Mitigating the Challenges of Partner Knowledge Diversity While Enhancing Research & Development (R&D) Alliance Performance: The Role of Alliance Governance Mechanisms

This article explores the answers to the following unresolved research question: How do firms mitigate the collaboration challenges associated with partner knowledge diversity and enhance alliance performance? The study provides an alliance performance enhancing framework by identifying two types of partner knowledge diversity: (1) technology base diversity and (2) R&D process experience diversity, and links them with R&D alliance performance. Additionally, the moderating effects of the two types of alliance governance mechanisms (i.e., interactive and contractual mechanisms) were examined to investigate which alliance governance mechanism is conducive to mitigate the collaboration challenges and enhance alliance performance. Using a data set of 316 alliances in the biopharmaceuticals industry, the study found that a moderate degree (not too low or high) of technology base diversity between alliance partners contributes more to R&D alliance performance. Similarly, there was also an inverted U-shaped relationship between R&D process experience diversity and alliance performance; too much diversity in R&D process experience may increase the likelihood of partner opportunism, and therefore negatively affect alliance performance. Additionally, the results showed that alliance governance mechanisms played different roles in alliance collaboration; while the contractual alliance mechanisms help reduce relational uncertainty (e.g., opportunism), the interactive mechanisms promoting a more intensive interaction between partners mitigates task difficulty and facilitates complex technology activities. These findings extend the knowledge-based view (KBV) of strategic alliance and advance research on alliance governance design.     

Firm heterogeneity in complex problem solving: A knowledge‐based look at invention

Research summary : The knowledge‐based view suggests that complex problems are best solved under hierarchical (within‐firm) governance. We examined why firms assumed to be in general alignment with this theory might nonetheless produce solutions of varying usefulness. We theorize that a firm's internal knowledge variety (IKV) is associated with its capacity to support cross‐domain knowledge flows during search, and its ability to identify and explore promising areas on the solution landscape. We further theorize that partner knowledge in familiar (unfamiliar) domains can offset specific weaknesses in searching rugged landscapes, inherent with low or high (moderate) IKV. We find support for these ideas in the context of drug discovery, extending KBV's focus on governance alignment to explain variation in problem‐solving effectiveness within hierarchy. Managerial summary : Firms that concentrate their inventive efforts in a few technological domains, but also dabble in several others, have problem‐solving advantages: they can better support knowledge transfer and recombination across domains. Firms that focus too narrowly or spread their inventive efforts thinly across many domains lose these advantages, but might compensate through alliance partnerships. Our study of drug discovery shows that while firms with very low or high knowledge variety tend to produce weaker solutions than firms in the moderate range, their inventive performance improves when alliance partners afford them access to additional knowledge in familiar domains. We explain how the combination of firm and partner knowledge enables firms to better identify, evaluate, and implement alternative solutions to complex problems. Copyright © 2016 John Wiley & Sons, Ltd.     

The effectiveness of contractual and trust‐based governance in strategic alliances under behavioral and environmental uncertainty

Research summary: We examine the interplay of behavioral and environmental uncertainty in shaping the effectiveness of two key governance mechanisms used by strategic alliances: contractual and trust‐based governance. We develop and test hypotheses, using a meta‐analytic dataset encompassing over 15,000 strategic alliances across 82 independent samples. We find that contractual governance works best under low to moderate levels of behavioral uncertainty and moderate to high levels of environmental uncertainty, while it is detrimental to alliance performance when both types of uncertainty are low or high. Trust‐based governance is most effective at high levels of behavioral uncertainty and low levels of environmental uncertainty. It suffers a large loss of usefulness at high behavioral uncertainty as environmental uncertainty increases. Managerial summary: Strategic alliances allow firms to gain greater efficiency and create value. Yet, many such alliances fail because they are not able to deal with the twin challenges posed by behavioral and environmental uncertainty. Findings from our meta‐analysis imply that under conditions of high behavioral uncertainty and low‐to‐moderate levels of environmental uncertainty, the use of trust‐based governance alongside contractual governance might enhance the latter's effectiveness. The combined effectiveness of contractual and trust‐based governance under high levels of both behavioral and environmental uncertainty is not obvious. When both behavioral and environmental uncertainty are high, contractual governance hurts alliance performance while trust‐based governance does not function at its best either. Under these conditions, it might be better for firms to turn to hierarchy or vertical integration. Copyright © 2015 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.     

Choosing governance modes for external technology sourcing

This study examines the effect of uncertainty on governance mode choice of interfirm relationships in new business development (NBD). We combine transaction cost economics and real options reasoning, arguing that in the early stages of NBD, where technological and market uncertainty are very high, companies are better off using governance modes that are reversible and involve a low level of commitment. When uncertainty has decreased as a result of prior R&D investments, transaction costs considerations become dominant and companies will shift towards governance modes that are less reversible and more hierarchical. We argue that technological distance leads to less hierarchical governance modes and prior cooperation between firms leads to subsequent choices for more hierarchical modes. Finally, we propose that higher exogenous uncertainty leads to less hierarchical governance modes.     

Technological Performance and Alliances Over the Industry Life Cycle: Evidence from the ASIC Industry

Technology development in firms is frequently based on a combination of internal and external technological learning. Consequently, firms need to develop both technological capital (a patent portfolio) and alliance capital (a portfolio of technology alliances). This paper examines the relationship between technological capital, alliance capital, and their joint impact on the technological performance of firms, with an application to the application‐specific integrated circuit industry. We find that positive marginal returns to alliance capital are decreasing at higher levels of alliance capital. Technological capital and alliance capital can either augment or reduce each others' influence on innovation performance depending on the stage of the technology life cycle in the industry. A reinforcing relationship related to absorptive capacity requirements and technological uncertainty is present in early stages, while technology leakage and market competition effects render the combination of high levels of technological and alliance capital counterproductive in later stages of the technology life cycle.     

Alliance portfolio diversity and firm performance

In this paper, we offer a comprehensive alliance portfolio diversity construct that includes partner, functional, and governance diversity. Grounding our work primarily with the resource‐ and dynamic capabilities‐based views, we argue that increased diversity in partners' industry, organizational, and national background will incur added complexity and coordination costs but will provide broadened resource and learning benefits. Increased functional diversity results in a more balanced portfolio of exploration and exploitation activities that expands the firm's knowledge base while increased governance diversity inhibits learning and routine building. Hypotheses were tested with alliance portfolio and performance data for 138 multinational firms in the global automobile industry during the twenty‐year period from 1985 to 2005. We found alliance portfolios with greater organizational and functional diversity and lower governance diversity were related to higher firm performance while industry diversity had a U‐shaped relationship with firm performance. We suggest firms manage their alliances with a portfolio perspective, seeking to maximize resource and learning benefits by collaborating with a variety of organizations in various value chain activities while minimizing managerial costs through a focused set of governance structures. Copyright © 2010 John Wiley & Sons, Ltd.     

Knowledge sharing and safeguarding in R&D collaborations: The role of steering committees in biotechnology alliances

Research Summary: This research contributes to alliance governance research by demonstrating how partners' administrative controls in nonequity collaborations regulate knowledge transfers across partners. These administrative controls can take the form of board‐like joint committees having explicitly delineated authority over certain alliance activities. We illuminate governing committees as an important, albeit neglected, instrument for administrative control in the governance of non‐equity alliances, and we demonstrate that these organizational mechanisms facilitate knowledge flows within the scope of an alliance. We also show that governing committees safeguard against misappropriation hazards, particularly when a partner possesses the incentive and ability to engage in such behavior. This study extends alliance governance research beyond the implications of the equity‐nonequity dichotomy to consider a wider and richer gamut of governance instruments available to address the challenges associated with knowledge transfers in alliances. Managerial Summary: Non‐equity alliances are important vehicles to collaborate with external partners, particularly in the biopharmaceutical industry and other high‐tech sectors. To guide these collaborations effectively, partners can use the contract to custom‐build jointly‐staffed managerial units with clearly demarcated decision‐making responsibilities. We demonstrate that these organizational mechanisms facilitate knowledge flows within the scope of an alliance. We also show that governing committees also safeguard against misappropriation hazards, particularly when a partner values a firm's knowledge highly, or it possesses the required ability to absorb and assimilate a firm's knowledge. Our results imply that contractually‐defined managerial interfaces provide a channel to regulate knowledge‐sharing in collaborative alliances.     

Alliance or acquisition? a dyadic perspective on interfirm resource combinations

For firms seeking to strategically combine their resources with those of other firms, two popular alternative governance structures emerge: alliance or acquisition. In this paper, we propose a dyadic perspective to examine how and why configurations of two firms' resources and capabilities affect the costs and benefits associated with each governance structure. More specifically, we posit that factors such as (1) the resource similarity and complementarity between a pair of firms, (2) the combined relational capabilities of a pair of firms, and (3) the partner‐specific knowledge between a pair of firms will affect the likelihood of observing that pair of firms forming an alliance vs. engaging in an acquisition. We test and find support for our hypotheses using extensive longitudinal data from a sample of the largest firms in the United States from 1991 to 2000. Copyright © 2007 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.     

Distinguishing costs of cooperation and control in alliances

Firms simultaneously face the need to cooperate with and control an alliance partner. To complement the transaction cost perspective's emphasis on the need to control and limit opportunistic behavior, we examine the sources and impact of the cooperation costs incurred in order to work with a partner. We propose that these costs increase with greater joint task complexity and interpartner diversity, and perceptions of equitable behavior affect the perceptions of these costs. Hypotheses derived from the framework are tested in a sample of 231 contractual alliances between architects and general contractors in the Hong Kong construction industry. We find that both cooperation costs and transaction costs affect the level of time and effort a manager expends on an alliance, supporting our fundamental proposition that the costs of cooperation and control are conceptually and empirically distinct. We argue that cooperation costs should be incorporated into studies that compare the choice of alternative partners and alliance structures, as well as among the broader categories of market, hierarchy, and hybrid governance forms. Copyright © 2005 John Wiley & Sons, Ltd.     

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.     

The evolution of coopetitive and collaborative alliances in an alliance portfolio: The Air France case

This research studies the evolution of the composition of an alliance portfolio from a coopetition perspective. Building on resource dependence theory, market uncertainty appears to be a driver of alliance portfolio formation and evolution. Scholars have previously neglected key dimensions in analyzing the composition of firms' alliance portfolios: the partner type (pure partner or competitor) and partner interactions (horizontal, vertical or mixed). We build on the coopetition and alliance portfolio literature to explore (1) the composition of an alliance portfolio and (2) its evolution over time. We illustrate our theoretical framework with a longitudinal single-case study of Air France's alliance portfolio. First, we show that when market uncertainty is high, firms do not increase their reliance on collective strategies, but they do modify the composition of their portfolio. Second, to address high levels of market uncertainty, firms rely more on coopetitive alliances than on collaborative alliances. Third, firms use more horizontal than vertical interactions when market uncertainty is high.     

Individual performance in a coopetitive R&D alliance: motivation,opportunity and ability

This study examines individual knowledge sharing in a coopetitive R&D alliance. R&D is increasingly carried out in an R&D alliance setting, where individuals share highly specialized tacit knowledge crossing firm boundaries. A particular challenging setting is the coopetitive R&D alliance, where partner firms partially compete and individuals may leak competitive knowledge. This setting has been studied on the level of the partner firm. We want to deepen insights by examining the individual level. Drawing on the motivation‐opportunity‐ability framework, we study the influence of individuals’ job experience (ability) on their performance in the alliance. We also examine effects of two‐ and three‐way interactions between job experience, a central position in the social alliance network (opportunity) and intrinsic and extrinsic motivation. We find a positive association of job experience with individual performance, a positive interaction between job experience and extrinsic motivation and a positive three‐way interaction between job experience, central network position and intrinsic motivation, and discuss the impact of these findings.     

To teach or to compete? A strategic dilemma of knowledge owners in international alliances

The strategic importance of learning and knowledge development in alliances has been widely recognized and discussed in literature, though focusing mainly from the view of the demand side and leaving the equally important ingredient of knowledge owners’ incentives-to-teach intact. This paper blends the perspectives of the transaction-costs economics (TCE) and the knowledge-based view (KBV) in a hypothesized governance model that illustrates how knowledge and location factors of international partners jointly impact alliance strategies. We first identify the relevant knowledge and location factors affecting incentives-to-teach in alliances, and then incorporated them into a framework explaining the choice of contractual or equity-based mode governing an alliance. Eight hypotheses are developed and then tested on a sample of 640 international alliances, with at least a partner from a focal emerging economy, Taiwan. Our research findings show that the contractual mode is usually aligned with higher incentives-to-teach of the knowledge owners, especially in knowledge-asymmetric and location-symmetric alliances. In a contrast, the equity-based mode, offering additional safeguarding mechanisms for the knowledge owner, is often selected in the alliances associated with a severe concern of competition, especially in knowledge-symmetric and location-asymmetric alliances.     

The moderating influence of firm market power on the transaction cost economics model: An empirical test in a forward channel integration context

Transaction cost economics (TCE) has guided a variety of research on governance in the strategic management literature. An important question arises, however, as to whether the TCE framework is equally appropriate for all types of firms in all business settings. In this paper, we argue that TCE is not and suggest that firms with high market power may be able to lower transaction costs under high asset specificity and uncertainty in nonintegrated distribution channels, avoiding the need to utilize highly integrated channels as a result. We test our hypotheses with data collected from 40 manufacturers of electronic and telecommunications products in 109 product‐markets in the United States. The results support our hypothesis that transaction cost factors are better at explaining forward channel integration for firms with low market power than for firms with high market power. Our results indicate that the basic TCE framework must be supplemented by the market power construct to adequately explain forward channel integration decisions. Copyright © 2007 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.     

Knowledge Acquisition in University–Industry Alliances: An Empirical Investigation from a Learning Theory Perspective*

A firm's technological knowledge base is the foundation on which internal product and process innovations are generated. However, technological knowledge is not accumulated solely through internal learning processes. Increasingly, firms are turning to external sources in the technology supply chain to acquire the technological knowledge they need to introduce product and process innovations. Thus, the successful structuring and executing of partnerships with external “technology source” organizations is often critical to competitive success in technologically dynamic environments. This study uses situated learning theory as a basis for explaining how factors inherent to the knowledge acquisition context may affect the successful transference of technological knowledge from universities to their industry partners. Data collected via a survey instrument from 104 industry managers were used to explore the effects of various organizational knowledge interface factors on knowledge acquisition success in university–industry alliances. The organizational knowledge interface factors hypothesized to affect knowledge acquisition success in the current research include partner trust, partner familiarity, technology familiarity, alliance experience, formal collaboration teams, and technology experts' communications. Results indicate that partner trust predicts the successful acquisition of tacit knowledge but not explicit knowledge. Both forms of knowledge are predicted by partner familiarity and communications between the partners' technology experts. These findings suggest three principal managerial implications. First, although the development of a trusting relationship between the knowledge source and knowledge‐seeking parties is generally advisable, firms that seek to acquire explicit technological knowledge from their alliance partners may successfully do so without having made significant time and energy investments designed to assure themselves that they can trust those partners. The relative observability and verifiability of explicit knowledge relative to tacit knowledge may enable knowledge‐seeking parties to have greater confidence that knowledge has been acquired when partner trust is in question or has not been deliberately developed. A second implication is that, other things being equal, a knowledge‐seeking party's interests may be best served through repeated exposures to particular alliance partners, particularly if those exposures facilitate mutual understandings on relevant process‐related matters. A third managerial implication is that ongoing, broad‐based communications between the partners' technology experts should be used to effect technology transfer. A key quality of the organizational knowledge interface that promotes the successful acquisition of technological knowledge, both tacit and explicit, is multipoint, real‐time contact between the technology experts of the partner organizations. Such communications potentially enable the knowledge‐seeking party to directly access desired information through the most knowledgeable individuals on an as‐needed basis.     

Stepping in and stepping out: Strategic alliance partner reconfiguration and the unplanned termination of complex projects

Research summary : I add to work that emphasizes the stability of strategic alliances by considering the consequences of alliance partner reconfiguration. I offer two contrasting perspectives: (1) alliance partner reconfiguration leads to disruption, hence increases the risk of subsequent project termination; (2) partner reconfiguration leads to adaptation, hence decreases this risk. Data on 1,025 interfirm Australian mining alliances (2002–2011) shows that on average alliance partner reconfiguration increases the risk of project termination. For firm exit from an alliance, the effect is contingent on a firm's resource base, but not for firm entry. Surprisingly, I do not find that alliance partner reconfiguration is beneficial in a dynamic environment. I discuss the implications of these findings for the literature on strategic alliance dynamics and that on strategic alliance outcomes. Managerial summary : This paper studies what happens when over time strategic alliances change their original membership. The research shows that both entry in and exit from an alliance increase the risk of project termination. Hence, weathering difficult times and managing conflict by keeping teams stable should be a prime directive if project survival is the alliance partners' overriding concern. In addition, I find that the exit of a firm with a comparatively large resource base increases the hazard of termination more than if the departing firm has a relatively small resource base. Therefore, one cannot underestimate the importance of trying to keep on board those alliance partners who bring a critical resource to the table. Copyright © 2015 John Wiley & Sons, Ltd.     

The Determinants of Seller‐Buyer Interactions during New Product Development in Technology‐Based Industrial Markets

A growing body of literature indicates that the new product development (NPD) process in technology‐based, industrial markets is characterized by collaborative seller‐buyer relationships. Unfortunately, the extant literature is deficient in some significant ways. For example, there is no theoretical framework that explicates the content of these relationships. Also, there is little empirical research on the antecedents or consequences of these relationships. Therefore, managers seeking guidance on how to manage their NPD relationships have lacked appropriate insights. Not surprisingly, ineffective relationship management is a major contributor to new product failure in such settings. Against this background, this study develops and tests a model of seller‐buyer interactions during NPD. The model is based on the relationship marketing literature and is rooted in Transaction Cost Analysis (TCA). It was tested using data from 296 small to mid‐sized firms in a variety of technology‐based, industrial markets. It specifies product co‐development, education, and post‐installation product knowledge generation as three key behavioral dimensions that characterize seller‐buyer interactions during NPD. Our results indicate that the intensity with which these dimensions are undertaken vary with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and innovation discontinuity) characteristics. For example, perceived buyer knowledge has a positive impact on product co‐development while innovation discontinuity has a positive impact on education. Further, we find that a seller's satisfaction with undertaking these behaviors is moderated by the technological uncertainty in the seller's industry. As a case in point, satisfaction with undertaking product co‐development is reduced when technological uncertainty is high. Collectively, the overall support we find for our model can help NPD managers optimize their relationships with buyers during NPD.