Competitive success in an age of alliance capitalism: how do firm-specific factors affect behavior in strategic alliances?

ABSTRACT

This paper suggests that alliances may not necessarily be the first cut strategy for all firms. It explores the theoretical proposition that while partnerships can be beneficial, some firms may simply fail to generate relational rent or supernormal profits from alliances, not so much because of what happens as a partnership gets underway but primarily because they may have some internal rigidities that adversely affect their ability to engage in partnership building behaviors. This may be one cause of the high failure rate of alliances. The presumption is that partner-specific orientations often serve as blueprints for behavior. Such orientations may become "habits" over time. We can presume that as habit-driven actors, the assemblage of behaviors that firms exhibit during an alliance may largely be a reflection of their existing orientations. Proposed outcomes of existing orientations include difficulties of building trust and cooperation with a counterpart; a tendency to be secretive instead of open; a difficulty with securing internal cooperation and building a collective orientation. A number of policy recommendations are offered. (1) Firms may opt to make or buy, instead of using an alliance. (2) First develop their internal competencies before using alliances in spite of any strategic attraction. (3) The choice of organizing form for an alliance should be based partly on the firm's orientations and abilities to engage in alliance building behaviors. Specifically, firms who rank low on preparedness should opt for integrated, stand-alone equity joint ventures instead of non-equity and other trust-based forms. (4) Appoint dedicated alliance managers and give them visibility. An important theoretical outcome is the need to pay greater attention to actor-specific factors in addition to systemic issues for a solid understanding of alliance performance.

INTRODUCTION

The past decade has witnessed an explosive growth of corporate interfirm alliances. Estimates are that the top 500 global businesses have an average of 60 major strategic alliances each (Dyer, Kale & Singh, 2001). Alliances have been described as the key to competitive success (Ohmae, 1986; Saxenian, 1994). For example, Dyer & Singh (1998) propose that alliances can be a source of relational rent or supernormal profits for firms. Dunning (1995) observes that alliances have ushered in "a new trajectory of market capitalism." Interest in alliances has generated a sustained amount of research (Harrigan, 1986; Parkhe, 1993; Ring & Van de Ven, 1994; Das & Teng, 1998).

Considering their importance, a critical question is: Are all firms capable of using strategic alliances as a strategy for growth? Answering this question is important for at least two reasons. First, the existing evidence points to a high failure rate of alliances. The preliminary evidence suggests that most of the hypothesized gains of partnerships may go unrealized. Current estimates are that about half of all alliances fail (Dyer et al., 2001). Second, if alliances have become a key to competitive success, then it is important that firms develop the competences that are required for managing successful alliances. However, despite the explosion of research on alliances in the last decade, gaps exist in our understanding. For example, our understanding of the reasons why alliances fail may be lagging behind our appreciation of their potential benefits.

This paper attempts to fill some of the gaps. It explores the theoretical proposition that some firms may simply be ill-prepared to have successful relationships and that may be one of the causes of the high failure rate of alliances. In such cases, when the choice is between "make," "buy," or "ally," perhaps allying should not be a first cut strategy. At the very least, such firms should be more cautious in their use of alliances. This paper focuses on key pre-existing factors in firms to predict behavior and, by extension, performance in strategic alliances.

Objectives and Organization of this Paper

The paper has three main goals. First, it presents a conceptualization of firm behavior in strategic alliances based on each firm's own internal systems and orientations. The factors considered are: (1) the firm's structure, (2) communication system, (3) trust orientation and (4) collaborative mindset. Second, it links firm-specific orientations to behaviors that have been identified in the literature as crucial for alliance performance. The behaviors considered are: trust, openness and cooperation. The proposed outcomes and consequences of existing orientations include the ease or difficulty of building relationship-specific assets such as trust, cooperation and transparency. These behaviors have all been identified as prerequisites for successful partnering (Anderson & Narus, 1990; Harrigan, 1988; Kanter, 1994). The paper ends with some policy suggestions for firms contemplating alliances and a discussion of how the article can spur future theory development.

The paper is organized as follows. Section one presents the key behaviors that are identified in the literature as important for alliance performance. Section two links these behaviors to key firm-specific factors and section three presents the conclusions of the paper. The research and policy implications of the paper are offered. The key presumption is that certain organizational factors such as a firm's dominant structural form and the types of behaviors it promotes, a firm's internal communication infrastructure, trust disposition, all promote certain enduring values, routines and mindsets. In turn, these internal orientations are drawn upon to guide behavior in an inter-organizational relationship. It is suggested that in certain configurations, organization-specific characteristics and orientations may simply be unsuitable for inter-firm collaboration.

Strategic alliances involve cooperation between autonomous firms. Such collaboration often creates non-trivial, bilateral dependence between the partners (Williamson, 1991). As distinct organizational forms, alliances can range from fully integrated, shared equity joint ventures, to arms-length relations in which collaboration may be nothing more than loose working relationships (Yoshino & Rangan, 1995). Prior research has focused extensively on identifying the sort of behaviors that are required for building successful partnerships. We know that firms must carefully select potential partners (Lorange & Roos, 1992; Dyer, et al., 2001), engage in open and frank communication (Larson, 1992), build trust (Anderson & Narus, 1990) decide how they share control of the alliance (Geringer & Hebert, 1989) and take steps to protect their own vulnerability (Williamson, 1985). These streams of research are important and have made valuable contributions to our understanding of management processes in alliances. In general, existing research has tended to focus mainly on explaining alliance performance in terms of the context in which partners operate. What most of these perspectives assume, and this may have gone largely untested, is the idea that firms are themselves prepared to collaborate. Pre-existing firm-specific factors have, accordingly, not been systematically studied. This is a serious omission, given that an established line of research exists on how pre-existing factors of a dispositional nature, including organizational ones, affect individual and firm contingency behavior (Mathiesen, 1971; Bell & Staw, 1989; Staw, 1986; Greenberger & Strasser, 1991; Dougherty, 1996). This paper attempts to fill some of that gap.

The paper draws on several strands of organizational and strategic alliance literature to show that some firms may be ill prepared to use alliances as a corporate or business strategy. We may be able to determine which firms are ill equipped to benefit from alliances by examining how they rate on the basis of key internal factors. The variables considered in the study are all based on prior research. For example, it is known that the internal communication system in a firm is often used as a blueprint for communication with external stakeholders (Mathiesen, 1971). At the same time, a firm's internal communication system may prevent it from engaging in the sort of transparent and open behavior that alliances require (Stevenson, 1980). Although trust is said to be indispensable in alliances (Larson, 1992; Gulati, 1995; Ring & Van de Ven, 1992), some firms may lack the openness required to build cooperation and trust (Hamel, 1991; Larson, 1992). While it is individuals who ultimately trust in interfirm relations, firms can express a collectively held orientation of trust toward a counterpart firm (Zaheer, McEvily & Perrone, 1998). These and similar issues are explored; but first a definition.

A Definition

An important issue is whether one can describe organizations as if they were individuals or even as if they were capable of behaving with some level of consistency over time. If so, then we can safely suggest that they have dispositions or orientations. The management literature provides substantial evidence that suggests organizations can indeed have enduring orientations. Based on prior management research (e.g. Bell & Staw, 1989; Staw, 1986; Greenberger & Strasser, 1991), we can define firm orientations as the specific, fairly stable properties that determine substantial parts of a firm's behavior. In this sense, firm orientations are a composite of the organization routines, interpretive schemes and values that a firm is accustomed to.