A perfect match : an empirical investigation into partner selection as an alliance capability

Research output: ThesisPhd Thesis 1 (Research TU/e / Graduation TU/e)

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Abstract

Strategic alliances have become a cornerstone of business development. Not only the number of alliances but also the percentage of revenues coming from alliances has increased. Individual companies form alliances to enter new markets, to gain knowledge, or to share risk and resources to bring value to their consumers. So alliances are more and more integrated into company strategy. In this study, alliances are defined as voluntary, evolving, open-ended, and flexible organizational forms between two or more organizations. These organizations realize individual and joint objectives relating to the products, services, and technologies being exchanged while retaining their own identity. Despite the growing popularity of alliances, companies seem to encounter several problems in initiating and managing alliances. The average success rate of alliance portfolios is only 53%, so it is still a key managerial challenge for firms to understand how to transform collaborative agreements into productive and effective relationships. The need to partner is urgent but the risk that the collaboration will fail appears to be high. Improving one’s alliance capabilities, may show the way to enhance one’s alliance performance. Companies that invest more in alliance capabilities perform better than those that do not. No wonder, the use of alliance mechanisms has increased from 16 tools on average in 2009 towards 28 in 2011. However, the question is why alliance success rates do not increase, when so many firms use so many mechanisms. To find cues for improvement, it is increasingly important for firms to understand which structural factors are critical. Alliance capability is most likely one of these factors. The question how to develop and apply successful individual alliance capabilities is appealing and fascinating to both academics and practitioners. Whereas former studies tended to focus on alliance capabilities in general, this study tries to pinpoint one specific mechanism, namely partner selection. Numerous studies have identified the correct choice of partner as a precondition for alliance success. The right partner can give important competitive advantages, whereas the wrong partner will lead to failures from the beginning of the alliance. In alliance capability research a comprehensive understanding of how to manage a partner selection process successfully is still lacking. Some studies focus on opportunism and contractual governance, others focus on soft criteria like trust and commitment, but none allows for further insight on how to develop and manage a partner selection process successfully. This doctoral dissertation therefore examines the following central research objective: To explore empirically the process by which firms select alliance partners, particularly investigating which steps, criteria, and legal involvements relate to the success of alliances To be able to attain the central research objective, the following three research questions have been analyzed. Which partner-selection steps are important for the success of an alliance? Which partner-selection criteria are important for the success of an alliance? Which legal aspects play a role and when do they need to be addressed in the partner selection process? This dissertation builds upon the notions of organization management literature developed towards the alliance capability view, relying on the resource-based-view-of-the-firm theory and the transaction cost theory. Alliancing is traditionally seen as a method to gain access to certain resources with the lowest costs and risks in order to be competitive. Scholars focused on factors influencing alliance performance in individual alliances. Studies building on these traditional theories center around factors related to competitive issues between the partners. Alliance literature focused on inter-firm antecedents of alliance performance. In this literature, partner fit, trust and commitment between companies have been identified as important factors in alliance success Over time, research emphasis of scholars has shifted away from the relationship between individual companies towards the alliance capabilities of companies involved in an alliance. This alliance capability view has had several important implications for research on alliances as it explores the role of internal organizational attributes such as structure, managerial processes, and routines to explain differences in alliance performance. Not the relationship is studied, but the ability of the individual partners to manage the relationship. Firms with a high level of alliance capability have institutionalised alliance mechanisms that guide and support alliance management in the formation, operation and evaluation of its alliances. Research shows that firms that have developed high levels of alliance capability outperform firms with low levels of alliance capability. This study intends to explore empirically the partner selection process. We follow the general contentions as mentioned above but argue that alliance managers should encounter a comprehensive partner selection process, dealing not only with the strongest criteria and the best cost/benefit relationship but also applying specific steps, criteria and tools integrally so that the best match of partners will be found for a specific situation and goal the alliance would like to attain. The current literature comprises a variety but limited number of interpretations of the partner selection process, providing a significant challenge for both scholars and practitioners to understand and develop this individual alliance capability. Chapter 2 presents the theoretical framework for this thesis, describing the importance of the partner-selection process when building alliance capability. Previous literature shows a shift toward the investigation of partners’ fit and alliance capabilities and their effect on alliance performance. Researchers have mainly focused on typical fit criteria such as cultural and strategic fit rather than the specific steps, criteria and tools of the partner-selection process itself. Partner selection is being viewed as an integral long-term alliance capability. This integral perspective and the focus on partner selection as a specific alliance mechanism bridges important theoretical and empirical gaps in the literature. To explore such an integral partner selection process, empirical data is needed. The following chapters will present empirical research on the use of a partner selection process and its influence on alliance performance. The insights from the literature reviews provide a theoretical basis for the empirical studies in this dissertation. The empirical studies in Chapter 4,5 and 6 extend our empirical understanding of how the partner selection process is used by alliance managers. By adopting an alliance capability view, this study makes a fundamental contribution as it finds evidence for the fact that improvements in the characterization of individual mechanisms such as the partner-selection process will enhance alliance performance. We find that the alliance capability view is an important emerging research theme, and it has been our aim to contribute to the development of this discipline. In line with previous researchers, we found that a partner selection process is one of the most important alliance capabilities for alliance success. There is little theory specifically about the partner selection process to build on, so this study is one of the first attempts for theorizing about how firms can develop alliance capability by designing a partner selection process that effectively supports alliance performance. As such, this dissertation extends and builds (new) theory in the field of alliance capability, and the partner selection process in particular, which lead to main findings and implications that are of general scientific value for scholars and provide valuable insights for alliance managers. The empirical study in Chapter 4 investigates which partner-selection steps are important for the success of an alliance. Eempirical methods to measure the steps of a partner selection process and assess their relationship to alliance performance tend to be frail. Therefore, we researched the relationships and effects of different steps and groups of steps on alliance performance. The main findings of our empirical analysis indicate that by having a partner-selection team, negotiating the alliance with prospective partner, and by screening shortlisted partners against partnering criteria during the partner selection process, alliance performance tends to raise. Further, we found that while some steps will raise alliance performance individually, other steps only raise performance in combination with other steps. Specifically, we found that successful firms make more use of a structured approach focusing on steps related to listing and screening in the partner selection process. It ensures that all relevant aspects of a partner are considered before the alliance starts without focusing only on internal aspects. The results also point to a remarkable insight on the issue of the early stage of the partner-selection process versus the later stage. Although the individual steps that differ between successful and unsuccessful firms are not limited to the early or late stage, the factor analysis showed that by focusing on listing and screening in the early stage of the partner selection process, alliances may be more successful. Overall, the main contribution of Chapter 4 is to build new theory. In this respect, Chapter 4 contributes to the literature by combining the literature on alliance capability in general and the partner selection process specifically, founding conditions and practice-based research. The empirical study in Chapter 5 analyzes previous research and debates only emphasizing the role of formal and informal governance mechanisms in the formation phase of alliances. Chapter 5 investigates how formal and informal mechanisms can be applied within the pre-formation phase of alliances during the partner selection process. We find that control is a key source of confidence in partner cooperation. Our findings indicate that alliance managers tend to be more confident about partner cooperation when they feel they have an adequate level of control over their partners. By including formal governance mechanisms as selection criteria within the partner selection process, control is started and can be seen as a regulatory and relational risk avoiding process by which the partner’s pursuit of mutually compatible interests is made more predictable, enhancing alliance performance. We find that in the partner selection phase formal selection criteria are more effective than informal ones. Most prior studies about alliance management focusing on the post-formation phase of alliances link the success of an alliance with soft and informal factors like trust but according to our study, this is less relevant within the pre –formation phase during the partner selection process. This finding could be explained that building trust requires time to develop and therefore informal governance mechanisms are more effective for alliances that are past the pre-formation phase. Another explanation could be that in the pre-formation phase formal sense making is needed. Alliance partners cooperating are often confronted with ‘problems of understanding’ during the partner selection process. Such problems arise from differences between partners in terms of culture, experience, structure and industry, and from the uncertainty and ambiguity that partners experience in the pre-formation phase. The use of formal selection criteria is a way to make sense of partners and the contexts in which these are embedded so as to diminish problems of understanding. As the alliance progresses to the post-formation phase, informal governance mechanisms may become more important. This finding supports theoretical notions that optimal governance evolves across time and through partner interactions. Overall, the main contribution of Chapter 5 is to build new theory. In this respect, Chapter 5 contributes to the literature by combining the literature on formal and informal governance mechanisms , founding conditions and practice-based research. Chapter 6 studies which legal aspects play a role and when they need to be addressed in the partner selection process. Our quantitative and qualitative analysis suggests that alliances are more likely to increase alliance success when the partners pay particular attention to aspects with legal dimension within their partner selection process. Our key argument is that, as inter partner conflicts are the main reasons for alliance failure, by taking a legal perspective and providing adequate governance structure as instruments early on during the partner selection process, may diminish those conflicts and increase alliance success. Our findings also suggest that the use of negotiation and standard governance is highly effective in helping firms to increase their alliance success. Lawyers are often regarded as a necessary evil and unhelpful in ensuring a successful start of this collaboration process. Interesting because the main finding of our empirical examination indicate that lawyers should be involved at an early stage during negotiation processes between the partners. Lawyers may fulfill a variety of roles in the design of legal arrangements and their negotiation and interpretation. Partner confidence and trust will evolve and opportunism will be prevented. Further, we found that standardised processes for negotiation, governance and joint business planning may enhance alliance success because they facilitate interaction with partners and compare each other’s procedures, structure and culture. The chance of conflict may increase when there are fundamental differences. Addressing and facilitating the issues that lead to conflicts may support alliance success. The integration of legal issues in the partner selection process has received scant attention in the literature and empirical studies. Based on qualitative research, we developed a legal framework that increases alliance success. For each of the stages of relationship development in a structured partner-selection process, we listed important legal factors. The framework has a pre-contractual and a contractual phase. The pre-contractual phase is crucial because it influences the content and relation of the contractual phase. Although lawyers may facilitate these pre-contractual aspects, the real legal involvement starts afterwards in the contractual phases including negotiating and finalizing a contract. However, while researchers have paid much attention to the antecedents and outcomes of the governance of alliances, the role of legal aspects has largely been ignored. We expected to see an understanding of the need for a legal perspective at the first stage of alliance formation, not just when conflicts appeared. Our study contributes to an integrative perspective on alliance governance by examining the connection between legal involvement and the use of a structured partner-selection process. Finally, Chapter 7 summarizes the main findings and (practical) implications of the studies described in previous chapters of this dissertation. Subsequently, a general conclusion regarding the central research objective and related questions is given. In this respect, by drawing on literature reviews and empirical studies, this chapter describes all aspects of a partner selection as an alliance capability effecting alliance success. As such, this description integrates the previous chapters, and serves to attain the central research objective in this dissertation. Finally, this chapter describes the main limitations of this dissertation and makes suggestions for future research.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Industrial Engineering and Innovation Sciences
Supervisors/Advisors
  • Duijsters, Geert, Promotor
  • de Man, Ard-Pieter, Promotor
  • Keizer, Jimme A., Copromotor
Award date13 May 2013
Place of PublicationEindhoven
Publisher
Print ISBNs978-90-386-3362-6
DOIs
Publication statusPublished - 2013

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