An organizational learning perspective on contract design

The contracting process is a crucial step in alliance development and its success. However, the existing literature reveals surprisingly little investigation into how organizational learning relates to the process of contract making. We therefore conducted an in-depth longitudinal study of the alliance contracting process in the animated film industry. First, our findings suggest that during the contracting process, firms can learn about the way to deal with the contracting process, about themselves and their partner, and about the transaction features. Second, the case analysis indicates a combination of experiential, vicarious, and inferential learning mechanisms. Combining these insights into the objects and the mechanisms of learning during the contracting process, we discuss how contracting and learning processes are related and analyze the role of the contracting process in supporting organizational learning. The findings show that the drafting of contractual clauses fosters learning and, in turn, this learning triggers new contractual negotiations. Hence we suggest that the alignment between transaction features and the choice of contractual governance results from learning during the contracting process. We then propose avenues for future research.