The Nature of Contracts and Their Influence on Outcomes

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Table of Contents

Introduction
Methodology Used
Results
Conclusion

Introduction

The main issue addressed in the article is the nature of contracts and their influence on outcomes. Contracts are essential for the growth and survival of businesses, especially in supply chains. Primarily, they constitute agreements between two entities that have a common goal. They are legal, and in case one party fails to perform its commitment as stated by the agreement, they can be challenged in the courts of law.

In most instances, contracts delegate roles to each party, thus eliminating conflicts that may arise. Although several studies have been conducted on the importance of contracts in supply engagements, there are still conflicting results as researchers have failed to agree on the effectiveness of such business agreements. Some researchers believe that contracts negatively influence a business’s performance, while others have a contrary opinion. Due to these mixed reactions, it is evident that contracts have some unintended results.

In practice, practitioners and academicians utilise contract utilisation and specifically demonstrate real deals; however, the two are fused from a theoretical perspective. Specificity contracts refer to an accurate agreement that contains clear clauses. It also requires that the exchanging parties stipulate expected behaviours before they venture into the transaction. However, utilisation illustrates the frequency of reference to the deal in managing the contracting parties’ engagements. Utilisation contracts also reprimand behaviours that are undesirable but are exercised with one of the engaging parties. In other words, utilisation controls the contract process, while specificity performs a coordination action.

The article uses transaction cost economics (TCE) and relational contracting theory to differentiate utilisation and specificity contracts to determine whether there are any benefits of using contracts in a business. The two concepts discourage the coordination aspect of an agreement, but they strongly encourage a control mechanism to ensure that an agreement is effective. The theories also agree that specific contracts unify the expectations to reduce the unwanted activities that were not initially stipulated in the agreement. For instance, TCE demonstrates that utilisation which focuses on the concept of control demonstrates that the method limits opportunism which sometimes occurs. Therefore, it imposes fines on parties that breach the agreement. However, the relational contracting model observes utilisation as a breach of trust, which causes opportunism if not controlled.

The research aimed to investigate whether contracts provide positive outcomes, evaluate the influence of utilisation and specificity on organisational results, and determine the type of theories that impact a contract’s efficiency. The project delved into deep literature analysis to find a strategy that can be used to improve a contract. The conceptual framework used to conduct the study was mainly definition-oriented since it provided various meanings of utilisation and specificity contracts. Additionally, it highlighted the strengths and weaknesses of each type of contract and provided a recommendation.

For instance, it commends utilisation because it prevents all the loopholes that can lead to an abuse of the contract by alleging that the perpetrators can be threatened by the legal actions taken against them. However, the project used moderating variables to establish why there are usually conflicting results on the previous studies that have been conducted. The variables mainly focused on the transactions, product complexity, duration of engagement, location, product and market types. The employment of this strategy was expected to provide accurate results.

Methodology Used

Literature research was the primary method used in the study to achieve the results. Several recognized journals and articles were used to determine what other studies have suggested. There were over 2000 articles identified for the research; however, it was narrowed down to around 400, which were eventually used to perform analysis. Two coding experts were engaged to code effect size, sample size, potential moderators and composite reliability. Pearson’s product-moment was then used as a correlation coefficient. Additionally, Fisher’s transformation was used to compute the mean (r) because the report had multiple effect size for a given relationship between variables of interest. This was followed by the Attenuation formula, which corrected the measurement.

Results

The results alluded that contracts generally generate desired outcomes apart from opportunism that is associated with them. They also indicated that organisational outcomes are influenced differently by contract utilisation and specificity. For example, the test showed that utilisation is related negatively and is less strong in terms of performance than specificity, which is more positive. However, utilisation is linked with opportunism more positively, but specificity relates to opportunism negatively. Also, contract specificity associates with relationship equality in a positive manner than a utilisation contract. Finally, specificity relates negatively to the relational norm than the utilisation model.

Conclusion

In conclusion, the research goal was to determine whether contracts effectively affect the business’s success since researchers’ previous studies suggested different opinions. Apart from the constructive relationship witnessed between opportunism and utilisation, it was determined that both the contract specificity and utilisation had influenced the economic growth and relational outcomes positively. The use of several moderators indicated the effectiveness of contracts that are signed by different entities. However, an additional study should be conducted further to give information on the importance of a contract.

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The Nature of Contracts and Their Influence on Outcomes

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