Evaluating buyer-supplier relationship-performance spirals: A longitudinal study

Interorganizational relationships and their impact on firm performance have been studied at length in various business literatures, with many studies predicting that in dyadic exchange contexts strong relationships should lead to better performance for both parties involved. However, some studies reverse this causal ordering, arguing that the performance gains attributed to prior relational activity predict the strength of the dyadic relationship in future time periods. While supported, both of these perspectives on relationship strength/performance dynamics are incomplete, as the research studies are only cross-sectional snapshots of the phenomenon. We remedy this gap in the existing literature by examining the dynamic cyclical linkage between relationship strength and performance of a buyer-supplier relationship in a longitudinal setting, using a relationship strength-performance spiral model. Results of testing a multiyear sample of 323 buyer-supplier relationships in the construction industry indicate not only that relationships tend to spiral positively following relationship initiation, but also that positive relationship spirals will self-correct following multiple associations of alternating increases. These findings advance theory on buyer-supplier relationships, and provide insight for companies looking to improve supply chain outcomes through superior relationship management. (C) 2009 Elsevier B.V. All rights reserved.