Choosing Teams over Star Players: Strategic Selection of Supplier Teams in Customized Projects

What criteria do contractors/buyers apply when hiring teams of suppliers? This paper examines this important strategic question to shed light on buyer-supplier relation-ships and organization of interfirm governance structures. Three research literatures inform the model. Transaction costs theory analyzes the benefits of authority in attenuating opportunism; firm capabilities literature emphasizes relative selection competencies; and the interfirm relations literature posits the positive effects of past relationships. The central proposition is that buyers strategically hire teams of suppliers who engage in discrete, yet interdependent, customized-project activities. We examine criteria that buyers apply when contracting with teams of suppliers for components of low decomposability. Empirical findings show that contractors obtain knowledge of suppliers' capability to absorb and re-utilize team-specific knowledge in subsequent projects. Project contractors use this know-ledge to organize future teams. Moreover, the selection of suppliers depends on the nature of a component and the level of technological uncertainty.