage are not adequate to explain interorganizational competitive
How did you come up with the concept of the
Three different sets of influences drove the need for this work. First, the
literature on alliances up to that point had not explicitly dealt with the
drivers of rents from alliances. This was true despite a large volume of
literature on alliances at the time. Second, Jeff Dyer had done some
research on vertical alliances that shed light on possible drivers of rents
(and competitive advantage) from alliances in general. Third, in related
work on strategic acquisitions, Harbir Singh had explored the nature of
synergies and the conditions under which firms could create joint value
through such transactions.
Regarding the first point (the gap in the prior literature), a prevailing
view on alliances focused on the contractual elements of such
relationships, with a strong focus on controlling opportunistic behavior.
Some work with a strategic focus did exist, but was bound in terms of
particular, focused dimensions of strategy or industries in which alliances
could create value. Our article on the relational view was therefore
positioned to provide a conceptual framework delineating the conditions
under which alliances could create joint value for both (or all) parties
Another important influence on the concept of the relational view emerged
from a comparative study of Toyota and its relationships with its suppliers
compared with a number of competitors. Jeff Dyer worked for Bain &
Company, a management consulting firm, and learned about a benchmarking
study that Bain did for Chrysler comparing the cost, quality, and time to
market of a Chrysler small car versus Toyota. The study showed that Toyota
had a 30% cost advantage, almost one half the defects, and 33% faster
product development cycle (developing all-new cars in four years versus six
for Chrysler; see Dyer & Ouchi, 1993). This prompted Dyer to do a
detailed study of Toyota, Nissan, GM, Ford, and Chrysler to try to
understand the sources of Toyota’s competitive advantage.
During this study, it became clear that Toyota used very different supplier
management practices compared with its competitors (see Dyer & Ouchi,
1993; Dyer, 1994; Dyer, 1996). Toyota’s suppliers located their
plants in close proximity to Toyota’s plants to economize on
coordination, transportation, and inventory costs. They co-located over 700
"guest engineers" at Toyota’s technology center to co-design vehicles
with Toyota’s engineers. They engaged in significant sharing of best
practices with Toyota and each other through Toyota’s supplier
association. In short, Toyota’s suppliers made a variety of
relation-specific investments related to Toyota and other Toyota suppliers
that had a direct impact on the cost, quality, and time to market of a
Toyota vehicle. Toyota’s superior profits relative to its competitors
could not be fully understood without examining how Toyota’s supplier
network worked with Toyota and with each other.
"...a relational view may differ
from existing views in the normative
prescriptions offered to practicing
A third set of influences emerged from related research on strategic
acquisitions conducted by Harbir Singh. He explored the conditions under
which acquirers could create value by incorporating the assets of acquired
firms, and the findings had significant bearing on rents from relationships
between firms. While there were several prior arguments driving the
possibility of synergy from acquisitions, his empirical research showed
that in most cases such synergies were factored into the acquisition price
paid for the acquired firm. These findings brought two insights into the
discussion on the relational view: that there must be a highly specialized
and valuable customization of the assets of the transacting parties for
value to be created, and that the process of realizing synergies is not
costless and must be accounted for. Both these arguments found their way
into the paper on the relational view.
Thus, the insight emerged that in some cases differential firm performance
can only be fully explained by examining the firm’s network of
alliance relationships and the specific investments made by each party to
create a uniquely high valued combination of assets. There were also some
implications for the process by which value in the combination of assets is
accessed. This led to the development of a more complete theory of how some
firms develop relational rents and how they are preserved.
How was the paper received by your peers when it
The paper was actually received quite positively by many of our peers, some
of whom likewise felt that firm performance could only be adequately
explained by examining firm dyads and networks. The relational view paper
helped spur a wide variety of studies on the dynamics of firm alliances and
networks. In fact, an analysis of topic areas within Strategic
Management Journal apparently showed that there have been more
articles on the topic of alliances and networks during the past 10 years
than on any other single topic.
One criticism that was levied was that individual firms develop
capabilities to manage interfirm relationships and thus the relational view
could be subsumed within the RBV. We agree that firms develop capabilities
to manage firm relationships that influence their ability to develop
relational rents (see Kale, Dyer & Singh, 2002). But we do not feel
that relational rents can be explained solely by the RBV. To illustrate, a
Toyota supplier may generate rents by actively participating in the
knowledge-sharing processes in Toyota's supplier association. However, the
supplier will be unable to generate these relational rents if the other
members decide to exclude it from the network.
Similarly, the 23,000 member banks of the VISA organization have achieved
an advantage over American Express and Discover by pooling their enormous
distribution power, which allows for use of the card at more locations than
its competitors. Individual banks generate profits with VISA due to the
jointly created brand name and distribution network. In both of these
cases, the resources that create the relational rents are essentially
beyond the control of the individual firm. Moreover, studies have shown
that a firm’s market value will be determined by the quality of its
partners or will be influenced by economic events that influence its
partners. These are factors beyond the control of the individual firm.
Have you developed the relational view any further
since this paper, and if so, how?
We have engaged in a number of studies to empirically validate the
propositions outlined in the relational view paper. For example, we have
conducted a number of empirical studies (with a number of co-authors) to
show how relation-specific assets can produce relational rents (Dyer,
1996), knowledge-sharing assets can produce relational rents (Dyer &
Nobeoka, 2000; Dyer & Hatch, 2006), and effective governance
(specifically "goodwill trust") can produce relational rents (Dyer &
We have also shown that firms do indeed develop relational capabilities
that increase their ability to generate relational rents (Kale, Dyer &
Singh, 2002). In addition, we have outlined the conditions under which
firms should choose an alliance versus acquisition as a vehicle for
accessing critical resources that reside outside the firm (Dyer, Kale &
Singh, 2004). Finally, we have examined how relational rents are divided
(how the "pie" is split) among collaborating partners (Dyer, Kale, &
Jeffrey H. Dyer, Ph.D.
Department of Organizational Leadership and Strategy
Brigham Young University
Provo, UT, USA
Harbir Singh, Ph.D.
University of Pennsylvania
Philadelphia, PA, USA
Dyer, Jeffrey H., P. Kale and H. Singh (2008). "Splitting the Pie: Rent
Distribution in Alliances and Networks." Managerial and Decision
Dyer, Jeffrey H. and Nile Hatch (2006). "Relation-Specific Capabilities
and Barriers to Knowledge Transfers: Creating Advantage through Network
Relationships." Strategic Management Journal, Vol. 27, 701-719.
Dyer, Jeffrey H., P. Kale and H. Singh (2004), "When to Ally and When
to Acquire." Harvard Business Review. July-August Issue, 109-115.
Dyer, Jeffrey H. and Wujin Chu (2003). "The Role of Trustworthiness in
Reducing Transaction Costs and Increasing Information Sharing: Empirical
Evidence from the United States, Japan, and Korea." Organization
Science, Volume 14, No. 1, 57-68.
Dyer, Jeffrey H. and Kentaro Nobeoka (2000). "Creating and Managing a
High Performance Knowledge-Sharing Network: The Toyota Case." Strategic
Management Journal, 21, 345-367.
Dyer, Jeffrey H. & Harbir Singh (1998). "The Relational View:
Cooperative Strategy and Sources of Interorganizational Competitive
Advantage." Lead article in: Academy of Management Review, Vol.
23, No. 4, 660-679.
Dyer, Jeffrey H. (1996). "Specialized Supplier Networks as a Source of
Competitive Advantage: Evidence from the Auto Industry," Strategic
Management Journal, Vol. 17, Issue 4, 271-292.
Dyer, Jeffrey H. (1994). "Dedicated Assets: Japan's Manufacturing
Edge." Harvard Business Review, November-December, 174-178.
Dyer, Jeffrey H. & William G. Ouchi, (1993). "Japanese Style
Partnerships: Giving Companies a Competitive Edge." Sloan Management
Review, Volume 35, No. 1, Fall.
Kale, Prashant, Jeffrey H. Dyer and Harbir Singh, (2002). "Alliance
Capability, Stock Market Response, and Long Term Alliance Success: The Role
of the Alliance Function." Strategic Management Journal, Vol. 23,
No. 8, 747-767.
Dr. Jeff Dyer & Dr.
Harbir Singh's most-cited paper
with 561 cites to date:
Dyer JH and Singh H, "The relational view: Cooperative
strategy and sources of interorganizational competitive
advantage ," Acad. Manage. Rev. 23(4): 660-79,
October 1998. Source: Essential Science Indicators