Collaborating to manage performance trade‐offs: How fire departments preserve life and save property

Research Summary We examine how formal collaboration allows organizations to resolve performance trade‐offs that cannot be resolved informally. The theory is tested on U.S. fire departments, which pursue goals that sometimes conflict: reducing casualties and saving property. By relying on intrinsic motivation, informal collaboration reduces casualties and saves some property above what departments can achieve alone. Formal contracts are needed to achieve additional performance improvements on the goal of saving property. Contracts improve performance above what is accomplished informally by compelling collaboration even under casualty risk. Prior studies of collaboration that do not account for ex ante informality or performance trade‐offs may misstate the impact of collaboration on organization performance. Management Summary Like many organizations, U.S. fire departments pursue multiple goals that sometimes conflict. For fire departments, these goals are reducing casualties and saving property. Goal conflict arises when firefighter lives are put at risk to save property. To improve performance on both goals, fire departments often collaborate with neighboring departments in nearby jurisdictions. In this paper, we examine how performance on both goals improves when departments collaborate informally through handshake agreements. However, performance in saving property—the goal that is less intrinsically motivating for firefighters—improves even more when the collaborating departments implement a formal contract. At the same time, casualties increase slightly. This is because a contract creates an obligation for an assisting department to save property even under a risk to firefighters' lives. The analysis shows how formal contracts are implemented to resolve trade‐offs that cannot be resolved informally. We conclude that the performance improvements associated with collaboration may be quite different than the improvements that follow the implementation of formal contracts. This is because contracts may deal only with marginal trade‐offs between the goals of the collaborators.