Relational Contracts and Organizational Capabilities

R.  Gibbons; R.  Henderson

Working Paper | HBS Working Paper Series | 2012

Relational Contracts and Organizational Capabilities

by R. Gibbons and R. Henderson

Abstract

A large literature identifies unique organizational capabilities as a potent source of competitive advantage, yet our knowledge of why capabilities fail to diffuse more rapidly-particularly in situations in which competitors apparently have strong incentives to adopt them and a well developed understanding of how they work-remains incomplete. In this paper we suggest that competitively significant capabilities often rest on managerial practices that in turn rely on relational contracts (i.e., informal agreements sustained by the shadow of the future). We argue that one of the reasons these practices may be difficult to copy is that effective relational contracts must solve the twin problems of credibility and clarity, and that while credibility might in principle be instantly acquired, clarity may take time to develop and may interact with credibility in complex ways, so that relational contracts may often be difficult to build.

Keywords: Competitive Advantage; Motivation and Incentives; Management Practices and Processes; Contracts; Competency and Skills; Relationships; Complexity;

Language: English

Format: Print

33 pages

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Citation:

Gibbons, R., and R. Henderson. "Relational Contracts and Organizational Capabilities." Harvard Business School Working Paper, No. 12-061, January 2012.

Mark Bertolini, chairman and CEO of the health insurer Aetna, faces a number of questions as he seeks to transform Aetna from a classic insurance company into a business that will engage much more deeply with its members around their personal health goals. His strategy depends on Aetna’s ability to facilitate behavioral changes amongst its members to live healthier lives and requires very significant investments in digital capabilities and on-the-ground community-orientated health care resources. Will it work? Can he implement it? The case explores both the strategic issues inherent in this potential transformation and the organizational and leadership questions that it raises. Bertolini is a highly purpose-driven leader, and the case allows for a rich discussion of the degree to which this changes both his strategic and his organizational options.

Background Note | HBS Case Collection | October 2016 (Revised January 2018)

Climate Change in 2018: Implications for Business

Rebecca M. Henderson, Sophus A. Reinert, Polina Dekhtyar and Amram Migdal

This note provides general information about climate change and its implications for business. Included is an overview of climate change science and a number of its impacts, including rising sea levels, changing weather patterns and extreme weather, pressure on water and food, political and security risks, human health risks, and impact on wildlife and ecosystems. Next, responses to climate change are outlined, including improvements in energy efficiency, moving away from fossil fuels, changes in land use and agriculture practices, and geoengineering. The note concludes with the debate over how much should be spent to mitigate and adapt to climate change, who should pay, and the implications for the private sector.

Keywords: climate change; Environmental Accounting; Agribusiness; Economic Growth; Energy Conservation; Energy Generation; Renewable Energy; Energy Sources; Non-Renewable Energy; Globalized Markets and Industries; National Security; Government Legislation; Operations; Corporate Social Responsibility and Impact; Problems and Challenges; Risk and Uncertainty; Natural Disasters; Natural Environment; Environmental Sustainability; Pollution and Pollutants; Science-Based Business; Weather and Climate Change; Society; Technology;

Citation:

Henderson, Rebecca M., Sophus A. Reinert, Polina Dekhtyar, and Amram Migdal. "Climate Change in 2018: Implications for Business." Harvard Business School Background Note 317-032, October 2016. (Revised January 2018.) (Click here for a complimentary copy on the Business & Environment Initiative’s site.) View Details

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This note draws on academic work, as well as social and economic data across several countries, to provide a basic understanding of some of the differences among capitalist systems. It begins with a description of the system of capitalism, and characteristics that to a greater or lesser degree are universally shared. It then moves to describing two models of "comparative capitalism," as well as examining state capitalism. Finally, for additional perspective the note provides cross-sectional and time-series data for social, economic and political metrics for five different capitalist systems—China, Germany, Japan, Sweden and the United States.

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Relational Contracts and Organizational Capabilities

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