Exploration versus exploitation in alliance portfolio: Performance implications of organizational, strategic, and environmental fit☆
Research highlights
▶ Organizational fit (alliance choices—firm age) allows greater immediate returns. ▶ Strategic fit (alliance choices—competitive strategy) allows greater immediate returns. ▶ Environmental fit (alliance choices—industry context) allows greater immediate returns.
Introduction
While strategic alliances often carry positive implications for firm performance (Das et al., 1998, Schreiner et al., 2009), how and when such impact may manifest have not yet been systematically examined, in particular when a firm can have multiple alliances with different purposes (Lin et al., 2009). Under what conditions does a firm's alliance portfolio lead to superior performance? To address the research question we extend the resource-based view with a relational perspective, and argue that the performance implications of a firm's alliance portfolio need to be considered in terms of its fit with organizational, strategic, and environmental factors.
According to the resource-based view, firm behaviors are resource-driven (Barney, 1991, Dierickx and Cool, 1989). Yet, such a traditional view tends to treat firms with closed boundaries within which resources reside. Meanwhile, more scholars have started to recognize the relational nature of a firm and the broad social and economic environment that a firm is embedded in. For example, Dyer and Singh (1998), Lavie (2006), and Arya and Lin (2007) have proposed an extended resource-based view to bridge the traditional resource-based view and the relational perspective. In line with this direction, we build on the more recent and extended resource-based view, which expands firms’ boundaries to their inter-firm alliance relationships and the alignment with their external environment (Dyer and Singh, 1998, Lavie, 2006). From such a perspective, we view firms’ alliance portfolio (in terms of exploration and exploitation) as their capabilities of accessing and deploying different resources in inter-firm relations, and further emphasize how important these capabilities need to fit with firm characteristics, strategic orientations, and industry conditions.
Our study intends to contribute to the literature in four important aspects. First, while the purpose of a strategic alliance may be for mutual benefits, the benefit of an individual alliance may not always be transferable to the parent firm (Baum et al., 2000, Gulati, 1998). In this study we thus move beyond individual alliances to examine the impact of a firm's alliance portfolio. Specifically, we ask how alliance-formation choices between exploration and exploitation in a firm's alliance portfolio affect firm performance. By viewing alliance formations as firms’ strategic choices in terms of exploration and exploitation, we attempt to explore the mechanism through which rents are created from such alliance-formation choices. In this sense, our study also contributes to the burgeoning literature that delineates the boundary of the exploration–exploitation paradigm.
Second, we clarify the relationships among firms’ alliance purpose, competitive strategy, and performance. This study builds on the recent stream of research (e.g., Ruiz-Ortega and Garcia-Villaverde, 2008, Vorhies et al., 2009) that extends the resource-based view through meshing it with other perspectives (e.g., competitive strategy, relational perspective). We further advance the extended resource-based view (Dyer and Singh, 1998, Lavie, 2006) by applying it to the study of strategic alliances while considering firms as having open boundaries with inter-firm alliance relations.
Third, in implementing the extended resource-based view, we highlight the importance of fit – organizational, strategic, and environmental fit that affects firm performance – as suggested in other studies (e.g., Kratzer et al., 2008). Specifically, we explore whether a firm's alliance portfolio leads to superior performance when its resources are combined effectively with appropriate organizational characteristics, strategic orientations and environmental circumstances (Dickson and Weaver, 1997). Our approach not only addresses endogeneity issues commonly confronted by prior studies in this area, but also examines the impact of fit among internal and external boundary conditions that affect firm performance. To truly understand strategic alliances it is as important as exploring the antecedents to examine the consequences of a firm's alliance-formation choices and its boundary conditions (Lin et al., 2009).
Fourth, we attempt to make a contribution to the literature by empirically testing our model in a multi-industry setting. While prior research has generally focused on one industry (Park et al., 2002, Rothaermel, 2001a), we employ a multi-industry context to increase heterogeneity within our sample. Overall, our study extends the resource-based framework to include not only firm characteristics but also their inter-firm relations and their immediate environment when investigating the role of a firm's alliance portfolio on firm performance (Lavie, 2006, Rothaermel, 2001b).
Section snippets
Theory and hypotheses
As behavioral players, firms are embedded in the broad social and economic environments and must rely on their past experience for future actions (Cyert and March, 1963, March and Simon, 1958). To deal with the uncertainty and ambiguity of the external environment, managerial discretion is often reflected through the choices of flexibility and stability (Burgelman, 1991, Burgelman, 2002) or in the words of March (1991), “exploration and exploitation.” Exploration is associated with terms like
Sample
Our main financial data source is Standard and Poor's COMPUSTAT (SPC), which we further complemented with Moody's FIS Online. We focused on 95 firms from five industries (pharmaceutical, computer, food, steel, and paper) over eight years (1988–1995 inclusive) given that these industries have distinctive resource growth conditions and alliance activities over this time period, which can offer useful contrast and variance, but less alternative explanations for our analysis such as dotcom bubble
Results
Table 1 presents the means, standard deviations, and correlations for the variables in our models. Table 2 reports the results of the hierarchical regression models.
To assess the potential threat of multicollinearity problems associated with high correlation, we estimated the variance inflation factors (VIFs) and condition indexes for our hierarchical regression model. The highest VIF was 2.23, and the average VIF was 1.35, which are well below the recommended ceiling of 10 (Kleinbaum et al.,
Discussion
This study has adopted an extended resource-based view and examined the performance consequences of a firm's alliance portfolio in terms of exploration and exploitation (March, 1991) while considering its fit with firm characteristics, strategic orientation, and industry condition. Our findings show that it is not only important to consider alliances as expansions of firms’ boundaries but also fruitful to understand the relationships among firms, their alliances, the external environment, and
Conclusion
Our study has highlighted the importance of using an extended resource-based view to examine the relationship between a firm's alliance-formation choices and its performance. Our findings suggest that performance implications of a firm's alliance portfolio depend on organizational, strategic, and environmental fit. Specifically, it is critical to consider the level of fit among alliance formation (exploration/exploitation), firm age, firm strategy (cost leadership/differentiation), and industry
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All authors have contributed equally. We thank David Deeds for collaboration on earlier related work, Irem Demirkan for her research assistance, Gregory Dess, Jane Salk, Seung-Hyun Lee, and Sebahattin Demirkan for their constructive comments, and Dung Hua for her editorial help. We also thank Editor Ben Martin and two anonymous reviewers of Research Policy for their helpful suggestions. An earlier version of the paper was presented at the 2006 Academy of Management Annual Meeting, Atlanta, Georgia.
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