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.
According to Cyert & March's (1963) analysis of
organizations, it will be sociologically naive to ascribe enduring
orientations to collectives such as firms. Nonetheless, the
organizational literature abounds with related concepts such as
organizational schemata and shared values (Gray, Bougon & Donellon,
1985), organizational routines and interpretive schemes (Dougherty,
1996). There is also research evidence to suggest that such generalized
firm-orientations endure and have performance implications (Nelson &
Winter, 1982; Dougherty, 1996). For example, it is known that besides
being regular and predictable behavior patterns, organizational routines
as a form of orientation are difficult to alter (Perrow, 1986), and
managers may actually try to keep routines from changing (Dougherty,
1996). Staw and Sutton (1993: 373) are more explicit in suggesting that
the whole notion of individual dispositions can be extended to firms.
They write evocatively: "We might also generalize the entire notion
of behavioral disposition to the organizational level. The result would
be to treat organizations as if they were living, breathing entities
with predictable behavioral tendencies."
BEHAVIORAL ANTECEDENTS OF SUCCESSFUL PARTNERING
Some understanding of the type of behaviors that promote
performance in alliances is central to an orientation theory of
strategic alliance behavior. The sorts of behaviors that make for
successful partnering are well known. Accordingly, the treatment here is
sketchy at best. Several alliance-building behaviors have been
identified in the emerging literature on strategic alliances, but only
the three key ones are discussed: trust, cooperation and communication.
First is trust. Trust has been defined as the expectation that no
partner to an exchange will exploit the other's vulnerability
(Sabel, 1993). Trust is important in alliances because it: (1)
facilitates investment in relationship-specific assets (Fichman &
Levinthal, 1991; Madhok, 1995; Gambetta, 1988), (2) promotes cooperation
(Jarillo, 1988; Buckley & Casson, 1988; Dwyer, Schurr & Oh,
1987), (3) reduces transaction cost associated with the exchange (Zaheer
& Venkatraman, 1995), speeds negotiations (Reve, 1990) and serves as
an efficient governance mechanism overall (Ring & Van de Ven, 1994).
The challenge is that trust must often be created where none existed.
Although trust can arise on the basis of prior ties (Gulati, 1995;
Granovetter, 1988) or on the basis of some shared values between the
parties (Zucker, 1986), the context of the relationship provides, by
far, the best opportunity to create trust where none existed or to
massage trust if it arises on the basis of factors outside the
relationship. Trust building requires sustained contact between the
partners. It is only through close contact that firms can learn about
each other. Interaction over time can lead to the development of affect
and confidence in the counterpart firm. Nooteboom, Berger &
Norderhaven (1977) call the familiarity and mutual understanding that
firms develop through interaction habitualization. Close interaction can
also lead to the development of individual attachments that underlie
trust (Seabright, Levinthal & Fichman, 1992).
Second is communication. Communication allows the partners to
exchange useful, relationship-building information. This requires a
degree of openness and transparency. Effective communication builds
trust. Finally, there is cooperation. Cooperation has been defined as
"coordination affected through mutual forbearance" (Buckley
& Casson, 1988: 32). Forbearance means that the partners refrain
from acting opportunistically. Cooperation becomes necessary when two
agents engage in joint activity to achieve an outcome for which the
actions of each actor are necessary, and where a necessary action by at
least one of the actors is not under the control of the other (Williams,
1988). Cooperation thus seen involves actions that lead the other party
to develop the belief that they will not be exploited. Such a party is
then encouraged to forebear and forbearance can lead to mutual trust
(Buckley & Casson, 1988).
ORIENTATIONS AS DETERMINANTS OF FIRM BEHAVIOR
This section examines key firm-specific factors that determine how
a firm behaves. The objective here is to show that the alliance building
behaviors identified above may not materialize, in large part because
the firm's existing orientations and mindsets may disrupt the
process.
Communication Infrastructure
The type of communication system in a firm has important
implications for firm behavior in an inter-organizational relationship.
Cyert & March (1963) define an organizational communication system
as the enduring discernible patterns of information flow within an
organization. The pattern of communication includes the volume, type,
direction and initiation of messages as well as the pattern of
information flows (Courtright, Fairhurst & Rogers, 1989). It is
known that communication systems affect firm performance (Hansen &
Wernefelt, 1989). More importantly, looking at a firm's
communication system can give clues to the level of ethical commitment a
firm has. Verbeke, Ouwerkert & Peelen, (1996) demonstrated that when
studied together with the control system, a firm's communication
system is a pointer to its ethical decision-making practices, and trust
is partly ethics-based (Hosmer, 1995). The type of communication system
in a firm should affect its behavior in an alliance. This is because
what pertains internally is often projected outside (Mathiesen, 1971).
In his study of Scandinavian penal institutions, Mathiesen found that
organizations often use their internal communication systems as a
blueprint for communicating with external constituents and stakeholders.
A firm's communication structure may be determined by its
organization structure, the management style of top leadership and
culture. A firm can have a closed or open communication system. A closed
communication system is one in which top management makes most of the
key decisions and the process is predominantly one-way, from top to
bottom. Another defining characteristic of closed communication systems
is their predisposition to secrecy and this is important when it comes
to interfirm collaboration. Such a firm may put restriction on the
content and amount of information it voluntarily divulges to its
counterpart. Firms that put a premium on secrecy will, more than likely,
disclose very little information to their partners. Worse yet, a
secretive firm may deliberately distort external communication
(Stevenson, 1980). In general, an unwillingness to communicate reduces
cooperation and instead creates animosity and the tendency to mislead
others (Lindskold & Han, 1988). Hamel (1991) notes that some firms
are more willing to share information with their alliance partners than
others are. The fact is that a culture of secrecy, like most behavior
that is projected outside, is unlikely to begin de novo, but will rather
reflect existing organization routines and interpretive schemes. Of
course, an open firm may become secretive as an alliance unfolds. For
example, it is suggested that a partner's perception that it is
gaining less from the relationship may prompt it to become less open
(Hamel, Doz & Prahalad, 1989). Open communication systems, to the
contrary, are defined by the premium they put on decentralized
decision-making, including a fairly broad participation of relevant
constituents. Since successful partnering requires transparency in
behavior, a firm with an open system will have a distinct advantage in
its ability to demonstrate alliance-building behaviors.
Besides affecting how effectively a firm interacts with its
counterpart, a close communication system may affect a firm's
ability to read signals from its counterpart. Sometimes, trust and other
intentions are signaled rather than communicated explicitly. Since the
power of signals fade with time, it is important to read and react to
them quickly, but close communication systems will have a hard time
doing so. In general, it is suggested that:
Proposition 1: The more open a firm's communication infrastructure, the
greater its ability to demonstrate alliance-building behaviors owing to (1)
its ability to share useful information with its counterpart (2) read
signals from its counterpart and (3) a tendency to be less secretive.
Organizational Propensity to Trust
Firms, like individuals, may have a disposition to trust. The idea
that trustworthiness can be a source of competitive advantage (Barney
& Hansen, 1994) suggests that such a resource is enduring. Following
Mayer, Davis & Schoorman (1995: 715) the trust disposition of a firm
may be defined as a generalized willingness of a firm to trust external
stakeholders and constituents. Some additional research supports the
notion of firm trust disposition. Barney & Hansen (1994) note that
an organization's values and beliefs, including its trust
disposition, may be supported by its reward and compensation system.
Dyer (1997) reports that suppliers view General Motors, as an entity, as
much less trustworthy than Toyota and Chrysler. A firm with a low trust
propensity will tend to monitor its counterpart excessively. Such a firm
will also have a low threshold of tolerance for even minor violations. A
firm with a high trust disposition will be the opposite. Although some
monitoring is desirable in partnerships, monitoring might become
paralyzing if it is driven by an inherent propensity to distrust. The
trust orientation of a firm may derive from a number of factors:
leadership, past experience, the institutional context and the
firm's mission.
First, the leadership core of a firm can set the tone for a
firm's disposition to trust. The literature on organizational
culture has long documented the important influence of founders on the
type of value system that develops in an organization (Schein, 1986).
Noorderhaven (1992) suggests that an organization may have a
"personality" that reflects the trust disposition of the
leader. Within the context of alliances in particular, top management
teams that acknowledge the legitimacy of inter-firm collaboration are
likely to foster, either directly or indirectly, the norms of
cooperation and trust internally. Collectively, such a firm should have
a higher propensity to trust than others. The case of Novell's
former chief executive officer, Ray Noorda, is one example. It is
reported that Mr. Noorda believed in inter-firm collaboration and helped
to shape his firm's value systems in consonance with this belief
(Hall & Harrison, 1994). CEO Bob Noyce is also said to have created
and fostered cooperation in SEMATECH, a Texas-based research consortia
of semiconductor companies (Browning, Beyer & Shelter, 1995). Dow
Corning is said to hold several hours of training on partnerships for
its executives.
Second, a firm's disposition to trust may be a reflection of
the larger societal culture within which the firm is situated. The
notion of norm-based trust (Zucker, 1986) is indicative of this. Related
research in organizational culture confirms that individual values, as
much as firm cultures, are often reflections of the larger societal
culture (Hofstede et al. 1990; Early, 1993). There is also some research
linking trustworthy behavior at an inter-organizational level to
societal values. For example, Dore (1983) argues that norm-based trust
in inter-organizational relations in Japan is engendered by the social
norm, which insists that business relations overlap personal relations.
Local and regional cultures are also said to promote norm-based trust in
business relations in North-Central Italy (Piore & Sabel, 1984). At
an industry level, the existence of widely shared norms may also
influence trust propensity. Bengttson (1993) reports that the Swedes
have a history of cooperation in industry. Where such shared mindsets on
cooperation exist, firms in such industries should have a higher
disposition to trust. Third, a firm's past experiences may affect
its propensity to trust. For example, where firms have had bad
experiences in the past, they may be less willing to trust than if they
had positive experiences.
Finally, a firm,s mission may force it to be less trusting. For
example, speculation suggests that security-minded organizations such as
the United States Federal Bureau of Investigation (FBI) or the Central
Intelligence Agency (CIA) will be less willing to be open and trusting
toward their stakeholders. Secrecy is valued among the organizational
members themselves and openness discouraged. Over time, a sort of
managerial mindscape promoting secrecy may develop in such organizations
and this is likely to be reflected in interfirm relations. A low
propensity to trust may have its benefits in terms of the firm's
ability to protect itself against opportunism; but in the long run, the
disadvantages will outweigh its advantages in the case of interfirm
collaboration. In general:
Proposition 2: The greater a firm's propensity to trust, the greater its
ability to engage in alliance building behaviors owing to (1) a higher
tolerance of exchange imbalances and (2) less tendency to engage in
excessive monitoring and trust destroying behaviors.
The Dominant Internal Mindset
Firms are capable of generating specific mindsets that promote
either cooperation or competition. Prior research has, in fact,
categorized firm values in terms of collectivist or individualistic
organizational cultures (Early, 1993; Hofstede Neuiijen, Ohayv &
Sanders, 1990). The sort of mindset that exists within a firm would be
partly reflected in the organizational climate or atmosphere found in
the firm. Organizational climate embodies members' collective
perceptions about their organization and serves as a basis for
interpreting situations. Climate also reflects the prevalent norms,
values and attitudes of the organization (Pritchard & Karasick,
1973; Moran & Volkwein, 1992). A firm can either have a
collaborative or individualistic orientation by rewarding a particular
kind of behavior.
Thus, we can use the reward system as a proxy for gauging the
internal atmosphere within a firm because reward systems are known to
promote both cooperation and competition between people and divisions
(Cliff, 1987; Courtright, Fairhurst & Rogers, 1989). Reward systems
are those intrinsic and extrinsic benefits employees derive for engaging
in organizationally determined behaviors. There is empirical evidence to
link a firm's human resource practices, including reward systems,
to organizational performance. This shows that reward systems are
capable of generating mindsets that are enduring (Hansen &
Wernefelt, 1989). The power of reward and compensation systems to either
exacerbate or lessen divisive tendency in groups is known (Walton,
Dutton & Cafferty, 1969). Although reward systems are alterable,
there is reason to suggest that firms are unable to do so quickly,
perhaps because they tend to be costly and often arouse strong emotional
reactions. The effect of reward system on partner behavior in an
inter-organizational relationship may be examined at three levels: its
effect on individual employee behavior, its effect on inter-unit or
inter-divisional behavior and finally on the level of organizational
politics. Each of these is examined in turn.
First, reward systems that promote individual initiative and values
often put a premium on the maximization of individual goals. Thus,
rewards are geared toward individuals, but not collective or team
performance. A climate that supports individualism will encourage
competition and autonomy, instead of cooperation. The result in this
case will be a climate that promotes competition for resources between
individuals, teams and units (Courtright, Fairhurst & Rogers, 1989).
Second, reward and compensation systems in a firm have a direct effect
on how departments and groups work together. How groups or departments
interact can be affected by the group's reward system (Shea &
Guzzo, 1987). This is likely to be so because units and departments tend
to be cohesive. Social identity theory suggests that units define
themselves on the basis of their group membership and groups value their
self identify and self-esteem (Lind & Tyler, 1988). Thus, where
reward and compensation systems value collective action, managers may be
induced to be flexible and accommodating to other departments'
needs, as opposed to a reward system that values individualism.
Cliff's (1987) conclusion that inter-departmental cooperation is
greater when reward systems emphasize collective action is consistent
with this view.
Finally, because the prevailing reward system in a firm is capable
of affecting intra-unit cooperation, there is reason to suggest that it
would affect the level of organizational politics. Organizational
politics involve intentional acts of influence to enhance or protect the
self-interest of individuals or groups (Allen, Madison, Porter, Renwick
& Mayes, 1979). One should see a direct relationship between the
level of intra-unit cooperation and the degree of political behavior and
the firm's ability to demonstrate alliance-building behaviors. When
competition or individualism is rewarded within a firm, one should see
greater in fighting within units generally when an alliance takes place
than in a situation where collectivism is rewarded. Bennassi (1993)
found that the decision to enter an alliance is often determined by
different pressures and the objectives of units and that these may not
always be congruent with each other. This may further increase the
prospect for political behavior. It has also been suggested that units
or departments involved with alliances often assume greater visibility
and power than those not connected with the alliance (Benassi, 1993). In
some cases, other units may express outright hostility to units directly
associated with the alliance (Kanter & Meyer, 1991). Dyer, Kale
& Singh (2001: 40) quote an alliance executive: "We have a
difficult time supporting our alliance.... You have to go begging to
each unit and hope that they will support you. But that's time
consuming and we don't always get the support we should." The
fact is political behavior and inter-unit competition increases high
status polarization and conflict. Yet, research suggests that these
conditions hinder inter-firm collaboration (Kanter, 1994; Lewis, 1990).
Therefore:
Proposition 3. The greater a firm's reward of collectivist behavior, the
greater its ability to engage in alliance building behaviors, owing to (1)
a reduction of inter-personal conflict, (2) lower inter-unit conflict, and
(3) lower incidence of organizational politics, all of which can spillover
into the alliance and disrupt the process.
Dominant Structural Type
Structure is a cause of orientation, not orientation by itself. It
is an important determinant of orientation and so it is discussed here.
Structure determines the way authority relationships are arranged among
organizational members and plays an important role in how individuals,
groups and divisions within organizations behave. In the case of
interfirm alliances, these behaviors become the collective orientation
that may be projected outside and guide behavior within. The structure
of a firm has been conceptualized in terms of the complexity of
authority relationships among organizational members (Barnard, 1938).
Among other things, structure affects the division of tasks, how people
and groups relate to each other, and the type of communication systems
within the firm as well as decision-making patterns.
In general, organizational structures may be simply characterized
by their degree of standardization or openness (Burns & Stalker,
1961). Mintzberg (1979) has advanced a potentially useful classification
of structural forms and his five-types of structural forms are used to
frame this part of the discussion. These are: (1) machine bureaucracy
(2) professional bureaucracy (3) adhocracy or innovative forms (4)
simple or entrepreneurial forms and (5) divisional forms. It is proposed
that the type of structural form will affect a firm's ability to
demonstrate appropriate alliance building behaviors. Each of the five
structures is briefly discussed in turn.
First is a machine bureaucracy. A machine bureaucracy is defined by
its emphasis on standardization of work and centralized decision-making.
Large firms like GM and Ford are examples of machine bureaucracies. In
general, standardization prescribes limits to behavior and procedures of
members (Dalton, Todor, Spendolli, Fieldsing & Porter, 1980). A
machine bureaucracy often promotes distinction between different classes
of employees and this should lead to status polarization. Above all,
machine bureaucracies have a tendency to control both their internal and
external stakeholders by developing rigid boundaries between themselves
and their stakeholders (Dess, Rasheed, McLaughlin & Priem, 1995).
The tendency to be secretive, insular, control tasks, and to
unilaterally protect one another, all makes for an unsuitable climate
for internal cooperation and learning (Argyris & Schon, 1978).
Helgensen (1980) gives an engaging account of how the Ford Motor Company
at one time had a climate that promoted insularity and isolation of
departments from each other. In such a setting, competition, not
collaboration was the norm rather than the exception.
Second is the professional bureaucracy. This structural form often
resembles a bureaucracy minus the excessive formalization that
distinguishes machine bureaucracies. As the name implies, a professional
cadre of employees dominate such a structure. As specialists, employees
may enjoy a degree of autonomy not common with the rank and file of
machine bureaucracies. Professional bureaucracies may also experience
less control and often have some autonomy in how they deal with external
constituents. Speculation suggests that compared to machine
bureaucracies, professional bureaucracies will tend to be more open and
cooperative. All things being equal, professional forms should be good
learners by virtue of the competence of key employees and that should
affect the way they relate to external constituents, including alliance
partners.
Third is the innovative structure or adhocracy. Hofstede et al.,
(1990) present a similar classification of organizational forms based on
culture. They call it a pragmatic firm culture type. Mintzberg's
adhocracy bears a close resemblance to this firm culture type. One
distinguishing characteristic of an adhocracy is decentralization of
decision-making. There is also an emphasis on communication, discussion,
negotiation and interaction among people and divisions. This type of
structure should promote a climate that prepares a firm for
demonstrating alliance-building behaviors.
Fourth is the entrepreneurial form. Here the focus is on one key
individual. The structure in an entrepreneurial form may itself be
simple with one person directing affairs. In terms of an alliance, there
are both positive and negative sides to the dominant role of one key
individual. On the positive side, it may be relatively easy to build
trust between the partners since one key person becomes the focus of the
trust building effort. Since one individual dominates the structure, it
should be relatively easy to alter existing norms even if these are
incompatible with the norms of cooperation. In the same breath, however,
turnover or a breakup of friendship ties can make the relationship
unravel quite quickly. In general, distinguishing between interpersonal
and inter-firm trust becomes difficult since both are closely
intertwined with each other. Thus, one should expect greater instability
in alliances involving simple structures, all things being equal.
The fifth and final type is the divisional form. Here the focus is
on autonomous divisions. But as Mintzberg (1979) notes, this autonomy
does not imply that decision-making will be decentralized. In the
context of alliances, the sort of thought worlds or interpretive schemes
that prevail within the divisions is important. Where competition and
intra-unit fighting exists, one should see an adverse impact on
behavior. Kanter (1994) discusses the sort of mindset that generates
intra-unit fighting as a "cowboy mentality" and firms have
been known to exhibit this type of mentality. For example, Helgesen
(1990) quotes a manager who notes that at one point in time, Ford Motor
Company had hierarchical structures organized around fiefdoms with rigid
boundaries between divisions with units hardly talking to each other.
Since the possibility always exists that some departments or divisions
can refuse to accept the legitimacy of an alliance one can suggest that
divisional forms that promote a climate of competition will be ill
prepared to collaborate externally. Of course, it is possible that
divisions and units develop collaborative interpretive schemes. But in
general, both the anecdotal evidence and speculation suggests that
divisional forms are more than likely to experience conflict and
competition more so than cooperation. Based on the theory and
discussion, it is proposed that:
Proposition 4: Innovative, entrepreneurial and professional bureaucracy
organizations will exhibit greater cooperative and alliance building
behavior in alliances than both machine bureaucracies and divisional forms
owing to (1) reduced chances of organizational politics (2) less intra-unit
conflict, and (3) a higher internal cooperative mindset.
CONCLUSION
The central thesis of this article is that some firms may be ill
prepared for deriving relational rent from corporate interfirm
alliances. It explored the theoretical proposition that firm-specific
factors may be one reason for the high failure rate of alliances. This
article proposed that a firm's pre-existing orientations are an
important and additional explanation for alliance performance. The
presumption is that orientations, whatever they may be, have served the
firm well and that is why they have endured. In addition, the point is
not that these dispositions become rigid and unchanging. Environmental
conditions such as the nature of the industry, crisis or failure may
force a firm to change parts or all of its orientations. There is,
however, no epistemological or empirical imperative to suggest that the
types of variables discussed in the present research are capable of
being altered quickly. One key implication of the paper is that the
generally enthusiastic endorsement of strategic alliances as a key to
competitive success needs to be tempered with the realization that some
firms may be ill equipped for having a successful alliance.
There is reason to suggest that the behavior of a partner during an
alliance may depend, to some extent, on that partner's strategic
motives. Game-theoretic explanations of partner behavior also suggest
that how the payoff structure evolves directly affects behavior and
cooperation (Axelrod, 1984; Parkhe, 1993). In the first case, a partner
who sees it stands to gain more from the relationship may behave
cooperatively for that reason only. In the second case, a perception
that the payoff is less than anticipated may trigger less cooperation
and research seems to confirm that (Hamel, 1991). While both conditions
are possible, that line of argument does not negate the fact that a firm
may have a harder time demonstrating alliance-building behaviors, try as
it may, because its existing orientations are at variance with
collaboration. Worse yet, a desire to be confrontational may come more
naturally to a firm whose existing mindset encourages conflict
internally, than to a firm whose values are more consistent with
collaboration. Empirically, it will be of interest to examine the
interaction between firm pre-existing orientations and alliance context
dynamics such as how the payoff from the relationship evolves and link
this to partner behavior and alliance performance.
It can also be suggested that firms would only have relationships
with those firms with whom they share similar dispositions or
orientations, but speculation suggests some firms may be using alliances
without a careful appraisal of their own value systems. For example,
some alliances are purely mimetic (Venkatraman, Koh & Lob, 1994),
especially in those industries where alliances are becoming industry
"recipes" (Spender, 1989). In other cases, governments may be
imposing collaboration on firms, as is often the case in places such as
China (Hladick, 1988). Worse yet, speculation suggests that the desire
to form a partnership may, in some cases, be more a case of firms
sensing a strategic opportunity rather than some calculated strategic
motivation. Whether cooperation is mandated by political fiat; initiated
in response to a strategic need or opportunity; or is done to gain
respectability among one's peers in an industry; there is little
reason to suggest that a recognition that existing orientations are
incompatible will matter. Thus, in the end, there may actually be more
alliances between firms with different pre-existing orientations than
the existing literature tends to emphasize.
Policy Implications
There are important implications of this paper for practice. First,
it is possible for firms to reduce the dysfunctional consequences of
existing orientations by building legitimacy for partnering. Legitimacy
in this sense means that perceptions are changed so that collaboration
is accepted as worthy and worthwhile and consistent with existing
values. Ohmae (1986) suggests that one important preparation a firm can
make in readiness for an alliance is to conduct a good internal
communication campaign. The suggestion that internal collaboration is an
appropriate exemplar for inter-firm collaboration has been made (Kanter,
1990; Mintzberg, Dougherty, Westley, & Jorgensen, 1996). For
example, Hewlett-Packard has internal alliances between departments and
this provides an opportunity to learn collaborative competencies. There
are two examples that illustrate the importance of internal legitimacy
for partnering. Lewis (1990) found that an alliance between the French
Aviation Company SNECMA and GE almost collapsed because of resistance
from lower-level personnel in GE. Kanter (1995: 73) also reports that an
alliance between the French company Renault and Swedish company Volvo
fell apart because of Volvo's Swedish stockholders' concerns
about the continued involvement of the French government with Renault.
To the contrary, and more indicative of what is desirable, Lorange &
Roos (1992) report on a successful alliance between Geotech and Hitachi
Construction Machines. In this case, the authors report that management
from both firms secured internal support for the alliance in their
respective organizations.
Second, management can attempt to change values that are
inconsistent with collaboration over time. This may mean that firms have
to accept the dualities of competition and collaboration. Routines,
mindsets, and cultural values may need to be altered. Training and
leadership are important. For example, Hewlett-Packard has developed a
two-day course on alliances. The best way to do this is to have a
dedicated alliance function. This means that managers and staff should
be solely devoted to alliances. Dyer et al. (2001) found that firms that
derived the most relational rent from alliances have dedicated alliance
managers. Hewlett-Packard, Oracle, Corning, Eli Lilly all have dedicated
alliance functions. Ray Noorda is reported to have provided critical
leadership at Novell. Dow Corning, the quintessential alliance builder
and perhaps the most successful alliance user in the world, requires all
employees to receive about 100 hours of formal training a year (Lewis,
1990).
Third, the form an alliance takes should reflect the firm's
own estimate of its ability to demonstrate requisite abilities. Firms
who score low in terms of their ability to demonstrate alliance-building
behaviors may be better off using integrated forms such as shared equity
joint ventures. In this case, the stand-alone venture can be freed of
the burdens of its parent, so to say. Even then, it will be important
that the joint venture has its own decision-making authority without
undue interference from such a parent. The firm may also choose to hire
outside personnel, instead of existing employees, to manage a joint
venture. Non-equity alliances may be more efficient in terms of
governance costs, but more difficult for firms that do not have the
orientation to engage in the appropriate behaviors because these
alliance forms may require more coordination and interaction than equity
forms. For example, a firm may choose a less involved relationship such
as licensing as opposed to an in-house collaborative arrangement if it
feels its existing orientations are not conducive to collaboration.
Finally, the make or buy option should not always be a second best
strategy. Alliances can be very costly in terms of time and money. Where
there is some evidence, prima facie, that a firm may have a hard time
benefiting from collaboration, alliances should become the second best
option. In such cases, a valid case can be made for internal development
or buying. For example, instead of engaging in a joint development
project, a firm may consider buying a license.
Implications for Research
The model invites additional research on firm orientations as well
as a greater focus on partner-specific factors that determine
performance in an alliance. Of course, the propositions generated here
await empirical verification. In addition, several fruitful areas for
research can be explored. Only two of them are discussed due to space
constraints. First, when firms engage in inter-organizational relations,
there are internal effects. It was Mathiesen (1971, p3) who suggested,
more than two decades ago, in his study of two Scandinavian penal
institutions that relations between organizations had internal
implications "much like an engagement that affects the individual
inside." A focus on how external relations affect internal systems
is capable of extending our understanding of how inter-firm linkages
alter existing firm dispositions. Second, a firm's disposition to
trust may be a difficult but important thing to know. This research
presented a preliminary view on some of the antecedents of this
construct but more work certainly needs to be done. The construct needs
to be more rigorously defined, delimited and empirically validated.
Finally, this research suggests that certain behaviors and systems
that positively affect organizational performance internally may not
always be suitable for external relations.