Choice and performance of governance mechanisms : matching contractual and relational governance to sources of asset specificity

We examine the relationship between the nature of assets involved in an alliance and the optimal configuration of contractual and relational governance mechanisms. Examination of governance choice and performance in the German telecommunications industry indicates that physical assets are more suited to contractual controls, while knowledge assets are best governed via relational mechanisms. Relational governance actually harms alliance performance in the presence of physical assets. Implications for the study and management of alliances are discussed.