Article Summaries - Cooperating for Innovation
Exam material
Lecture 1 – Introduction. Cooperating for Innovation: Core concepts & themes.
Feedback Fruits W1
1. Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317.
"Research has provided equal amount of evidence about alliance performance compared to other
issues such as alliance governance choice or alliance formation". (FALSE)
Reasoning: Gulati (1998) emphasises how research regarding alliances has mainly focused on alliance
formation and governance rather than their performance. Although prior literature focused on alliances
and their governance structure, they neglected evidence on whether alliances enhanced firm
performance.
ABSTRACT: This paper introduces a social network perspective to the study of strategic alliances. It
extends prior research, which has primarily considered alliances as dyadic exchanges and paid less
attention to the fact that key precursors, processes, and outcomes associated with alliances can be
defined and shaped in important ways by the social networks within which most firms are embedded. It
identifies five key issues for the study of alliances: (I) the formation of alliances (2) the choice of
governance structure, (3) the dynamic evolution of alliances, (4) 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.
Introduction
Strategic alliances: dyadic level - network perspective
Strategic alliances as voluntary arrangements between firms involving exchange, sharing, or
codevelopment of products, technologies, or services.
Introducing networks: innate propensities or inducements that lead firms into alliances and also the
opportunities and constraints that can influence their behavior.
Firm's social connections guide its interest in new alliances, and provide it with opportunities to realize
that interest.
Rather, I observed that many new opportunities for alliances were presented to firms through their
existing sets of alliance partners. Firms embedded in networks influence the frequency of alliances, types
of contracts, and alliances developed and evolved over time.
,Prior research
Role of external environment: the lower the competition, the more likely that a firm will be exposed to
'small numbers bargaining' and other forms of opportunistic behavior.
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.
Need to focus not only on competences but on conditions.
Prior research does not take into account the actions of other firms or the relationships; it ignores the
interactive elements of the markets.
Outcomes from dyadic exchanges defined and shaped by social networks (structure of ties, patterns) =
shape flow of information.
Social Structure and the embeddedness of firm behavior
Open systems perspective - social network of external contacts - nods of social relationships.
Network perspective - embeddedness, social context : information to reduce uncertainty
Social networks influences: inequality of resources available; embedding; contagion (behavioral
conformity); contingency (moderate key organizational processes).
Influence also on differential informational advantages and control benefits:
(a) Informational benefits - cohesion, connections
(b) Structural embeddedness - value of network positions
(c) Relational embeddedness - shared understanding of ties
Relational embeddedness
Cohesively tied actors - social ties promote trust, carry information, diminishes uncertainty
Structural embeddedness
Overall structure, actors positions, pattern - notion of status and role (expected behavior) - status
groupings and powerful informational cues
Both perspectives, informational advantages in social networks.
firms in the tertius role can create advantages for themselves by playing one off against the other and
brokering tension between the other players - inter corporate networks = strategic alliances.
The extent to which alliances formed by firms may lock them into path-dependent courses. Once firms
understand the dynamics of alliance networks, they may choose path-creation strategies rather than
becoming path-dependent.
Performance: social capital - SCA; access info, control resources — attract better partners
(a) access - information and trust
(b) Timing - potential partners at right time
(c) Referrals - existing partners referring
,KEY ISSUES - social network
(1) Formation of alliances: motivation: TCE, strategic behavior, OG knowledge, learning
Formation for market power and efficiency - (+) frequency
Cost-benefit framework: when alliances benefits exceed costs
Whom firms partner: closely link with choice of appropriate partner and is availability
- One partner has resources other doesn't
- Manage strategic interdependencies
- Access complementary resources
- Ally with greatest interdependence - various kinds of capabilities
- Resources predict alliance formation (CSA) - resource dependence theory
- Strategic capabilities and interdependence
Firms entering alliances face considerable moral hazard concerns because of the unpredictability of the
behavior of partners and the likely costs to a firm from opportunistic behavior by a partner.
Partnerships are risky.
(a) Free-ride
(b) Opportunistic
(c) Unpredictable character
(d) Rapid changes in environment
They must be aware of the existence of their potential partners and have an idea of their needs and
requirements. Organizations also need information about the reliability of those partners, especially when
success depends heavily upon the partners' behavior.
When faced with uncertainty: actors adopt a more social orientation and resort to existing networks to
discover information that lowers search costs and alleviates the risk of opportunism.
- Partner with known reputation and trusted informants
Social networks restrict and enable alliances: potential partners, social networks can alter the opportunity
set firms perceive for viable alliances.
● Firms rely on accumulation of prior alliances and on information from past alliances, this
influences ability to enter new partnerships.
● Alliances centrally situated in the network enter in new alliances with greater frequency.
● Previously allied firms more likely to engage in further alliances
Previously unconnected firms were more likely to enter an alliance if they had common partners or were
less distant from each other in the alliance network.
Structural embeddedness- position enlarges the realm of potential partners - priori information beyond
the circle.
Status of firm affects reputation and visibility in the system - variety of knowledge sources and teacher
collaborative efforts =an attractive partner. Tendency to choose - high-status partner
Also prior history - recreate ties - creation of vertical alliances. Firms base alliances on complementaries
they have to offer each other.
, (2) Governance structure of alliances:
Structures used to organize the partnerships, called the governance structure - (+) diversity of such
alliances structures - manage uncertainty
Degree of hierarchy - replicate control and coordination
One end: joint ventures; Other end: alliances, no equity, few hierarchical controls
Appropriation concerns in alliances, which originate from contracting hazards and behavioral uncertainty
at the time of their formation.
(a) Hierarchical control - response to concerns
(b) Assert control by flat, monitoring and align incentives
Choice to make or buy.
● The greater the appropriation concerns, the more hierarchical the governance structures for
organizing the alliance are likely to be.
Trust: partner will not exploit the vulnerabilities of the other - promote trust with effective referral
networks.
Social networks enable
(a) Knowledge based trust - personal relationships exert pressures for conformity to expectations =
role in choosing governance structures.
(b) Enforceable; deterrence-based trust: utility from a tie. Each partner's awareness that the other
has much to lose from behaving opportunistically enhances its confidence in the other. Potential
sanctions include loss of repeat business with the same partner, loss of other points of interaction
between the two firms, and loss of reputation.
How is trust between two firms likely to alter their choice of contracts in subsequent alliances?
Appropriation of partner’s behavior - mitigate appropriation and trust concerns.
Knowledge-based trust resulting from mutual awareness and equity norms and deterrence-based trust
arising from reputational concerns creates 'self-enforcing' safeguards in an exchange relationship and can
substitute for contractual safeguards.
Prior alliances breed trust - use less hierarchical structures!
Network form of governance structure
● Transaction cost accounts in general focus on single-party cost minimization while alliances are
inherently dyadic exchanges, which raises the question of whose costs are minimized.
● Alliances are usually not one-off transactions but, rather, entail continuing exchange and
adjustments
Concern:
(a) presence of contracting hazards and behavioral uncertainties
(b) Coordination costs: likely interdependence of tasks across organizational boundaries and the
complexity of coordinating activities to be completed jointly or individually
Exam material
Lecture 1 – Introduction. Cooperating for Innovation: Core concepts & themes.
Feedback Fruits W1
1. Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317.
"Research has provided equal amount of evidence about alliance performance compared to other
issues such as alliance governance choice or alliance formation". (FALSE)
Reasoning: Gulati (1998) emphasises how research regarding alliances has mainly focused on alliance
formation and governance rather than their performance. Although prior literature focused on alliances
and their governance structure, they neglected evidence on whether alliances enhanced firm
performance.
ABSTRACT: This paper introduces a social network perspective to the study of strategic alliances. It
extends prior research, which has primarily considered alliances as dyadic exchanges and paid less
attention to the fact that key precursors, processes, and outcomes associated with alliances can be
defined and shaped in important ways by the social networks within which most firms are embedded. It
identifies five key issues for the study of alliances: (I) the formation of alliances (2) the choice of
governance structure, (3) the dynamic evolution of alliances, (4) 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.
Introduction
Strategic alliances: dyadic level - network perspective
Strategic alliances as voluntary arrangements between firms involving exchange, sharing, or
codevelopment of products, technologies, or services.
Introducing networks: innate propensities or inducements that lead firms into alliances and also the
opportunities and constraints that can influence their behavior.
Firm's social connections guide its interest in new alliances, and provide it with opportunities to realize
that interest.
Rather, I observed that many new opportunities for alliances were presented to firms through their
existing sets of alliance partners. Firms embedded in networks influence the frequency of alliances, types
of contracts, and alliances developed and evolved over time.
,Prior research
Role of external environment: the lower the competition, the more likely that a firm will be exposed to
'small numbers bargaining' and other forms of opportunistic behavior.
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.
Need to focus not only on competences but on conditions.
Prior research does not take into account the actions of other firms or the relationships; it ignores the
interactive elements of the markets.
Outcomes from dyadic exchanges defined and shaped by social networks (structure of ties, patterns) =
shape flow of information.
Social Structure and the embeddedness of firm behavior
Open systems perspective - social network of external contacts - nods of social relationships.
Network perspective - embeddedness, social context : information to reduce uncertainty
Social networks influences: inequality of resources available; embedding; contagion (behavioral
conformity); contingency (moderate key organizational processes).
Influence also on differential informational advantages and control benefits:
(a) Informational benefits - cohesion, connections
(b) Structural embeddedness - value of network positions
(c) Relational embeddedness - shared understanding of ties
Relational embeddedness
Cohesively tied actors - social ties promote trust, carry information, diminishes uncertainty
Structural embeddedness
Overall structure, actors positions, pattern - notion of status and role (expected behavior) - status
groupings and powerful informational cues
Both perspectives, informational advantages in social networks.
firms in the tertius role can create advantages for themselves by playing one off against the other and
brokering tension between the other players - inter corporate networks = strategic alliances.
The extent to which alliances formed by firms may lock them into path-dependent courses. Once firms
understand the dynamics of alliance networks, they may choose path-creation strategies rather than
becoming path-dependent.
Performance: social capital - SCA; access info, control resources — attract better partners
(a) access - information and trust
(b) Timing - potential partners at right time
(c) Referrals - existing partners referring
,KEY ISSUES - social network
(1) Formation of alliances: motivation: TCE, strategic behavior, OG knowledge, learning
Formation for market power and efficiency - (+) frequency
Cost-benefit framework: when alliances benefits exceed costs
Whom firms partner: closely link with choice of appropriate partner and is availability
- One partner has resources other doesn't
- Manage strategic interdependencies
- Access complementary resources
- Ally with greatest interdependence - various kinds of capabilities
- Resources predict alliance formation (CSA) - resource dependence theory
- Strategic capabilities and interdependence
Firms entering alliances face considerable moral hazard concerns because of the unpredictability of the
behavior of partners and the likely costs to a firm from opportunistic behavior by a partner.
Partnerships are risky.
(a) Free-ride
(b) Opportunistic
(c) Unpredictable character
(d) Rapid changes in environment
They must be aware of the existence of their potential partners and have an idea of their needs and
requirements. Organizations also need information about the reliability of those partners, especially when
success depends heavily upon the partners' behavior.
When faced with uncertainty: actors adopt a more social orientation and resort to existing networks to
discover information that lowers search costs and alleviates the risk of opportunism.
- Partner with known reputation and trusted informants
Social networks restrict and enable alliances: potential partners, social networks can alter the opportunity
set firms perceive for viable alliances.
● Firms rely on accumulation of prior alliances and on information from past alliances, this
influences ability to enter new partnerships.
● Alliances centrally situated in the network enter in new alliances with greater frequency.
● Previously allied firms more likely to engage in further alliances
Previously unconnected firms were more likely to enter an alliance if they had common partners or were
less distant from each other in the alliance network.
Structural embeddedness- position enlarges the realm of potential partners - priori information beyond
the circle.
Status of firm affects reputation and visibility in the system - variety of knowledge sources and teacher
collaborative efforts =an attractive partner. Tendency to choose - high-status partner
Also prior history - recreate ties - creation of vertical alliances. Firms base alliances on complementaries
they have to offer each other.
, (2) Governance structure of alliances:
Structures used to organize the partnerships, called the governance structure - (+) diversity of such
alliances structures - manage uncertainty
Degree of hierarchy - replicate control and coordination
One end: joint ventures; Other end: alliances, no equity, few hierarchical controls
Appropriation concerns in alliances, which originate from contracting hazards and behavioral uncertainty
at the time of their formation.
(a) Hierarchical control - response to concerns
(b) Assert control by flat, monitoring and align incentives
Choice to make or buy.
● The greater the appropriation concerns, the more hierarchical the governance structures for
organizing the alliance are likely to be.
Trust: partner will not exploit the vulnerabilities of the other - promote trust with effective referral
networks.
Social networks enable
(a) Knowledge based trust - personal relationships exert pressures for conformity to expectations =
role in choosing governance structures.
(b) Enforceable; deterrence-based trust: utility from a tie. Each partner's awareness that the other
has much to lose from behaving opportunistically enhances its confidence in the other. Potential
sanctions include loss of repeat business with the same partner, loss of other points of interaction
between the two firms, and loss of reputation.
How is trust between two firms likely to alter their choice of contracts in subsequent alliances?
Appropriation of partner’s behavior - mitigate appropriation and trust concerns.
Knowledge-based trust resulting from mutual awareness and equity norms and deterrence-based trust
arising from reputational concerns creates 'self-enforcing' safeguards in an exchange relationship and can
substitute for contractual safeguards.
Prior alliances breed trust - use less hierarchical structures!
Network form of governance structure
● Transaction cost accounts in general focus on single-party cost minimization while alliances are
inherently dyadic exchanges, which raises the question of whose costs are minimized.
● Alliances are usually not one-off transactions but, rather, entail continuing exchange and
adjustments
Concern:
(a) presence of contracting hazards and behavioral uncertainties
(b) Coordination costs: likely interdependence of tasks across organizational boundaries and the
complexity of coordinating activities to be completed jointly or individually
