Relational Ties, Demand-Side Strategy, and the Performance of Knowledge-Based Service Firms

Prior research has outlined the benefits (and hazards) of relational ties for dyad-level performance outcomes. However, by focusing at the level of the dyad, researchers may be omitting variables or neglecting to elicit important theoretical insights that are present at the firm-level, not least because dyads represent only a fraction of the overall value within a firm’s portfolio of relationships. We combine insights from the theory of relational advantage and demand-side strategy in a firm-level study that examines the benefits and trade-offs of relational client ties for supplier firm performance. Using detailed longitudinal data on outsourced patent prosecution work between patent law firms (suppliers) and their corporate clients, our results indicate that suppliers suffer performance handicaps when they capture a relatively higher share of their business from relational ties, and this handicap is exacerbated when suppliers also hold higher levels of client-specific knowledge. However, we also show th...