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date: 26 January 2021

Abstract and Keywords

Peter Drucker formulated a management by objectives approach in the 1950s. That approach is a management system based on goal congruence as a means of improving performance. Since then, this management approach developed from leadership of employees to the arena of buyer–supplier relationships, where the approach is called performance-based contracting (PBC) and merges outcome goals with incentives. This chapter briefly introduces the peculiarities and differences of PBC in contrast to more traditional approaches. The chapter indicates that PBC is not just a contract, but in fact a strategic approach, and thus necessitates strategic management activities. Therefore, the focus of this work is on how to manage PBC. For this purpose, the management problem is differentiated into three management needs in two dimensions: The first dimension is the management of the supply architecture. This dimension has two relevant management needs: (a) positioning of PBC and (b) PBC subsupplier management. The second dimension addresses the need for a PBC (project) management in the buyer–supplier relationship. That dimension is further split into ten different steps. To address the management needs, insights from management control theory and new institutional economies theory are used. On this basis, this chapter conceptualizes both management dimensions. Insights about the main decisions for each dimension are given. These insights build the basis for several propositions and managerial implications.

Keywords: performance-based contracting, buyer–supplier relationship, supply architecture, supply chain, subsupplier management

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