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Cooperating for Innovation, Summary
Summary of the mandatory, articles, lectures, and online sessions, with important figures, all divided per week.
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Cooperating for Innovation – Summary of the Research Papersand Pre-Recorded Lectures.
Brenda Giethoorn
04-04-2022
WEEK 1: INTRODUCTION
Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317.
This paper introduces a social network perspective to the study of strategic alliances. It identifies five
key issues for the study of alliances: (1) the formation of alliances, (2) the choice of governance
structure, (3) the dynamic evolution of alliances, (4) the performance of alliances, and (5) the
performance consequences for firms entering alliances. For each of these issues, this paper outlines
some of the current research and debates at the firm and dyad level and then discusses some of the new
and important insights that result from introducing a network perspective. It highlights current network
research on alliances and suggests an agenda for future research.
I don’t intend to review this vast and burgeoning field of research, instead I develop a social network
perspective on some of the key questions associated with strategic alliances, going beyond the dyadic
level to the larger network in which alliances are embedded. I define strategic alliances as voluntary
arrangements between firms involving exchange, sharing, or co-development of products, technologies,
or services.
The following research questions relevant in this research are:
1. Which firms enter alliances and whom do they choose as partners?
2. What types of contracts do firms use to formalize the alliance?
3. How do the alliance and the partners’ participation evolve over time?
Two research questions focus on the performance issue:
1. What factors influence the success of alliances?
2. What is the effect of alliances on the performance of firms entering them?
The notion that a firm’s social connections guide its interest in new alliances, and provides it with
opportunities to realize that interest, is closely rooted in the processes that underlie a firm’s entry into
new alliances. A firm on its own initiative identifies the need for an alliance, identifies the best partner
available, and chooses an appropriate contract to formalize the alliance. Rather, I observed that many
new opportunities for alliances were presented to firms through their existing sets of alliance
partners. The fieldwork suggested that the social networks of prior ties not only influenced the
creation of new ties but also affected their design, their evolutionary path, and their ultimate success.
It is important to recognize that although strategic alliances are essentially dyadic exchanges, key
precursors, processes, and outcomes associated with them can be defined and shaped by the social
networks within which most firms are embedded. The social context in which firms are embedded
includes a whole array of elements that can be classified broadly as structural, cognitive, institutional,
and cultural.
Network perspectives build on the general notion that economic actions are influenced by the social
context in which they are embedded and that actions can be influenced by the position of actors in
social networks. Underlying embeddedness is the quest for information to reduce uncertainty, a quest
that has been identified as one of the main drivers of organizational action.
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,In the case of alliances, firms with more social capital will not only have access to information about a
larger number of alliances, but they may also be able to attract better partners who want to ally with
them. Furthermore, they may be able to extract superior terms of trade because of possible control
benefits that may ensue from their social capital. Embedded ties promote greater frequency of
information exchange between partners, which can affect the success of the alliance as well as the
performance of firms entering them.
The five key issues for the study of alliances:
1. The formation of alliances.
Three main motivations which are broadly applicable to other types of alliances as well: transaction
costs resulting from small numbers bargaining, strategic behavior that leads firms to try to enhance
their competitive positioning or market power, and a quest for organizational knowledge or
learning that results when one or both partners want to acquire some critical knowledge from the
other or one partner wants to maintain its capability while seeking another firm’s knowledge.
The embeddedness of firms in social networks can both restrict and enable the alliances a firm
enters. Evidence suggests that the proclivity of firms to enter alliances is influenced not only by
their financial and technological attributes (treated as proxies for strategic imperatives), but also
by how they are embedded in social networks between firms.
As highlighted earlier, firms are embedded in multiple social networks and the implications of
these manifold ties on alliance formation remain an open question. The evidence that exists thus far
highlights the significance of one social network at a time on new alliances. The possible
implications of the simultaneous and possibly conflicting influence of multiple social networks on
alliance formation have yet to be systematically examined.
2. The choice of governance structure.
There is considerable variation in the formal structure of alliances themselves. Scholars have
suggested that hierarchical controls are an effective response to such concerns as they are
anticipated at the time the alliance is formed. Where there is trust, appropriation concerns are
likely to be mitigated, and organizations may not choose to rely on detailed contracts to ensure
predictability. Firms are also embedded in a social structure of dependence that can alter the likely
power dynamics in a potential alliance. Firms are likely to anticipate such conditions and modify
the structure of their relationship accordingly. The economic context can influence the structure
as well.
3. The dynamic evolution of alliances.
The shaping of such a dynamic interorganizational network can be influenced in important ways
by exogenous factors, such as the nature of competition and critical industry events. Alliance
networks are not static social structures in which organizations embed new alliances: they are also
evolutionary products of these ties. As a result, new ties are influenced by the social network of
prior ties in which they are embedded. The influence of networks on firms may also change over
time if the content of information flowing through those networks changes. The effect of social
networks on the adoption of administrative innovations was contingent on the stage of its
institutionalization as an innovation.
4. The performance of alliances.
While there have been advances in assessing the performance of alliances, few of these efforts
have considered the impact of social networks in which firms are placed on the relative
performance of their alliances. There is some evidence that alliances with embedded ties may
perform better or last longer than others. The fact that a firm may have entered a wide array of
alliances also suggests that it has to simultaneously manage this portfolio and address conflicting
demands from different alliance partners. If the firm is at the center of a network, it must pay
particular attention to a series of strategic and organizational issues.
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, We now know that embedded ties differ in fundamental ways from other ties and that there may
even be an association between the extent of embedded ties a firm enters and its survival, but we
have less understanding of the extent to which alliances with embedded ties actually perform better
or worse than other alliances and why.
5. The performance consequences for firms entering alliances.
Studies suggest that close vertical ties that are characterized by rich information exchange and
long-term commitments can lead to greater cooperation and joint activities between the partners
and higher levels of asset specific investments, all of which translate into concrete performance
benefits for the firms forming such ties. The performance of a firm is influenced by the networks
to which it belongs.
This paper suggests that social networks are valuable conduits of information that provide both
opportunities and constraints for firms and have important behavioral and performance implications
for their alliances.
Once two firms decide to enter an alliance, their relative proximity in the network may influence the
specific governance structure used to formalize the alliance. The extent to which two partners are
socially embedded can also influence their subsequent behavior and affect the likely future success of
the alliance. A firm’s portfolio of alliances and its network position in an industry can have a profound
influence on its overall performance. The theoretical orientation guiding this paper has been the
embeddedness perspective, which highlights the significance of the social relationships in which actors
are situated for their future behavior and performance. I would like to emphasize that introducing such
a perspective does not preclude the possibility of traditionally examining strategic imperatives or
diminish their importance.
Incorporating social network factors into our account of the alliance behavior of firms not only
provides us with a more accurate representation of the key influences on the strategic actions of firms,
but has important implications for managerial practice as well, many of which have yet to be explored.
Tsang, E. (2000). Transaction cost and resource-based explanations of joint ventures: A
comparison and synthesis. Organization Studies, 21(1), 215-242
By focusing on the cost aspect of a transaction, the transaction cost logic explains joint ventures in
terms of market failure for intermediate inputs, asset specificity, and high uncertainty over
specifying and monitoring performance. Putting more emphasis on the benefit side of a transaction,
resource based theory regards joint ventures as a means of exploiting and developing a firm’s
resources. The transaction cost (TC) and resource-based (RB) explanations are, to a certain extent,
complementary.
A major weakness of TC theory is that it over-emphasizes the cost minimization and neglects the
value creation aspect of a transaction. RB theory, in contrast, assumes that firms try to maximize long-
run profits through exploiting and developing their resources, RB focusses more on the values than
on the costs.
Joint ventures can be classified into two categories:
- Equity joint ventures, this is the traditional joint venture, which are created as separate legal entity
by two or more partners.
- Non-equity joint ventures, refers to a wide array of contractual arrangements.
The fundamental motive, underlining all other reasons for combining firms’ resources and skills will
always be some form of gain to the firm. On the other hand, TC has an edge over RB theory in that it
includes a very detailed treatment of the opportunism which may arise under certain circumstances.
Despite the severe criticism of the concept of opportunism as used by TC theory is explaining economic
behavior, the concept does serve some useful purposes. The two theories, to some extent, are
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, complementary to one another. Each offers a partial view of reality, such that a synthesis would be
desirable. When an activity is organized internally, extra value (Vh) may be created due to reasons
pertaining to intrinsic firm capabilities.
Proposition 1: For firms possessing superior capabilities, the hierarchy option will be preferred to the
market one, as long as they perceive some value in producing internally.
Note that the above proposition is in sharp contrast with the TC argument, which focuses on the cost
aspect of a governance structure. The TC argument is expected to have higher validity with respect to
mature industries than high-tech ones. Since the technologies used in the former industries have been
well articulated, firms should not differ too much in terms of production costs.
Proposition 2: When predicting the choice between market and hierarchy, transaction cost theory will
have a greater predictive power with respect to mature industries than high-tech industries.
The joint venture alternative will be chosen as long as the extra value Vj is large enough to cover the
various costs that may be incurred, even though, in some cases, TC theory may predict that the market
alternative is more efficient because of very low level of TCm. If a firm enters an industry with which
it is familiar, we expect that the hierarchy and the joint venture options will have more or less the same
management and production costs.
Proposition 3: When entering into familiar industries, firms will only choose the joint venture option
over the hierarchy one if the extra value created in a joint-venture context is large enough to compensate
for the additional alliance cost.
Strategic alliances represent a fast means of gaining access to sources of know-how located outside of
the firm.
Proposition 4: In high-tech industries, market- and knowledge-access considerations will greatly
increase the value of joint venturing relative to its associated alliance costs.
The issue of trust is important, because interfirm trust can alleviate the hazards of opportunism
associated with future transactions of the firms concerned. All transaction costs are at base
information costs and is bound to diminish over time with organizational learning.
Proposition 5: Repeated market transactions between two firms will lower the transaction costs
involved.
Experience is an important factor and joint venturing may usefully be considered a skill. Similar to the
case of market transactions, with repeated collaborative transactions, we expect that inter-partner trust
to grow and opportunism to diminish. Repeated collaborative transactions are likely to have a
positive impact on the rent generating aspect of the extra value Vj.
Proposition 6: Repeated collaborative transactions between two firms will lower the alliance costs and
raise the values involved.
The discussion indicates the path dependent nature of choosing a governance structure. There are
no hard and fast rules as to how the key constructs of the integrated perspective could be operationalized.
A lot depends on the nature of the firms and joint ventures under investigation.
Lecture 1: Introduction
A Strategic Alliance is a cooperative agreement in which two or more separate organizations team up
in order to share reciprocal inputs while maintaining their own corporate identities.
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