LECTURE 1 - Introduction
Lecture Notes
Benefits & Challenges (R&D alliance)
- Complementary resources
- Sharing the risks & costs
- Exploration (IU) / Exploitation (suppliers/customers)
- Legitimacy of innovation
- Technological uncertainty & complexity
- Valuable resources have to be shared + Knowledge Leakage
- Coordination complexity
- Unexpected problems: pressures, conflicts
TCE (opportunism/bounded rationality) - internalize or contract depends on the transaction costs (ideal: minimization of
costs)| it neglects the value creation and focus more on the minimization of costs on the transactions // assumption that all
firms can produce the same goods/ services equally well
- Hierarchies (high opportunism & transaction costs)
- Markets (low transaction costs)
RBV - access to partners complementary (value creating) resources & capabilities | doesn’t take opportunism into account
Article 1: Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317.
Definition: Strategic alliances are voluntary arrangements between firms involving exchange, sharing, or co-development of
products, technologies, or services, occurring as a result of a wide range of motives and goals, taking a variety of forms, and
occur across vertical and horizontal boundaries. From a strategic standpoint, some of the key facets of firm behavior can be
understood by looking at:
• the sequence of events in alliances, i.e., the decision to enter an alliance, the partner choice, the structure choice, and the
dynamic evolution of the alliance.
• A second important issue for alliances is their performance consequence, both in terms of the performance of the
relationship and the performance of firms entering alliances.
- at intermediate levels of industry concentration, firms experience high levels of competitive uncertainty, and are likely to
mitigate this competitive interdependence by entering into frequent joint ventures. Moreover, strategic actions of firms are
the outcome of a match between a firm’s existing competence and the availability of new opportunities. (This means that
firms must assess their current capabilities and resources, and then decide if they have the capacity to take advantage of new
opportunities.)
- The social context in which firms are embedded includes a wide array of elements classified as structural, cognitive,
institutional, and cultural. In this paper, the social structure will be highlighted, i.e. the significance of social networks in
which economic actors may be placed. In building an open-systems perspective it is suggested that a social network of
relationships emphasizes the amount of economic action undertaken by firms.
- Underlying firm-embeddedness, i.e., being in a social relationship, is the quest to reduce uncertainty. There are four broad
foci of prior research, i.e., inequality, embedding, contagion, and contingency.
• inequality suggests how network connections can explain differences in available resources, (It looks at the unequal
distribution of power and influence within a given social context, which affects access to certain resources or opportunities.)
• embedding describes the institutions and identities resulting from networks, and how they enable difficult transactions.
• Contagion shows how networks can promote behavioral conformity by serving as conduits for technological and social
information about organizational activities,
• contingency approaches suggest how social networks can moderate key organizational processes.
- There are two broad analytical approaches for examining the influence of social networks:
• the differential informational advantages bestowed (προσφέρθηκε) by social networks.→ relates to direct, cohesive ties.
• The second highlights control benefits actors can generate by being advantageously positioned within a social network.→
relating to ties beyond the immediate ties of firms, emphasizing the informational value of the structural position these
,partners occupy in the network. (Third view: control benefits actors can receive by being the third party, situated between the
first and second party).
- The benefits of social capital, i.e. an important basis for a competitive advantage, accrue to firms from the access to
information it provides and the potential for control benefits. The information can be powerful, providing firms with new
productive opportunities to utilize the financial and human capital endowed in the firm, and enables a firm to form a new
alliance through three distinct means: access, timing, and referrals.
• Access refers to information about current or potential partners as to their capabilities and trustworthiness,
• Timing entails having information benefits about potential partners at the right time.
• Referrals can be particularly important in alliance formation, as a firm’s existing partners may refer other firms to it for
alliances, or to enter three-way partnerships. There are five key issues in studying strategic alliances, which is exacerbated
through the introduction of a social network perspective:
• The formation of alliances: there are three motivations for starting an alliance, i.e. minimizing costs, enhanced market
power, and a quest for organizational knowledge. Moreover, an expansion into the future is an interesting option for firms. It
is thought that firms ally with those with whom they share the greatest (strategic/resource) interdependence. On the
contrary, moral hazards, uncertainty, free-riding, and other opportunistic possibilities should be considered before forming an
alliance. A social orientation is taken up to reduce uncertainty about potential partners. The social embeddedness (the extent
to which a firm is connected to other firms) of firms can act as both restricting and enabling for an alliance that it wants to
enter. The more centrally situated firms were more likely to enter into new alliances, and with greater frequency.
• Governance structure of alliances: the nationalities of partners, their motives and goals, and the formal contractual
structure make up the governance structure of an alliance. There is considerable variation in the formal structure of alliances
themselves, e.g., joint ventures, and alliances. The distinguishment lies in the hierarchical elements embodied in alliance
structures. Hierarchical controls are an effective response to contracting hazard and behavioral uncertainty as these are
anticipated beforehand. The greater the appropriation concerns, the more hierarchical alliance structures are likely to be.
Social embeddedness leads to trust, promoted through two means: referral, and enforceable trust. When there is trust,
appropriation concerns are likely to be mitigated.
• Dynamic evolution of alliances and networks: each partner’s comprehension of an alliance’s payoffs is crucial for
understanding the incentives to cooperate and for realizing the possible ways each can influence the outcomes. Moreover, a
relative scope captures the initial conditions likely to influence the competitive and cooperative dynamics, a measure used to
establish testable propositions that suggest the opportunity of each firm outside the alliance affecting behavior within the
alliance. The evolution of alliances can be explained from the dyadic level of exchange. Moreover, exogenous factors as the
nature of competition and critical industry events play in the role of an alliance’s evolution.
• Performance of alliances: flexibility in alliance management, building trust with partners, regular information exchange with
partners, constructive management of conflict, etc. are important aspects for a successful alliance. Understanding an
alliance’s performance is limited by two factors, i.e., terminations fail to distinguish between natural and untimely deaths and
measuring performance itself. The extent of social embeddedness is likely to influence an alliance’s performance through
trust, greater information flows, greater confidence, etc.
• Alliances and performance consequences for firms: the survival of firms is considered a proxy for performance, with
survival dependent on vertical suppliers and key institutions in the environment. Closer vertical ties are characterized by
richer information exchange and longterm commitments, leading to greater cooperation and higher levels of asset specific
performance benefits. In conclusion, 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. By channeling
information, social networks enable firms to discover new alliance opportunities and can influence how often, and with
whom, those firms enter into alliances.
Article 2: Tsang, E. (2000). Transaction cost and resource-based explanations of joint ventures: A
comparison and synthesis. Organization Studies, 21(1), 215-242.
,- The TC view has a key feature of the allocation of resources through authority relations rather than price mechanism,
whereas in the RB theory, it conceptualizes the firm as a collection of resources, e.g., physical, human, and organisational
resources, each of which is a bundle of potential productive services.
- Two key behavioural assumptions of TC theory are opportunism and bounded rationality. The former is self-interest, while
the latter implies is intendedly rational, but with its limits. In the RB view, bounded rationality also plays a part, albeit
different. In the TC theory, all complex contracts are unavoidably incomplete because of bounded rationality, whereas in the
RB theory, organizational responses are based on the organizational embedded routines.
- Joint ventures can be classified as equity and non-equity JVs. In the former case, each partner expects a proportional share
of dividend as compensation. In the latter, it refers to a wide array of contractual agreements. The focus here is on equity JVs.
Under the TC logic, hybrid forms, i.e., those with stronger incentives and adaptive capabilities, are chosen when asset
specificity of the transaction concerned is of an intermediate degree. A JV addresses high uncertainty by providing a superior
alignment of incentives through the mutual dedication of resources and sharing the residual value of the venture.
Inefficiencies in the market for intermediate inputs, e.g., raw materials, knowledge, etc. are reasons for JVs to arise.
Safeguarding against the risk of a partner’s opportunistic behavior must exist.
- Under the RB logic, there are several reasons why firms would form joint ventures:
• Exploitation of resources: rent-seeking, i.e., through Ricardian rents, makes it possible to
generate higher profits from scarce resources thanks to superior productive services.
• Development of resources: acquiring those needed, disposing those unfitting for the firm’s
competence.
→ Through synthesizing the TC and RB rationales, a more comprehensive perspective is achieved.
LECTURE 2 Corporation types & Partner types
Lecture Notes: It is important to make a distinction between different types of alliances (different types of partners)
A→B =
Vertical collaboration
C→E,F =
Some partner types are better for exploration and some others better
for exploitation
Competitors sometimes cooperate with each other in order to have a
radical innovation and exploration.
Assumption: alliances within own industry (Cross-Industry)
However, firms increasingly ‘cross the industry line’ (e.g. Gassmann et
al., 2010).
, → Example: Partnerships between carmakers and technology companies to accelerate development of AV(EV). Team
Upshift, Ford-Google Joint Venture (2021) seeks to develop an end-to-end AV model by combining Ford self-driving cars with
Google self driving software.
Question in the class: How did they manage to become alliances and at the same time compete with each other?
Portfolio: set of alliances of the (focal) firm in a given moment of time
→ Shift in the focus/level of analysis in alliance research: from
individual alliances toward alliance portfolios
→ In practice, firms maintain multiple alliances with different partners
simultaneously
→ Portfolios have aggregate properties (different alliances can have
joint effects)
→ Such “portfolio effect” is essential to explaining implications of
alliances for innovation performance
Firms do not have only one alliance. Firms build their alliance portfolio with plenty of alliances.
It could concern me if my supplier cooperates with my supplier because there is a possibility of spill knowledge
Alliance portfolio partner diversity (APD): Number of partner types with whom the firm has alliances (e.g. clients & suppliers,
competitors, universities and research organizations).
Absorptive capacity, alliance experience
Why do we need a certain amount of diversity?
Ecosystem: “group of interacting firms that depend on each other's
activities”.
› Increasingly important way of organizing economic and
interorganizational activities.
› Increasing attention in the literature, various streams (business,
platforms, innovation ecosystems)
› “Collaborative arrangements through which firms combine their
individual offerings into a coherent, customer-facing solution”
(Adner, 2006, p. 98) [Section based on Jacobides et al. (2018), p.
2256-2257]
Emphasis in the innovation ecosystems stream:
› How interdependent players interact to generate and commercialize an innovation that satisfies end customer’s needs.
› Connections between ▪ core product (service) ▪ its components ▪ its complements (i.e. complementary products/services)
› Such connections jointly create customer value
› Coordination failure within the ecosystem leads to innovation failure
→ Portfolio & Ecosystem are different phenomena
