Contracts as a facilitator of resource evolution ☆ Stefanos Mouzas a, ⁎, David Ford b a Lancaster University Management School, Lancaster, England, United Kingdom b Euromed Management, Marseille, France abstract article info Article history: Received 1 July 2011 Received in revised form 1 October 2011 Accepted 1 October 2011 Available online xxxx Keywords: Resource Leverage Contracts Interaction Knowledge The formality of contracts is not external to the substance of business interactions, but a way of articulating, facilitating and simplifying the complexity of business interactions. An umbrella contract, in particular, is an abstraction of possibility and a refined version of the substance of business interaction in which resource leveraging may or may not occur. Umbrella contracts circumscribe an in-built platform or ‘architecture’ that enables regular and repeated knowledge-intensive interactions. Today's business landscape is characterized by the heterogeneity of resources, activities and actors and contracts have become a key element in the inter- connected path of resource evolution, activity specialization and actor co-evolution. © 2011 Published by Elsevier Inc. 1. Introduction Carl Johan Hatteland's commentary on “Leveraging knowledge- based resources: the role of contracts” (2011) is both inspiring and thought-provoking. The commentary acknowledges that the study (Mouzas & Ford, 2011) is an important step in linking ideas of business contracts and resource interaction in relational settings. The com- mentary argues that the findings provide new and valuable insight into the role of contracts in business relationships in general and the leveraging of knowledge-based resources in particular. Simulta- neously, the commentary expresses new and relevant questions that require the development of new avenues of inquiry. The core of Hatteland's commentary is that the article consigns contracts into a rather large and unspecified category of contextual factors that are external to a relationship, but that in this case may influence the relationship by leveraging knowledge-based resources (Hatteland, 2011). This view relates to the commonly held beliefs that a contract is a formal device which is external to the substance of business interactions and that the primary function of a contract is to control a counterpart. However, the formality of contracts is not external to the substance of business interactions, but a way of articulating, preserving and facilitating that substance (Stinchcombe, 2001). An umbrella contract, in particular, is an abstraction of possibility; a refined version of this substance. This means that umbrella con- tracts circumscribe an in-built platform, where common knowledge may or may not occur through interaction among counterparts. For this reason, the same platform used by different contracting actors may result in different resource combinations in different interaction processes (Ford, Gadde, Håkansson, & Snehota, 2011; Håkansson, Ford, Gadde, Snehota, & Waluszewski, 2009). Thus, the primary func- tion and concern of contracts in continuing relationships marked by recurrent interactions is not that of counterpart-control or the detec- tion of deceit or betrayal. Instead, contracts are part of the process of leveraging knowledge-based resources to facilitate the creation of joint gains and thus improve the competiveness of both counterparts in a business relationship (Collins, 2009). For example, consider the umbrella contract between Wal-Mart and Procter & Gamble, in which Procter & Gamble serves as “category captain,” a term equivalent to pre- ferred supplier. In this contract, Procter & Gamble as category captain transfers industry knowledge to Wal-Mart with regard to a specific category of products, e.g. market research, product specification, con- sumer data etc. and in return, Wal-Mart transfers ‘retail’ knowledge to Procter & Gamble with regard to “shopper insight” connected with scanner data at the point of sale. Do contracts requirements include setting-up resource interfaces, or can they be organized by more informal channels? Undoubtedly, actors may choose to organize their resource interfaces in more infor- mal ways. Why then do companies opt for formality? Business actors choose to formalize the agreements with their counterparts for two compelling reasons. First, today's business interaction reveals multiple levels of inter- face (Håkansson, 1982) and resource combination between different Journal of Business Research xxx (2011) xxx–xxx ☆ The authors thank Sylvia Lacoste of Rouen Business School, France; and Peter Naude of Manchester Business School, England for valuable comments and suggestions. ⁎ Corresponding author. E-mail addresses: S.Mouzas@lancaster.ac.uk (S. Mouzas), David.Ford@euromed-management.com (D. Ford). JBR-07419; No of Pages 3 0148-2963/$ – see front matter © 2011 Published by Elsevier Inc. doi:10.1016/j.jbusres.2011.11.002 Contents lists available at SciVerse ScienceDirect Journal of Business Research Please cite this article as: Mouzas S, Ford D, Contracts as a facilitator of resource evolution, J Bus Res (2011), doi:10.1016/ j.jbusres.2011.11.002