The limits of relational governance: sales force strategies in the US medical device industry

Chatterji, A K, Cunningham, C and Joseph, J E (2019) The limits of relational governance: sales force strategies in the US medical device industry. Strategic Management Journal, 40 (1). pp. 55-78. ISSN 0143-2095

Abstract

Research Summary: We explore how inter-organizational relationships shape firm boundary decisions. Using data on 545 U.S. medical device manufacturers’ product portfolios and sales governance choices (i.e., internal or external sales forces) from 1983 to 1996, we find relational capital between manufacturers and external sales forces influences future firm boundary decisions. Relational capital lowers the likelihood of integrating the sales function, but only when firms remain focused on the same product market. Further, launching an innovative product has a nuanced effect. For firms lacking relational capital, innovation increases the likelihood of sales integration. This pattern reverses as relational capital accumulates, but only when innovations are in the firm’s existing focal product market. Our findings suggest important limits on the effect of relational governance on firm strategy. Managerial Abstract: Choosing between in-house or external sales is a key strategic decision. In the medical device industry, this decision is particularly important because sales people are conduits between R&D and customers. For firms who initially choose external sales, the tradeoff between maintaining existing links (via external sales) and developing new, direct relationships (by bringing sales in-house) can change significantly as product portfolios change. Analyzing 545 U.S. medical device manufacturers from 1983 to 1996, we find that existing relationships with external sales forces reduce the likelihood of bringing sales in-house, but only when firms remain in the same product market, such as orthopedic implants. When firms launch products in new markets, especially innovations, they are more likely to bring sales in-house.

More Details

Item Type: Article
Subject Areas: Strategy and Entrepreneurship
Additional Information: © 2018 John Wiley & Sons. This is the peer reviewed version of the following article: Chatterji, A K, Cunningham, C M and Joseph, J E (2018) "The limits of relational governance: sales force strategies in the US medical device industry". Strategic Management Journal, DOI: https://doi.org/10.1002/smj.2964. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. Colleen gratefully acknowledges support from an Ewing Marion Kauffman Foundation dissertation fellowship.
Funder Name: Ewing Marion Kauffman Foundation
Subjects: S > Sales force control
M > Medical equipment industry
Date Deposited: 12 Sep 2018 09:43
Last Modified: 21 Nov 2019 18:19
URI: http://lbsresearch.london.edu/id/eprint/1006
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