In a recently published paper, my co-authors and I consider decision making beyond a dyadic buyer-supplier context to the network context. Decisions made by firms are shaped by behavioral norms within the supply network as perceived by the decision makers. Firms can perceive themselves to be part of a collaborative regime or one in which the potential for noncooperation is high. Further, the ability to put sanctions on non-cooperating firms could shape the overall behavioral patterns in the network. To gain further insights into these aspects and their interactive effects on firm behavior, our study investigates decision-making in supply network by means of behavioral experiments. By organizing practicing managers in a supply network, the study investigates the role of structural embeddedness, incentive structure, and sanctioning mechanisms on the level of collaboration. The results of this study confirm that while sanctions are detrimental for collaborative behavior in a supply network, they play an important role when the underlying norms of governance of such a network are perturbed. The results show that structural embeddedness provides a context that aids adaptive collaborative behavior by firms that are part of the supply network. Once the incentive structure is altered such that there is a higher payoff from defection, the adaptive collaborative behavior is replaced by a behavior in which firms try to maximize their returns and forego collaborative decision-making behavior.
The study reveals that collaboration behavior in embedded supply networks is far more complex than simple buyer-supplier dyads might have indicated in the past. Managers face the daunting task of reacting to this increasing complexity. Foremost, managers have to pay attention to the level of structural embeddedness present in supply networks as it fosters collaboration in the network. This means that managers must understand their behavior as part of a network and be aware of how interdependent and interconnected their sourcing network is. In the presence of high structural embeddedness, collaboration in the network is likely to be high even though the action of every single network member might not necessarily be collaborative. The results suggest that managers should not be myopic in terms of focusing on the actions of individual actors in the network even though these actors might be the ones with whom they are in a direct relationship in their supply network activities. The overall outcome in the network might turn out to be quite distinct from the observations at individual firm level.
The study's findings suggest that managers have to pay attention to the presence of institutional forces that change the incentive structure and thereby impact the level of collaboration in the supply network. It is necessary for managers to act quickly in order to sustain collaboration before the tipping point is reached and collaboration is driven out of the network. Collaboration in networks calls for great attention and continuous care by managing embedded structures and sanctioning options based on the circumstances. The study provides managerial insights regarding the likelihood of supply chain members changing their behavior based on the alterations in the underlying incentive structure. When institutional factors diminish the incentives for collaboration by making private investments more attractive than group investments, as is observed in the case of industry consolidation, firms adopt maximizing behavior at the detriment of the overall collaborative environment in the supply network. In the presence of collaborative regime, managers tend to adopt a satisficing stance, whereas changed incentive structure towards defection results in a focus on maximizing the outcome of self. Thus, with changed incentive structures that provide higher rewards for noncooperative behavior, sanctions become specifically necessary.