In an outsourcing relationship, collaboration occurs when both firms cooperate informally to achieve a set of shared goals. This is a form of relationship that works to the advantage of both parties when buyer and supplier are proactively engaged in decision making and objective setting. Both parties need to have similar interests on the outcome before embarking on the outsourcing relationship. Cousins (2002) describes it as “allowing both customer and supplier to act in a symbiotic way to support each other”. Cousins (2002) breaks collaborative relationships into four general categories:

1. Sharing physical resources i. e. machinery or staff through implants.
2. Sharing intangible assets such as technological processes and intellectual know-how.
3. A common interest in cost reduction.
4. Exposure of New Product Development (NPD) to suppliers.

Williamson’s (2008) work on the analysis of behavioural economics is revolutionising the outsourcing market segment. This research has uncovered the concept of relational economics, explaining that economic value can be prolonged through positive relationship (win-win) thinking as oppose to the former concept of adversarial relationships where the buyer and supplier are competing for the larger portion of profit resulting in a win-lose or lose-lose situation. This allows companies to collaborate with their chosen outsourcing partner whilst increasing their common reward positions simultaneously. This collaboration allows both parties to jointly set goals for continuous improvement on Key Performance Indicators (KPI’s) such as measuring financial returns and overall customer satisfaction. One advantage of this strategic alignment is seen at the end of these informal collaborations, formal partnerships may be created to form a long-term relationship benefiting both sides of the agreement.

Moczadlo (2015) examines how Porter and Kramer (2011) expanded on the aspect of relational economics by introducing the shared value approach where economic value is delegated to both entities involved. Essentially, shared value thinking involves parties working in alignment to produce innovations that benefit them both equally. There is an effort to make sure that all parties have a relatively equitable share in both the risks of doing business and the rewards. A collaborative relationship entitles a similar share of responsibilities to that of a partnership but in a less formal manner, usually not encompassing a legal contract between parties.

Benefits of a collaboration

An example of the benefits of collaborating can be seen when companies choose to outsource the transport function. Harland et al (2005) recognise that firms may come to an agreement with a chosen transport carrier to perform services that were originally operated in-house. This agreement to outsource a non-core activity to an expert enables the firm to focus on their core competencies. A strong relationship with the chosen transport provider has the ability to reduce external outsourcing risks through logistics collaboration. The relationship must consist of characteristics such as clear communication and information integration between the firm and transport provider. Stojanović and Aas (2015) also argue that internal outsourcing risks can be mitigated through collaborative relationships. Key characteristics in mitigating these risks are two-way visibility and control. This level of integration is often achieved through Information Systems integration. This allows for a reduction in lead time and enables the transport specialist to have a better understanding of key areas to improve on transport performance.

Factors affecting the development of collaborative relationships

A successful collaboration depends on certain trustworthy behaviours displayed by the chosen supplier. However, this also goes both ways. The supplier may feel an uncertainty around the behaviour of the collaborated buyer. This uncertainty leads to a halt in the development of the relationship. There are certain behavioural factors affecting the development of collaborative relationships:

Information sharing: Although information sharing is a key component to the success of a collaboration when outsourcing, the manner in which information is shared determines whether the exchange influences trust in a negative or positive way. Information that is shared inaccurately, untimely or even incomplete can cause detrimental effects to the collaboration agreement.

Opportunism: Williamson (2008) refers to opportunism as an “incomplete or distorted disclosure of information”. Kang & Jindal (2015) state that it is an egotistical approach to managing relationships where one party will seek to maximise profits with little care to the opposing collaborative partner. This level of self-care is harmful to the relationship and breaks down trust barriers. One side of the collaborative relationship pursuing extra benefits will disrupt the harmony and leads to a toxic relationship.