[Hasan Çelik]
The dynamic business landscape necessitates innovative approaches to buyer-supplier relationships, with Performance-Based Contracting (PBC) emerging as a pivotal strategy. This policy summary is derived from a comprehensive study that examines the impact of PBC on supplier goal commitment, leveraging goal-setting theory (GST), expectancy theory (ET), and job characteristics theory (JCT).
Key Findings
PBC Characteristics: The study delineates three core Performance-Based Contracting (PBC) attributes: reward/payment schemes (RPS), enhanced supplier autonomy, and the transfer of substantial responsibilities to suppliers. These elements are identified as critical in differentiating PBC from traditional contracting methods.
Psychological and Behavioral Impacts
The research underscores the significant psychological and behavioral effects of PBC, particularly in terms of felt accountability and goal commitment. These effects are pivotal as they redefine the contractual engagement between firms, fostering a more goal-aligned and committed partnership.
Goal Alignment and Commitment:
The study reveals that the RPS of PBC is intricately linked to performance outcomes, incentivizing suppliers towards reliability, innovation, and cost-effectiveness. This alignment of goals between buyers and suppliers is instrumental in enhancing supplier commitment and, by extension, performance.
Autonomy and Responsibility:
Greater supplier autonomy under Performance-Based Contracting (PBC), coupled with the transfer of responsibilities, is shown to significantly boost felt accountability, thereby reinforcing the supplier’s commitment to achieving specified outcomes.
Theoretical Implications
The research contributes to the Performance-Based Contracting (PBC) literature by offering a novel conceptual framework that integrates GST, ET, and JCT, providing a multifaceted view of the relationship between PBC characteristics and supplier goal commitment.
It extends the application of GST to an inter-organizational context, enriching the discourse on goal commitment from a GST perspective and highlighting new antecedents such as goal alignment and felt accountability.
Managerial Implications
Contract Selection and Design: The study emphasizes the strategic role of contract selection and design in shaping effective buyer-supplier relations, advocating for PBC designs that drive goal commitment and performance.
Enhanced Autonomy and Responsibility: Offering suppliers greater autonomy and responsibility within PBC arrangements can significantly elevate their sense of accountability and commitment to project goals.
Recommendations
Organizations are encouraged to adopt PBC frameworks that align with their strategic objectives, ensuring that contracts are designed to incentivize and reward supplier performance effectively.
Regular assessments of PBC arrangements are recommended to ensure they remain aligned with evolving business goals and market conditions.
Conclusion
Performance-Based Contracting (PBC) represents a transformative approach to managing buyer-supplier relations, with its emphasis on performance outcomes, autonomy, and responsibility fostering a more committed and aligned partnership. By understanding and leveraging the psychological and behavioral implications of PBC, organizations can enhance supplier engagement, thereby driving performance and achieving strategic objectives.
This research, titled “Supplier goal commitment in performance-based contracts: the lens of goal-setting theory”, was authored by Hasan Celik, David R Nowicki, Hasan Uvet, Saban Adana, Sedat Cevikparmak, and published by the International Journal of Physical Distribution & Logistics Management. It can be accessed using the following link:
https://www.emerald.com/insight/content/doi/10.1108/IJPDLM-07-2022-0215/full/html
Dr. Hasan Celik is an accomplished academic and professional with a distinguished military and academic career recognized with numerous awards and honors. Currently serving as an assistant professor of management at Robert Morris University, Dr. Celik is a logistics, operations, and supply chain management specialist with a Ph.D. from the University of North Texas. His educational journey is marked by excellence, with a BS in systems engineering with a minor in industrial engineering from the Military Academy, an MS in management (Human resource management - Manpower systems analysis) from Naval Postgraduate School, and an MA in international security strategy management and leadership from Army War College. His military background is equally impressive, having served in various capacities within the Turkish military, including as a military assistant to a 3-star general at NATO HQ in Brussels. His research focus on supply chain relations, performance-based contracting, and the impact of human factors on supply chain decisions has led to significant contributions, as evidenced by his numerous publications in reputable journals and presentations at international conferences.
