Learning how to form an alliance for better performance.

Albert JolinkErasmus University Rotterdam

What’s so good about collaboration anyway?

Outline

•Section 1: The resource-based view of the firm and dynamic capabilities

•Section2: Dynamic capabilities and alliances

•Section 3: Alliance management capabilities and micro firms

Section 1

THE RESOURCE-BASED VIEW OF THE FIRM AND DYNAMIC CAPABILITIES

The Resource-based View of the Firm

Resource-based View• Firm as a bundle of

resources and capabilities.

• Distinct resources and capabilities underpin competitive advantage.

• Specific combination and coordination of resources critical.

• Strategy based on skilled diagnosis and creative solutions.

Market-based View• Firm as a unit in a

market.• Distinct position in

market underpins competitive advantage.

• Detailed knowledge of market and competitive conditions critical.

• Strategy based competitive analysis and appropriate value creation.

The Language of Resources and Capabilities

• Resources: inputs into a firm’s operations so as to produce goods and services.

• Capabilities: The ability to perform a task or activity that involves complex patterns of coordination and cooperation.

• Rents: a surplus of revenue over cost.• Strategic assets / Core competencies: resources and capabilities that can earn rents.

Core Competence

Core Competences

Collective knowledge of

how to coordinate skills

and technologiesPrahalad & Hamel

(1990)

Capabilities

Business processes

connected to customer needs

Stalk, Evans & Shulman (1992)

Strategic Assets

Capacity to deploy

resources to effect a desired

end

Amit & Shoemaker (1993)

= =

The underlying capability that is the distinguishing characteristic of the organization

Prahalad and Hamel (1990): core competencies• Management’s ability to consolidate technology and production skills into competencies so the business can adapt quickly to changing opportunities/circumstances.

• Core competencies = collective learning of the organisation about prod/tech/markets.e.g. Sony’s miniaturisation skills.

• Competencies have to be built over a long period. • They are difficult to identify precisely and hard to imitate.

• Many firms fail to identify their own core competencies and so fail to nurture them properly or exploit them fully

Chandler (1990): initial risky investments

• Chandler (1990): successful giants such as IBM and Bayer derive from the initial heavy and risky investments in building organisational knowledge and capabilities which allowed them to exploit the opportunities available to exploit scale and scope economies.

Stalk, Evans, and Shulman (1992): capabilities

• Competitive advantage is based on the ability to respond to evolving opportunities which depends on business processes or capabilities. Business success involves choosing the right capabilities to build, managing them carefully, and exploiting them fully. e.g. Honda, Canon.

Collis and Montgomery (1995): competing on resources

• Competitive advantage derives ultimately from the ownership of a valuable resource.

• Superior performance derives from developing a ‘competitively distinct’ set of resources and deploying them in a well conceived strategy.

• Resources can be physical, intangible, or organisational capabilities.

Identifying Intangibles• Intellectual property rights of patents, trademarks, copyright and registered designs

• Trade secrets• Contracts and licenses• Databases• Information in the public domain• Personal and organizational networks• The know-how of employees, advisers, suppliers and distributors

• The reputation of products and of the company• The culture of the organization

The Value of a Core Competence

Strategic Industry Factors and Core Competences

Matching Resources and Markets

Resources and Capabilities

The capabilities approach

• Question: What could give a particular firm a sustainable edge over its rivals?

• A series of influential articles in the HBR during the 90’s suggested a new approach (although it turned out its origins were much earlier)

Critiques to the resource-based perspective

Excessive focus on the exploitation of existing resources, rather than continuous development of new ones to address changing markets: ‘It is evident that the resource-based perspective focuses on strategies for exploiting existing firm-specific assets’

How to address high-velocity markets, just leveraging existing resources?

High velocity markets

•Rapid and unpredictable change in the industry

•Hypercompetition•Growing complexity•Sudden and dramatic change in markets

High velocity markets

Winners in the global marketplace have been firms that can demonstrate timely responsiveness and rapid and flexible product innovation, coupled with the management capability of effectively coordinate and redeploy internal and external competencies.

Not surprisingly, scholars have remarked that companies can accumulate even a large stock of resources and still not have many useful capabilities.

High velocity markets and dynamic capabilitiesIn high velocity markets it is necessary to introduce the concept of ‘dynamic capabilities’, emphasizing two key aspects which were not the main focus of attention in previous strategy perspectives. The term dynamic refers to the higher ordered resource. The term capabilities emphasises the key role of strategic management in appropriately adapting, integrating, and re-configuring internal and external organizational skills, resources, and functional competences toward changing environment.

Dynamic Capabilities Perspective• Firms compete on the basis of product design, product quality, process efficiency, and other attributes. However, in a Schumpeterian world (entrepreneurship=creative destruction), firms are constantly attempting to improve their competencies or to imitate the competence of their most qualified competitors. Rivalry to develop new competences or to improve existing ones is critical in a Schumpeterian world.

• The dynamic capabilities approach places emphasis on the firm’s internal processes, assets and market positions, the path along which it has travelled, and the paths that lie ahead.

Dynamic Capabilities/Some definitions

• Dynamic capabilities are the antecedent organizational and strategic routines by which managers alter their resource base–acquire and shed resources, integrate them together, and recombine them–to generate new value-creating strategies. As such, they are the drivers behind the creation, evolution, and recombination of other resources into new sources of competitive advantage’

• (Eisenhardt and Martin, 2000)

Dynamic Capabilities/Some definitions• “A dynamic capability is a learned pattern of collective activity through which the organization systematically generates and modifies its operational routines in pursuit of improved effectiveness”

• (Zollo and Winter, 2002).

Dynamic Capabilities/Some definitions• We define dynamic capabilities as the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments’. They reflect an organization’s ability to achieve new forms of competitive advantage

• • (Teece, Pisano and Shuen, 1997)

Dynamic Capabilities• The dynamic capabilities perspective sees strategic initiatives as resulting from the multi-layered recombination of firm-specific resources and competences.

• Such recombination could be either intentional or unintentional; can occur either at the environmental level or within the organization; can be the result of managerial choice or of blind external forces.

Dynamic capabilities and strategic evolution processes

• According to this perspective, strategic evolution processes are described as resulting from a continuous recombination of routines and resources, based on a limited repertoire of clearly traceable recursive recombination patterns.

• This relative stable set of routines and resources which are recombined through time can be defined as core micro-strategies.

Section 2

Dynamic capabilities and alliances

Early alliance literature:

Focus on inter-firm attributes to explain performance, such as trust, complementary resources, knowledge sharing. (Reviews: Jolink & Niesten, 2012; Christoffersen, 2012)

Recent alliance literature:

Focus on alliance experience and alliance management capabilities to explain performance. (Anand & Khanna, 2000; Kale & Singh, 2007; Heimeriks et al., 2010; Schreiner et al., 2009)

Alliances failure rates:

between 30 – 70%

Alliance Literature

Ability of firms to capture and share knowledge of alliances and alliance management, and to apply this knowledge in ongoing and future alliances. (e.g. Kale & Singh 2007)

Proxies are used to measure AMC: - Alliance structures (alliance department, alliance manager) - Alliance processes (alliance training) - Alliance tools (alliance guidelines, templates, database)

Alliance Management Capability (AMC)

- Empirical research focuses on measuring AMC with proxies. Articles are mainly quantitative studies that explain the variation in alliance performance by counting alliance structures, processes, and tools. (e.g. Heimeriks 2010).

- Explanations in qualitative and conceptual articles focus instead on:

AMC alliance attributes alliance performance

A Literature review on AMC

1. Classification of different types of AMC and proxies

2. Impact of types of AMC on alliance attributes

3. Impact of alliance attributes on performance

Structure and main argument of literature review

General AMC Partner-specific AMC

Inside the Firm

1. - Structure: Alliance department, vice-president of alliances, alliance manager.- Process: Alliance training, alliance evaluation, (in)formal knowledge sharing among managers. - Tool: Worksheets, guidelines, templates for alliance contracts or partner selection.

2. - Structure: Alliance department, alliance manager, alliance team.- Process: Forums and networks of alliance managers, brainstorming sessions.- Tool: Logbooks, database with information on alliance partner, intranet.

Inside the Alliance

3. - Structures: Alliance manager in JV, external alliance specialist.- Process: External alliance training.- Tool: Alliance guidelines and shared intranet.

4. - Structure: Inter-firm task force, joint alliance team.- Process: Joint alliance evaluation, inter-firm routines for partner-specific knowledge sharing.- Tool: Communications matrix and shared intranet.

Classification of different types of AMC and proxies

Firms with alliance structures, alliance processes and alliance tools have a larger alliance performance.

Alliance performance is measured by: -short-term financial gains (e.g. abnormal stock market returns after alliance announcement) -managerial assessments -patents or new product development(e.g. Anand & Khanna 2000; Schreiner et al. 2009)

Some findings

- Dynamic capabilities perspective - Resource-advantage theory- Resource-based view- Organizational learning theory - Evolutionary economics

Large amount of studies refer to AMC as a dynamic capability or as a higher-order resource that must have an influence on lower-order resources before performance is affected. (e.g. Rocha-Goncalves & Conceição Gonçalves, 2008).

Theoretical perspectives of articles

- General AMC inside the firm: Firms have a superior ability to communicate and design alliance contracts.

- Partner-specific AMC inside the firm: Firms with greater knowledge of alliance partners.

Impact of AMC on alliance attributes I

- General AMC inside the alliance: Alliance partners with inter-firm alliance structures, processes and tools (e.g. joint teams, inter-firm task force, alliance specialist in JV).

- Partner-specific AMC inside the alliance: Alliance partners integrate partner-specific knowledge in alliance structures, processes and tools.

Impact of AMC on alliance attributes II

- Regular sharing of information and knowledge eases clashes in corporate culture, allows partners to safeguard interests.

- Information sharing lowers costs and increases efficiency of alliances, whereas knowledge sharing improves innovative output.

Impact of alliance attributes on performance

- Partners with a shared understanding, shared business vision, shared values identify with partners and are more committed to the alliance.

- Variations or shifts in strategic directions of alliance partners, away from collective goal, have a negative impact on alliance success.

Impact of alliance attributes on performance

- It structures existing research practices by offering a classification of AMC.

- In line with DC perspective, it unveils an explanatory mechanism of the impact of AMC on performance, by stressing intermediate impact of AMC on attributes of alliance relation.

Contributions of the review

Section 3

Alliance management capabilities and micro firms

Research questions

• Do micro firms employ alliance management capabilities in the different phases of the alliance life cycle?

• Do the alliance management capabilities of micro firms influence alliance performance?

• How do the alliance management capabilities of micro firms differ from those of larger firms?

Alliance management capabilities

Intra-firm antecedents of alliance success:

Alliance Management Capability: Ability of firms to capture and share knowledge of alliances and alliance management, and to apply this knowledge in ongoing and future alliances. (Kale et al., 2002; Heimeriks & Duysters, 2007; Niesten & Jolink, 2012).

Alliance Experience: Number of alliances that a firm has entered into in the past. (Anand & Khanna, 2000; Hoang & Rothaermel 2005; Sampson, 2005).

Proxies for AMC

• Structures: Corporate alliance office; vice-president of alliances; alliance department; alliance manager; external alliance specialists: consultants, lawyers, mediators & financial experts.

• Processes: Debriefing & rotation of alliance managers; forums and networks for (in)formal knowledge exchange; partner selection program; internal & external alliance training; individual & cross- alliance evaluations.

• Tools: Alliance guidelines & manuals; alliance contract templates; database with information on alliances; contact list; intranet.

Contribution to the literature (1)

AMC of Micro Firms

•Large firm bias of recent literature on AMC : 500 largest companies of the world; firms with annual sales exceeding $500 million; firms with more than 1000 employees (Draulans et al., 2003; Kale et al., 2001, 2002; Heimeriks et al., 2007, 2009).

•A better understanding of the alliance structures, processes and tools of micro firms that influence alliance performance enhance the value generated by these firms.

Contribution to the literature (2)

Alliance Life Cycle

Figure 1. Drivers of Alliance Success in Alliance Life Cycle (Kale and Singh, 2009: 48)

Improved Alliance Performance

Alliance Formation & Partner Selection

Alliance Formation & Partner Selection

Alliance Governance &

Design

Alliance Governance &

Design

Post-Formation Alliance

Management

Post-Formation Alliance

Management

- Partner Complementarity- Partner Compatibility- Partner Commitment

- Equity Sharing - Contractual Provision- Relational Governance

- Aligning Activities- Development of Trust- Conflict Resolution

Alliance Outcome

Phase of Alliance Life

Cycle

Key Drivers of Alliance

Success

Contribution to the literature (2)

AMC in Alliance Life Cycle

Alliance Formation & Partner SelectionAlliance Formation & Partner Selection

Alliance Governance &

Design

Alliance Governance &

Design

Post-Formation Alliance

Management

Post-Formation Alliance

Management

- Use of external specialists, e.g. alliance search bureaus- Partner selection program- Alliance training- Alliance database- Intranet- Alliance evaluation

- Use of external specialists, e.g. lawyers, accountants.- Contract templates- Alliance guidelines- Alliance training- Alliance database- Intranet- Alliance evaluation

- Involvement of external specialists, e.g. management consultants.- Trust building worksheet- Alliance contact list- Alliance training- Alliance evaluation

Kale & Singh, 2009; Kale et al., 2002; Sluyts et al., 2010; Mascarenhas & Koza, 2008; Heimeriks, 2010

Survey

•A questionnaire was sent to firms that participated in an innovation competition of a large multinational consultancy firm in 2011.

•The firms introduced an innovative product or service into the Dutch market in the 3 years preceding the competition.

•Response: 99 firms: 45 micro firms (≤ 5 employees) and 54 larger firms.

Survey

Independent variables:•Alliance Structures / External Experts: Consultant, lawyer, mediator, financial expert, alliance expert.•Alliance Processes & Tools: Partner selection program, external alliance training, alliance evaluation, intranet, alliance manuals, contract templates, alliance database. •Alliance Life Cycle: Alliance formation & partner selection phase; alliance governance & design phase; post-formation alliance management phase.•Drivers of alliance success in three alliance phases

Survey

Dependent variable:Alliance Performance: -Extent to which the alliance is satisfactory;-Extent to which the alliance helps the firm achieve its objectives; -Extent to which the competitive position of the firm improves as a result of the alliance.

Control variables: Alliance experience; Firm size; Size of alliance partner

Results – AMC of Micro Firms

• Micro firms use more external experts than alliance processes or tools. They use lawyers most often, followed by consultants and financial experts, especially in phase 2.

• Phase 1 & 2: alliance contract templates; phase 1: partner selection program; phase 2: alliance manuals; phase 1, 2 & 3: alliance evaluation

Results – Impact on Alliance Performance

Results – Impact on Alliance Performance

Results – Comparing Micro & Larger Firms

• Larger firms do not use different, but significantly more alliance processes and tools (per firm), especially in phase 1 & 2, and especially partner selection programs and alliance evaluation.

• Larger firms use significantly more AMC for relational governance than micro firms do.

Conclusions

• Micro firms employ AMC. Their use of AMC varies along the phases of the alliance life cycle.

• Alliance processes and tools of micro firms have a positive impact on performance (especially in phase 1 & 3). External experts have a negative impact on performance.

• Drivers: Micro firms that enter into alliances to access new markets, and use alliance processes and tools for contractual provision have a larger alliance performance.

• Larger firms use more external experts, alliance processes & tools.

Discussion / Future research

Why do micro firms use so many external experts? Why do larger firms employ more AMC?- Micro firms have a structural lack of resources (Das & He, 2006).

Why do external experts have a negative impact on performance?- Relatively high costs of external experts (Heimeriks et al., 2009).- Know-how of external expert is standardized too much for micro firms with specific product and local market (Poutziouris, 2003; Storey, 1982).

“What’s so good about collaboration anyway?

Learning how to form an alliance for better

performance.”

Albert JolinkErasmus Universiteit Rotterdam