This document discusses how a firm's identity orientation, or shared perceptions about how they typically interact with partners, can affect governance choices. It identifies three main identity orientations: individualistic, relational, and collectivistic. It argues that when a firm and its partner have mismatched identity orientations, such as one being individualistic and the other being relational, this creates potential relationship friction that must be managed through governance mechanisms like contracts. A specific example given is an individualistic firm using formal governance like contracts to manage a relationship despite its partner preferring informal governance, if the individualistic firm has power in the relationship.

1. Heide, Bell, and Tracey (2022)
Who We Are and How We Govern:
The Effect of Identity Orientation on Governance Choice

2. Heide, Bell, and Tracey (2022)
Background
• Firms’ marketing programs typically involve different value chain
members (suppliers, service providers, resellers …)
• Transaction cost economics (TCE) dictates that the relationships
with value chain members must be purposely governed
• Past research in the TCE tradition has identified a variety of
governance mechanisms
• A broad distinction can be made between formal (contracts,
standard operating procedures) and informal (norms, implicit rules)
governance mechanisms

3. Heide, Bell, and Tracey (2022)
Underlying Premise of Transaction Cost Economics (TCE) and
Governance Research
• Governance mechanisms (formal and/or informal) must be deployed to
mitigate value chain partners’ possible opportunistic orientations
• So, firm orientations matter, but TCE only considers the partner’s orientation
• We pose two questions:
1) Does a firm’s own orientation also matter?
2) Does the juxtaposition between a firm’s and a partner’s orientation matter?

4. Heide, Bell, and Tracey (2022)
Firms possess general
organizational identities - shared
perceptions about “who we are as
an organization.”
In addition, firms possess unique
identity orientations which shape
their interactions with external
parties (i.e., “how do we typically
interact with our partners”).
The Concept of an Identity Orientation (IO)

5. Heide, Bell, and Tracey (2022)
Three Main Types of Identity Orientations:
• Individualistic: Emphasis is on maximizing self-interest and maintaining
boundaries vis-à-vis value chain partners
Example: Wal-Mart
• Relational: Emphasis is on promoting the relationship with a particular
dyadic partner
Example: GoPro and Red Bull
• Collectivistic: Emphasis is on promoting the interests of a larger group of
firms
Examples: Industry clusters, keiretsus (e.g. Mitsubishi)

6. Heide, Bell, and Tracey (2022)
Firm and Partner Identity Orientation
• A mismatch in identity orientation creates
potential friction and represents a unique
governance problem
• This friction must be managed by
deploying formal or informal governance
mechanisms

7. Heide, Bell, and Tracey (2022)
A Specific Example:
• A relationships between a focal firm with an individualistic orientation and a partner with a
relational or a collectivistic one
• The focal firm’s own IO means a preference for tight, rule-based governance, for instance
in the form of formal contracts
• Formal governance, however, may be inconsistent with the preferences of the partner:
Relational and collectivistic IOs imply a preference for loose, informal governance practices
• So, mismatched IOs represents a source of friction, and this must be managed through
purposeful governance
• Prediction: The above mismatch will be resolved through formal governance, provided that
the focal firm possesses a power advantage that permits the deployment of formal
governance features
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