Alliance capability,stock market response,and long‐term alliance success: the role of the alliance function

This paper addresses two key questions: (1) what factors influence firms' ability to build alliance capability and enjoy greater alliance success, where firm‐level alliance success is measured in two ways: (a) abnormal stock market gains following alliance announcements and (b) managerial assessments of long term alliance performance; and (2) are the two alternate ways of assessing alliance success correlated? We find that firms with greater alliance experience and, more importantly, those that create a dedicated alliance function (with the intent of strategically coordinating alliance activity and capturing/disseminating alliance‐related knowledge) realize greater success with alliances. More specifically, firms with a dedicated alliance function achieve greater abnormal stock market gains (average of 1.35%) and report that 63 percent of alliances are successful whereas firms without an alliance function achieve much lower stock market gains (average of 0.18%) and only a 50 percent long‐term success rate. We also find a positive correlation between stock market‐based measures of alliance success and alliance success measured through managerial assessments. In addition to providing insights into the development of alliance capability among firms, this paper is one of the first to provide empirical support for the efficient markets argument by demonstrating that the initial stock market response to a key event positively correlates to the long‐term performance and value of the event. Copyright © 2002 John Wiley & Sons, Ltd.     

Mutual dependence,partner substitutability,and repeated partnership: the survival of cross‐border alliances

Drawing on the resource dependence perspective, this study suggests that alliance survival is an adaptive response to both environmental dependence and partner dependence independently and jointly. Based on a sample of cross‐border alliances formed and terminated by local and foreign firms in a longitudinal setting, the results suggest that the mutual trade dependence between a home country and a host country is positively related to the survival of cross‐border alliances in the host country. Whereas partner substitutability reduces the probability of alliance survival, repeated partnership increases the probability. Moreover, mutual trade dependence reduces the negative effect of partner substitutability on alliance survival. The findings support the idea that resource dependence theory provides an important framework for the study of cross‐border alliances. Copyright © 2010 John Wiley & Sons, Ltd.     

Network resource stocks and flows: how do alliance portfolios affect the value of new alliance formations?

We examine how new network resources accessed through alliance formations interact with network resources present in a firm's alliance portfolio. We test our theoretical model using event study methodology and data from the global air transportation industry. We find that the market rewards firms forming alliances that contribute resources that can be synergistically combined with firms' own resources as well as with network resources accessed through their alliance portfolios. Our results also indicate that the market penalizes firms entering into alliances that create resource combinations that are substitutes to resource combinations deployed by existing alliance partners. Copyright © 2011 John Wiley & Sons, Ltd.     

Stock Market Response to Strategic Technical Alliances between Drug and Biotechnology Firms

Traditionally, firms in the pharmaceutical industry have depended on their internal research and development (R&D) capabilities to maintain a productive new product pipeline. During the past two decades, however, the industry's pipeline productivity has decreased compromising the industry's ability to meet shareholder expectations. As a strategy to invigorate pipeline productivity, and impact financial performance, pharmaceutical firms have increased utilization of strategic technical alliances. Earlier research shows that the degree of financial impact resulting from strategic technical alliances varies in terms of partnership type and differences between client and partner firms. This research studies strategic technical alliances between pharmaceutical and biotechnology firms from 1985 to 2012. Event study methodology is used to determine the relationship between stock market response to alliance announcements, measured as cumulative abnormal returns, and factors representing the absorptive capacity of the pharmaceutical firms in the sample. Then, variables indicating the development stage of the drugs included in the alliances are added to assess the effect of project risk on the market response. The study finds that, in general, the stock market responds in a positive manner to strategic technical alliances in the pharmaceutical industry reflecting the market's immediate response, and expectations of future firm value, resulting from the alliance. The degree of the market's response varies in terms of the client firms’ absorptive capacity with new product introductions being the strongest driver. The market responds similarly to alliances across different drug development stages, however, a stronger response is observed in preclinical and extension stages.     

Alliance portfolio reconfiguration following a technological discontinuity

Research summary : We study how technological discontinuities generate first‐ and second‐order effects on alliance formation and termination, leading to reconfiguration of firms' alliance portfolios. Following technological shocks, we argue that firms often seek alliances that provide new resources while also having incentives to form alliances for reinforced and challenged resources that complement the new resources. In parallel, alliance terminations, even involving resources otherwise unaffected by the discontinuity, increase due to limits in firms' alliance carrying capacity. We study biopharmaceutical firms between 1990 and 2000, which faced a technological discontinuity in 1995 in the form of combinatorial chemistry and high‐throughput screening. We improve understanding of how technological discontinuities affect the value of resources and how firms reconfigure alliance portfolios in response. Managerial summary : When firms form alliances to gain new resources during technological discontinuities that disrupt their industry, they cannot consider only the focal new partnerships. Instead, new alliances create complementarity and substitution pressures that lead to broader reconfiguration of the firms' alliance portfolios: (1) complementarity creates incentives to also form alliances for resources that the technological discontinuity reinforces or challenges in order to improve the collective value of co‐specialized assets; (2) substitution creates incentives to terminate existing alliances, even if their value is otherwise unaffected by the discontinuity, in order to create carrying capacity for new alliances. Thus, one new alliance can generate a cascade of reconfiguration that challenges the balance between the benefits of stability and the need for change in an alliance portfolio. Copyright © 2016 John Wiley & Sons, Ltd.     

Resource ambidexterity through alliance portfolios and firm performance

Research summary : Partner resources can be an important alternative to internal firm resources for attaining dual and seemingly incompatible strategic objectives. We extend arguments about managing conflicting objectives typically made at the firm level to the level of a firm's alliance portfolio. Specifically, will a balance between revenue enhancement and cost reduction attained collectively through partner resources accessed via a firm's various alliances be similarly beneficial for firm performance? Additionally, how do strategic attributes of alliance portfolio configuration, specifically alliance portfolio size and partner resource scope, condition the balance‐performance relationship? Based on data from the global airline industry, we find support for the balance‐performance relationship, though such balance is less beneficial for firms in the case of access to a broader resource scope per partner . Managerial summary : Increasing revenue and reducing costs simultaneously can potentially enhance firm competitiveness. We highlight that an alliance strategy can be an important alternative to internal resources for attaining such dual strategic objectives, particularly when partner resources accessed through alliances are treated collectively as portfolios. We examine the importance of balancing product‐market extending and efficiency‐improving partner resources in the global airline industry as well as the impact of two alternate strategies for accessing resources through alliances: fewer partners with more resources per partner or more partners with fewer resources per partner. We find that resource balance at the portfolio level helps airlines improve performance. Our results also suggest that managers should be cautious of accessing too many resources through just a few partners . Copyright © 2015 John Wiley & Sons, Ltd.     

Alliance or Acquisition? A Mechanisms‐Based,Policy‐Capturing Analysis

Research summary : While alliance researchers view prior partner‐specific alliance experience as influencing firms' subsequent alliance or acquisition decisions, empirical evidence on the alliance versus acquisition decision is surprisingly mixed. We offer a reconciliation by proposing and testing an analytical framework that recognizes prior partner‐specific experiences as heterogeneous along three fundamental dimensions: partner‐specific trust, routines, and value certainty. This allows us to use a policy‐capturing methodology to rigorously operationalize and test our mechanism‐level predictions. We find that all three mechanisms can increase the likelihood of a subsequent alliance or acquisition, and in terms of the comparative choice between alliances versus acquisitions, partner‐specific trust pulls towards alliances, and value certainty pulls towards acquisitions. We conclude with a discussion of the theoretical and empirical implications of our approach and method . Managerial summary : This study focuses on an important corporate decision: When a firm has had an alliance with another firm, how would that experience affect the likelihood of a future alliance or acquisition with that same firm? We first suggest that it will depend on three factors: the level of trust that existed in that prior alliance, the extent to which specific work routines were developed, and the degree to which the firm was able to confidently assess the value of the partner firm's resources. We then find that trust is a particularly strong predictor of future alliances, while confidence regarding value more strongly predicts future acquisitions. In this way, we demonstrate more precisely how past corporate choices can affect (consciously or unconsciously) future ones . © 2017 The Authors. Strategic Management Journal Published by John Wiley & Sons Ltd.     

Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry

This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

Whether and when do alliance terminations pay off?

Engaging in multiple strategic alliances, a firm forms an alliance portfolio. While a larger alliance portfolio signals investors a firm's ability to exploit new opportunities and improve financial performance, having multiple alliances may also undermine financial performance due to a firm's limited ability to effectively manage these alliances. Announcing an alliance termination, a firm signals an intention to increase the effectiveness of a larger alliance portfolio. This article examines the extent to which alliance termination announcements create value for firms with multiple alliances. Building on the resource-based view of the firm and organizational learning literature, the paper hypothesizes a U-shaped relationship between alliance portfolio size and a firm's cumulative abnormal stock return following an alliance termination announcement. This effect is moderated by the amount of a firm's alternative resources and partner-specific experience that affect its ability to effectively manage multiple alliances. The results show that alliance termination announcements create firm value when an alliance portfolio is large.     

The effect of strategic alliance resource accumulation and process characteristics on new product success: Exploration of international high-tech strategic alliances in China

This paper examines two research questions: (1) how do strategic alliance resources influence new product outcomes, and (2) how do these effects differ under different NPD process characteristics. By integrating resource-based view and coordination literature, the authors argue that both marketing and technology resources demonstrate independent and interactive effects on new product innovativeness, speed to market, and market performance. Further, the individual effects of marketing and technology resources are moderated by the process characteristics of partner interdependence, while the interactive effect between marketing and technology resources is moderated by the development process characteristic of task interdependence. Using primary dyadic data collected from 142 international high-tech strategic alliances in China, we test and find general support for these arguments. The results provide significant theoretical implications for a variety of research streams, as well as managerial implications for strategic alliances with Chinese firms.     

Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.     

The development of capabilities in new firms

This research explores evidence of corporate capabilities for conducting acquisition and alliance deals in young firms. We hypothesize that investors conjecture about the future based on information about a firm's capabilities. Each successive deal carries intrinsic value, creates experience, generates feedback, and yields information about the firm's underlying capabilities. We evaluate whether stock prices impute expectations that firms will capably pursue particular programs of acquisitions and alliances. The analysis covers how investor responses change across successive deals on the theory that firms with a concentrated program of deals may develop capabilities more intensively than those with programs that involve both acquisitions and alliances. The dataset covers the population of firms that went through an initial public offering (IPO) in the United States between 1988 and 1999. It contains information on all of their post‐IPO acquisitions and alliances, and on how their stock prices changed in response to the announcement of each deal. The results suggest that within the first year after IPO, investors expect firms to execute particular streams of alliances and acquisitions that reflect their unique histories of demonstrated capabilities. We also find evidence that investors cannot fully anticipate deal programs. The findings support a capabilities‐based view of the firm and also show that accurate inference using event‐study methods may require digging deep into the early histories of firms. Copyright © 2009 John Wiley & Sons, Ltd.     

The interactions of institutions on foreign market entry mode

This paper examines the interaction effects of institutional differences in the cognitive, normative, and regulatory domains on cross‐border acquisition and alliance formation. Using a sample of 673 cross‐border acquisitions and alliances conducted by multinational corporations (MNCs) from the manufacturing sector of six emerging economies (EEs) over the period 1995–2008, we find significant mimicking (cognitive domain) of local firms' choice of ownership modes by EE firms. We also find that regulatory distance (regulatory domain) moderates the mimicking of both foreign and local firms while normative distance does not have any moderating effect. These findings contribute to our understanding of how EE MNCs mimic ownership modes in foreign market entry and how the interaction of this mimetic tendency with other institutional pillars affects these decisions. Copyright © 2014 John Wiley & Sons, Ltd.     

Project Suspensions and Failures in New Product Development: Returns for Entrepreneurial Firms in Co‐Development Alliances

Entrepreneurial biotech and large pharmaceutical firms often form alliances to co‐develop new products. Yet, new product development (NPD) is fraught with challenges that often result in project suspensions and failures. Considering this, how can firms increase the chances that their co‐development alliances will create value? To answer this question, the authors build on insights from signaling theory to argue that prior project suspensions provide positive signals leading to an increase in value creation, while project failures have the opposite effect. In addition, drawing on insights from temporal construal theory, this research predicts that the strength of these effects is contingent on the stage along the exploration–exploitation continuum at which the alliance is formed. The authors undertook event study analyses of 248 alliances formed by 104 biotechnology firms from the United States and Europe listed on eight stock exchanges over an 8‐year period between 1996 and 2003. The results confirm that prior NPD project suspensions have a stronger value creation effect (or prior failures have a weaker value destruction effect) in the case of exploration alliances in the upstream of NPD processes than in the case of moderate‐scale exploitation alliances in the downstream of NPD. This study is among the first to examine how both prior NPD project suspensions and failures of firms affect the abnormal returns achieved from co‐development alliances. This research therefore contributes to the innovation literature by honing a better understanding of setbacks and failures in NPD. Moreover, the findings contribute to the literature on strategic alliances by identifying new conditions under which firms can create or preserve value. This research also contributes to signaling theory by providing evidence of the moderation effect caused by the signaling environment. Finally, this study contributes to the entrepreneurial literature on value creation for entrepreneurial firms in alliances following adverse events.     

Rational decision-making and firm performance: the moderating role of the environment

This study investigates the moderating roles of environmental munificence and dynamism in the relationship between process rationality and organizational performance. Based on a sample of 62 manufacturing firms, the study found that environmental munificence and dynamism moderate the relationship between rationality and performance. Further, the study found that rationality is strongly associated with performance in environments high in munificence and dynamism. © 1997 by John Wiley & Sons, Ltd.     

Bringing High Technology to Market: Successful Strategies Employed in the Worldwide Software Industry

The launch stage can be critical for many new products, but particularly so for technology‐intensive ones. This study examines this key stage in a high‐tech sector: the worldwide computer software industry. Using a research instrument developed across a number of high‐tech sectors, but adapted to the targeted sector, it describes a worldwide telephone‐based survey of 300 organizations, resulting in 190 interviews, a response rate of 63%. It shows that five distinct and interpretable strategies are employed: (1) alliance strategy involves forming early strategic alliances as well as tactical alliances at the execution stage together with the development of unique distribution channels; (2) targeted low risk attempts to reduce the risk of adoption among identified segments by producing versions of the product specifically customized to the segments; (3) low‐price original equipment manufacturer (OEM) is the only price‐driven strategy and combines low price with channel building to OEMs who are looking for attractive price‐to‐performance ratios; (4) broadly based market preparation is an early‐stage strategy that concentrates on educating the market vis‐à‐vis the technology and developing channels; and (5) niche‐based technological superiority uses a technologically superior product to dominate a niche and corresponds closely to the chasm‐crossing strategy expounded by Moore and others. Regarding superior product performance, successful software companies first of all engage in a broadly based preparation of the market but switch to a targeted strategy at the following stages of positioning and execution, built around superior technological performance and reduced risk. A somewhat different mix of strategies is adopted when the objective is superior market development, namely opening up new markets, reaching new customers, and developing new product platforms. Again the mix includes broadly based market preparation, this time along with alliances. This strategy is very much about working with partners. The broadly based market preparation strategy is key for both objectives, is long term in nature, and avoids narrowly defined niches. It seems that starting broad based and narrowing down, perhaps to a niche, only at a later stage when this is clearly the appropriate thing to do, pays dividends.     

From crisis to opportunity: environmental jolt,corporate acquisitions,and firm performance

This study incorporates the external environmental context into the study of corporate acquisitions by examining the performance implications of corporate acquisitions during an environmental jolt that alters the levels of environmental munificence. We posit that compared to the periods before and after an environmental jolt, corporate acquisitions during a jolt would be positively related to firm performance. Furthermore, we suggest that organizational slack would improve firm performance and accentuate the positive relationship between corporate acquisitions and firm performance during an environmental jolt; however, it would have negative impact on firm performance and make the acquisition‐performance relationship more negative before and after a jolt. Using the Asian Economic Crisis as a natural experiment, we found general support for our core arguments based on a sample of firms from Hong Kong and Singapore. Our work demonstrates that firms can capitalize on the opportunities created by the changes in an environmental jolt. Copyright © 2009 John Wiley & Sons, Ltd.     

Determinants of alliance partner choice: Network distance,managerial incentives,and board monitoring

Research Summary: We ask if managerial opportunism is a significant problem in alliance partner choice and examine the role of corporate governance mechanisms in explaining this choice. Using a sample of 313 alliances of U.S. firms from the pharmaceutical and biotechnology industries from 1992 to 2010, we find that managerial incentives lead to managerial preference for relationally risky distant partners over existing and new close partners. Further, board monitoring encourages managers to pursue existing and distant partners over new close ones, choices aligned with shareholder interests. In addition, we find that board monitoring substitutes for managerial incentives in alliance partner choice. We contribute to the literature on alliance partner choice to identify an important, and hitherto, unexplored perspective. Managerial Summary: This article examines whether managers and shareholders view alliance‐related risks differently, and how the divergent interests between managers and shareholders affect alliance partner choice. We argue that managers’ concern about their loss of employment and compensation from alliance failure impedes the choice of relationally risky alliance partners that may increase shareholder value. We also argue that managerial stock ownership and board monitoring mitigate this managerial propensity. Our findings suggest that stock ownership owned by managers and strong board monitoring are effective governance mechanisms to align managers’ interests with those of shareholders. Our study offers a novel perspective to understand alliance partner choice by viewing the firm as an entity comprised of fragmented interests.     

From Birth through Transition to Maturation: The Evolution of Technology‐Based Alliance Networks

This article considers the evolution of interfirm networks within a context of technological change. More specifically, it studies the evolution of structural and positional embeddedness in a network of technology‐based alliances when it moves from an early period of invention creation to a subsequent period of new product development and commercialization. Empirically, we study the evolution of technology‐based alliance networks in the biopharmaceutical industry over a period of about 25 years, from 1975 until 1999. Examining interorganizational networks over such an extended time period allows us to move beyond more static approaches that have characterized most network studies until now, and consider network evolution along its various phases of birth, growth, and early maturation instead. Our findings indicate that the evolution of both structural and positional embeddedness does not follow the common idea of a path of linear progression, but instead strongly exhibits nonlinearity by resembling a sigmoid pattern. These findings have a number of implications. First, the break in the process of linear progression contrasts with the standing literature that (implicitly) assumes the informational and resource value of a network structure to remain constant over time or to evolve linearly from carrying low value to progressively higher value. Instead, our finding that the evolution of structural and positional embeddedness is nonlinear echoes the speculative idea, as expressed by Gulati and Garguilo, that network change may possibly be nonlinear when seen over the long run. A second implication concerns the validity of standing insights from the social network literature such as Coleman's theory of social capital and Burt's theory of structural holes. These theories may not apply to the extent that there are strong changes in environmental conditions like environmental uncertainty and/or munificence, such as during a transition phase as considered in this study.     

Honeymoons and Liabilities: The Relationship between Age and Performance in Research and Development Alliances

The use of strategic alliances by technology ventures has increased dramatically over the last 20 years. During this period companies not only have increased the use of alliances but also have used them in more strategically important areas, particularly in research and development (R&D) and new product development. Thus, successful management of strategic alliances in high‐technology industries has become critical to a firm's new product development and ultimately to firm performance. Yet little is known about what determines the performance of individual alliances. This article examines the relationship between the age of an alliance and the performance of the alliance. Two competing hypotheses regarding the form of the functional relationship between alliance age and alliance performance are developed and are tested. First, a liability of newness hypothesis, which posits that alliance performance increases in a linear fashion over time, is tested. Then a honeymoon hypothesis, which posits that the relationship between age and alliance performance is nonlinear with alliance performance decreasing initially but increasing over time, is tested. It is proposed further here that alliances that are more important to the focal firm exhibit longer honeymoon periods. A measure of individual alliance performance is developed based on our field study in the biotechnology industry. The competing hypotheses are tested using regression analysis on the sample of 115 R&D alliances. Then the analysis is extended by splitting the sample into high‐ and low‐importance alliances to enhance the robustness of the findings. Further, such a split‐sample approach enables testing for a potential moderating effect of alliance importance on the hypothesized relationship between alliance age and alliance performance. The results suggest that the relationship between age and alliance performance seems to be U‐shaped curvilinear rather than linear, with the minimum point of alliance performance occurring after approximately four and one‐half years. Thus, the results indicate that strategic alliances appear to face a liability of adolescence rather than a liability of newness. Contrary to expectations, it also is found that important alliances exhibit generally shorter honeymoons.